Inspire Pharmaceuticals, Inc. Q1 2010 Earnings Call Transcript

Inspire Pharmaceuticals, Inc. (NASDAQ:ISPH)

Q1 2010 Earnings Call Transcript

May 3, 2010 10:00 am ET


Adrian Adams – President and CEO

Jenny Kobin – VP, IR and Corporate Communications

Tom Staab – EVP and CFO


Mesha Dieterman [ph] – Piper Jaffray & Co.

Liana Moussatos – Wedbush Securities

Ian Sanderson – Cowen and Company

Michael Smith – Leerink Swann

Frank Pinkerton – SunTrust Robinson Humphrey


Good morning. My name is Shaira and I will be your conference operator today. At this time, I would like to welcome everyone to the Inspire Pharmaceuticals First Quarter 2010 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period. (Operator Instructions) As a reminder, ladies and gentlemen, this call is being recorded today, May 3, 2010. Thank you. I would now like to introduce Mr. Adrian Adams, Chief Executive Officer of Inspire Pharmaceuticals. Mr. Adams, you may begin your conference.

Adrian Adams

Thank you operator and good morning, everyone. And thank you all for joining us for Inspire's first quarter 2010 financial results webcast. With me, this morning are Chief Financial Officer and Treasurer, Tom Staab and Vice President, Investor Relations and Corporate Communications, Jenny Kobin. Before I proceed, I would like to ask Jenny to read our forward-looking statements. Jenny.

Jenny Kobin

Thank you, Adrian. And before we begin with a forward-looking statement, as we mentioned in our earnings release this morning, we have a slide presentation to accompany our call today. So I would ask that you please log in to the webcast on our website which is

Now, as a reminder, this conference call and presentation contains forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995 which convey management's expectations, beliefs, plans and objectives regarding future performance. These forward-looking statements are subject to a wide range of risks and uncertainties that could cause results to differ in material respects, including those relating to product commercialization, product development, revenue, expense, earnings and cash utilization expectations, intellectual property rights, adverse litigation developments, competitor products, results and timing of clinical trials, success of marketing efforts, the need for additional research and testing, delays in manufacturing, funding and the timing and content of decisions made by regulatories, including the U.S. Food and Drug Administration. Actual results could differ materially from those described in this conference call and presentation.

Information on various factors that could affect Inspire's results is detailed in the reports we file with the Securities and Exchange Commission. We undertake no obligation to publicly release the results of any revisions to these forward-looking statements. Now, I will turn the call back over to Adrian to review today's agenda provided on slide three.

Adrian Adams

Thank you, Jenny. I'm pleased to provide an update this morning to our shareholders and analysts on the company's first quarter 2010 financial results. During this quarter, I am delighted to say that we've made significant progress towards our 2010 and short-to medium-term corporate objectives, which I will describe in detail shortly. And we continue to deliver strong commercial and financial performance.

We have been tightly focused on building on Inspire's foundations for success. And we look forward to discussing these updates with you during this call and throughout the year.

Before we begin, I’d like to take you through the main areas that we will cover during today's webcast. First, I will discuss our key corporate objectives for 2010 and highlight the accomplishments and progress against those objectives that we have achieved to date.

Second, I will review the highlights of Inspire's commercial performance during the quarter. Third, I will provide updates for all key research and development programs, including AzaSite for blepharitis and denufosol for cystic fibrosis.

Then I will turn the call over to Tom, to review the first quarter 2010 financial results and our guidance for the year. I will then make a few concluding remarks before opening the call up for your valued questions. Please now refer to slide number four.

This slide illustrates a framework that encapsulates Inspire's core capabilities and our plans for creating shareholder value over the course of time. Our fundamental goal at Inspire is to build and commercialize a sustainable portfolio of innovative new products based on our technical, scientific and commercial expertise.

Our core business model revolves around the specialty therapeutic markets of ophthalmology and pulmonology or more specifically within the latter on cystic fibrosis. We believe these markets are attractive and are very cost-effective markets in which to operate.

In addition, they represent therapeutic areas with high and/or ongoing unmet medical need. On the ophthalmology side, we have a portfolio of revenue-generating products and on the pulmonology side, we intend to build a franchise around our core pipeline product, denufosol, assuming we have clinical and regulatory success over the next several years.

Our core strategic objectives are aligned towards creating value for shareholders by focusing on these two therapeutic areas and growing the business through, firstly, leveraging the commercial infrastructure we already have in place and continuing to enhance sales force productivity.

Secondly, driving excellence in research and development executions, specifically for our late stage development programs. Thirdly, pursuing strategically aligned corporate developments and license in opportunities and fourthly, delivering strong, financial managements.

With this strategic direction in mind, I would now like to continue on to slide five to describe our accomplishments during the quarter in these four key areas.

First, from a commercial perspective, Inspire had an excellent quarter. The Company successfully grew AzaSite revenues by 41% over the first quarter of 2009, and also increased the number of prescriptions by 39% over the first quarter of 2009.

This strong growth is related to our sales force's continued increase productivity, quarter over quarter. We are also pleased to have maintained the Elestat revenue stream in the first quarter and the organization is well-prepared for the ongoing spring allergy season, which appears to be somewhat earlier and more intense this year as the results of a wet winter and quick transition to warm temperatures in many areas of the country.

Second, we have remained focused on completing TIGER-2, our second pivotal phase 3 clinical trial with denufosol, a first-in-class iron channel regulator for the treatments assisted fibrosis. Should preferred potential US product launch in 2012 we have begun significant commercial planning and franchise development activities, which I will discuss in detail shortly.

On the ophthalmology side, we have been analyzing the extensive data from the initial exploratory phase 2 clinical trials with AzaSite in blepharitis and are refining trial design for subsequent trials.

Third, we are continuously evaluating strategically aligned corporate development and licensing opportunities to build on the ophthalmology and pulmonology active products of AzaSite and denufosol.

During the first quarter we were delighted to hear that our partner, Santen Pharmaceutical Company, received regulatory approval in Japan for DIQUAS, which is diquafosol tetrasodium ophthalmic solution 3% for dry eye disease. Inspire and Santen have an exclusive license agreement for Santen to develop and market diquafosol tetrasodium for ocular surface disease in Japan and nine other Asian countries. DIQUAS is the first product to be approved, based on the P2Y2 receptor agonist platform.

Fourth, from a financial perspective, Inspire had another strong quarter in which we continued our trend of double-digit revenue growth with a 54% increase over Quarter 1 2009 revenue, driven by a 41% increase in AzaSite sales. Also through tight managements of our operating expenses, we decreased our net loss by 24% compared to quarter 1 2009. We have been paying down our debt on a regular basis and we expect to end the year with minimal debt.

In summary, we are very pleased with our progress so far this year and the strong results in the first quarter. These, in essence, are helping to create the very important foundations for sustainable success with Inspire.

Please now refer to slide number six. I would like to discuss in greater detail our commercial accomplishments for the quarter, but more specifically with respect to the continued momentum with AzaSite.

As I touched on briefly, AzaSite had strong quarterly growth resulting in $8.7 million in revenue for the quarter, an increase of 41% over the same period in 2009. Similarly, total prescriptions for the quarter grew 39% over the first quarter 2009 levels, resulting in more than 160,000 prescriptions written in the first quarter.

With regard to AzaSite's portion of the single ocular antibiotic market, AzaSite is averaging an approximately 11% market share in our target audience of eye care specialists, a strong increase from the 8% level in the first quarter of 2009.

Moving onto slide seven. This graph illustrates our specialty sales force is increasing and strengthening enhanced productivity since the launch of AzaSite in August 2007. As you can see on this slide, we have successfully increased the depth of prescribers by increasing the number of prescriptions written, and have increased the breadth of our call audience with our increasing prescriber base since launch. We are very pleased with these trends and the performance of our quality sales force.

And more specifically I would like to discuss two productivity metrics that are particularly important to the growth of the AzaSite brand.

Firstly, for the first quarter of 2010, we were successful in increasing the average monthly total prescriptions per sales representative by 39% to 594 prescriptions. And, secondly, we increased the average monthly total prescriptions for target by 44% to 4.3 prescriptions per target doctor.

We continuously evaluate the performance of our sales force and look for ways to increase productivity or leverage our commercial infrastructure to create value through precision targeting and quality selling.

Now, turning to slide eight, I would like to review our accomplishments related to our overall research and development and franchise development activities. As you know, the majority of our research and development expense this year, roughly 75%, is focused on the denufosol for cystic fibrosis program, including completion of the TIGER-2 phase 3 clinical trial and conducting significant franchise development activities designed to leverage the denufosol commercial opportunity well into the future.

With regard to the AzaSite for blepharitis program, we are in the process of analyzing the data from the initial exploratory phase 2 trials and conducting work to refine trial design for additional phase 2 trials.

In terms of our dry eye program, we expect to have discussions with Allergan with respect to several points of debate regarding rights and obligations under our licensing agreement, including the direction of the Prolacria development program on our rights to Restasis royalties, including co-promotion rights. We will provide updates on our dry eye and glaucoma programs as appropriate.

Now I would like to discuss in greater detail the AzaSite for blepharitis and denufosol for cystic fibrosis programs.

Please refer to slide nine which relates to our study of AzaSite for the treatments of blepharitis. As we have highlighted before, Inspire's market research and input from eye care specialists suggest that blepharitis is a significantly underdiagnosed and undertreated disease. Our data indicates that as many as 34 million adults might suffer from some form of blepharitis.

Currently there are no FDA approved prescription pharmaceutical products indicated for the treatment of this disease. The goal of our clinical program is to more fully understand AzaSite's potential role in the treatments of blepharitis towards an additional indication.

On this slide, we have provided some further granularity on our initial exploratory phase 2 blepharitis clinical trials conducted with AzaSite. The trial design is shown at the top of the slide. As previously announced in our press release in March, the primary enrollment criteria for both trials were key signs of anterior blepharitis, lid margin, hyperemia and debris. And each patient was randomized at AzaSite or the DuraSite vehicle.

One trial included two weeks of dosing with a two-week follow-up period and the other trial included four weeks of dosing with a four-week follow-up period. All patients were provided commercially available lid scrubs and were instructed to perform lid hygiene once daily for the duration of the trials.

As we previously announced in both trials, AzaSite's and the vehicle group show statistically significant improvements from baseline. However, statistical significance was not achieved through primary endpoints of clearing of lid margin debris or main lid margin hyperemia, compared to vehicle.

As you can see on the third bullet of the slide, in the four-week trial, statistically significant improvements for AzaSite compared to vehicle were achieved for a number of blepharitis signs and symptoms at various time points, as shown on this slide. At the bottom of the slide, we have listed all of the endpoints evaluating at trial for your records. We obtained valuable information from these phase 2 trials that we will use as we continue the AzaSite for blepharitis development program.

Moving on to slide 10, I would like to outline the next proposed steps for this program. We remain committed to moving forward towards a potential indication for the treatments of blepharitis and will focus our efforts over the next three to six months on refining clinical trial design for additional clinical work.

This would include refining study [ph] populations, improving methodology for quantifying signs and symptoms, which could include a central photographic readings centered to quantify key signs and refining trial designs to account for the vehicle effects seen in the initial trials.

Our current plan targets initiating additional phase 2 trials in late 2010, which will ultimately inform any potential phase 3 product. Now, I would like to move on to slide 11 and to discuss the denufosol for cystic fibrosis opportunity. There continues to be a large unmet medical need for new treatments for cystic fibrosis lung disease.

Denufosol has a differentiated macular [ph] action from all other CF products that are on the market and in clinical development. It is a first-in-class iron channel regulator which is targeted at an early intervention therapy that potentially corrects the iron channel transport defect in the lungs, regardless of CFG design.

Denufosol is designed to enhance airway hydration and mucociliary clearance by firstly increasing chloride secretion, secondly, inhibiting sodium absorption and thirdly, increasing ciliary beat [ph] frequency. These integrated actions and the ability to reach the small airways are key to maintaining lung function and potentially delaying the progression of lung disease. It is this potential combination of attributes that has created excitement around denufosol, both internally and externally.

As many of you know, the results from our first pivotal phase 3 clinical trial with denufosol, TIGER-1, was statistically significant at 24 weeks and showed the potential for continued improvement in lung function over 48 weeks in the ortho level portion and the potential for improvement in small airway function. We look forward to the results of TIGER-2 which will include placebo-controlled data for the full 48 weeks.

Please now refer to slide 12. We remain focused on completing the final requirement for our potential new drug application to the FDA, the TIGER-2 clinical trial. We expect to report topline results from this trial in the first quarter of 2011. If those results are positive, we will target filing an NDA in 2011 with a potential U.S. commercial launch in 2012.

We are planning for success in this program and have begun additional work to complement the NDA requirements to fully leverage the opportunity for this exciting product candidate. We have been conducting significant commercial planning and franchise development activities which I will briefly highlight.

Our team has continued to work with key opinion leaders to present data from the TIGER-1 trial at important scientific medical meetings this summer in an effort to educate broader clinician bases, both in the United States and internationally. Our team recently provided an oral presentation at the Annual Experimental Biology Conference.

In addition, we will have oral presentation and two posters at the American Thoracic Society Conference in New Orleans later this month and an oral presentation and three posters at the European Cystic Fibrosis Society Meeting in Spain in June. We are also continuing to perform market research to fully understand the competitive landscape, product positioning and forecasting and we are in the process of confirming our manufacturing plans for launch.

In addition, we are expanding on clinicals and scientific database on denufosol beyond the two pivotal trials. We have extended the length of the TIGER-2 follow-on trial which now enables patients to complete TIGER-2 to receive denufosol for up to three years. The data from this open label trial will assess the potential disease modifying effects of denufosol treatment on lung function over an extended period of time. We are also evaluating second-generation delivery devices and plan to study broader patient populations with denufosol including plans to study patients less than five years old and patients with more severe lung function impairment.

Moving onto slide 13, we are developing our global regulatory and commercial strategies for denufosol. The global market opportunity for denufosol is very attractive since the very key markets outside North America have a CF patient population of more than 33,000 patients.

Recently, in March, we held an ex-U.S. Advisory Board meeting consisting of 11 key opinion leaders who represent countries with sizable CF patient basis. I'd like to share a few key takeaways from that meeting. First, from a product view perspective, these key opinion leaders were very interested in denufosol and its differentiated mechanism of action.

From a clinical perspective, these doctors viewed denufosol as unique with no active comparator and they believe that FEV1 is the key measure of clinical efficacy. They are very interested in learning more about denufosol and seeing more scientific data from our clinical program.

We are conducting this type of meeting as part of our process in assessing the best means to develop and commercialize denufosol outside of North America. So far, we are very encouraged by the reaction of these opinion leaders and the additional potential for denufosol outside North America.

Now, please refer to slide 14. As I mentioned in my opening slide, we have four key strategic imperatives. I have already touched on our progress this quarter in the commercial and research development categories. I would now like to move onto our third key corporate objective, pursuing strategically aligned corporate development and licensing opportunities.

The key focus of this strategy is to sequentially build on the ophthalmology and pulmonology anchors of AzaSite and denufosol through the following key activities. Firstly, assessing assets that would leverage the ophthalmology commercial infrastructure. Secondly, assessing assets that would build our pulmonary franchise, which would likely occur after receiving the TIGER-2 trial results. Thirdly, assessing small M&A opportunities that would create value. And fourthly, leveraging Inspire's assets outside of North America.

Before turning the call over to Tom, I would just like to highlight a corporate announcement we made recently. We are very pleased that Andrew Koven will be joining Inspire on May 10 as Executive Vice President and Chief Administrative and Legal Officer.

Andrew will be responsible for the legal, intellectual property, corporate development and licensing and compliance areas. Andrew will bring with him more than 16 years of experience in the pharmaceutical industry, including extensive expertise in corporate house licensing [ph], SEC reporting, litigation, IP management, compliance and corporate governance. I have had the pleasure of working with Andrew as part of the leadership teams of both Sepracor and Kos Pharmaceuticals and I am very pleased that he will be joining the Inspire management team shortly.

Having made these opening remarks, I would now ask Tom to review the financials, including a more detailed view of the first quarter 2010 financial results and our guidance for the year. Tom.

Tom Staab

Thank you, Adrian, and good morning everyone. I am pleased to provide you with an overview of our first quarter 2010 financial results as Adrian has mentioned. I would like to begin with slide 15. In the first quarter of 2010, we were able to successfully reduce our net loss by 24% to $14.8 million through a combination of judicious expense management and double-digit revenue growth as compared to the first quarter of 2009. The corresponding net loss per share in the first quarter of 2010 improved by 47% to $0.18 per share, based on our expanded share count following the equity financing we completed last August.

Moving on to slide 16, we continued our trend of double-digit revenue growth. Total revenue for the first quarter of 2010 was $22.1 million and reflected a 54% increase from the first quarter of 2009. When breaking down revenue into its individual components, AzaSite revenue increased 41% to $8.7 million in the first quarter of 2010, compared to $6.2 million in the first quarter of 2009.

As Adrian mentioned, this strong growth was primarily due to increased usage and enhanced sales force productivity. Furthermore, AzaSite revenue was positively impacted by hospital usage as a substitute therapy during a short-term supply shortage of erythromycin ophthalmic ointment.

We estimate that hospital sales represented approximately $1 million of AzaSite revenue in the first quarter. As we discussed on our fourth quarter call, we determined the erythromycin shortage was resolving and would be totally resolved by the end of the first quarter. Thus the related benefit we recorded in the first quarter was much less than the approximate $2.5 million benefit we recorded in the fourth quarter of last year.

Continuing on, aggregate co-promotion and royalty revenue was $13.4 million in the first quarter of 2010. We recorded $9.8 million in royalty revenue from Restasis in the first quarter of 2010, compared to $8.1 million in the first quarter of 2009. We recorded $3.6 million from Elestat co-promotion revenue in the first quarter of 2010 compared to no revenue recognized in the first quarter of 2009.

Importantly, as you evaluate Elestat sales performance, beginning January 1, 2010, we will no longer deferred any revenue on Elestat sales because the contractual minimums requiring deferred revenue recognition ended in 2009. Accordingly, all future co-promotion revenue on Elestat will be recorded as the product is sold.

In regards to future Elestat revenue and as we have previously reported, several ANDA filings for a generic version of epinastine have been filed and are under review by the FDA. Thus, we continue to expect that a generic product could be launched in the second half of 2010. However, until a generic is launched, we will continue to aggressively co-promote Elestat.

Now, let's move on to slide 17 for a discussion of our operating expenses. In the first quarter of 2010, operating expenses increased by $3.5 million to $36.5 million. This increase was due to a couple of things. One, a previously disclosed one-time general and administrative expense of approximately $5 million associated with our CEO transition for which the majority of the expense was a non-cash charge and two, an increase in cost of sales associated with increased AzaSite sales volume.

These increases were partially offset by a decrease in research and development expenses due to the elimination of preclinical and drug discovery activity and the focusing resources on late-stage programs as a result of the structuring initiative we implemented in the first quarter of 2009. Our tight expense management, combined with strong revenue growth, enabled us to substantially reduce our cash utilization by 22% during the first quarter to $13.9 million.

That brings us to our balance sheet summary on slide 18. We ended the first quarter with $115 million in cash and investments and working capital of approximately $72 million – a very strong financial foundation to grow AzaSite revenue and prepare for a potential U.S. denufosol launch in 2012.

In addition, as you can see on slide 19, we continued to reduce our debt balance by approximately $5 million per quarter and expect our outstanding debt to be approximately $5 million at the end of this year.

Furthermore, we expect our debt to be completely paid off in the first quarter of 2011. Please now refer to slide 20, which contains our 2010 financial guidance as provided in our press release issued earlier this morning.

In summary, we expect no changes from our original guidance provided in March. Accordingly, we expect aggregate revenue to be in the range of $100 million to $111 million. This range assumes minimal usage of AzaSite in a hospital setting beyond the first quarter of 2010 and also assumes the potential launch of a generic form of epinastine to occur in the last six months of the year.

In addition, we continue to expect our aggregate operating expenses to be in the range of $145 million to $169 million, with the previously disclosed individual components of operating expenses also remaining the same. In addition, we estimate that we will incur approximately $8 million to $12 million of non-cash equity-based compensation, which is factored into the various expense categories and is based upon the company's current stock price and stock-based compensation strategy. We expect our cash utilization for 2010 to be in the range of $58 million to $73 million which will include approximately $20 million in principal repayment for our outstanding debt.

In addition, although we do not give quarterly guidance, I'd like to highlight some particular items of interest as you evaluate our 2010 guidance. Those are one, as mentioned earlier and confirmed with contemporary IMS data, we do not expect any future benefit from the erythromycin shortage beyond the first quarter and thus expect the AzaSite revenue derived from the shortage to be approximately $1 million in 2010.

Two, because we are able to recognize Elestat revenue as sales occur and not defer revenue as in prior years, we expect Elestat revenue to be lower in the second quarter of 2010 as compared to 2009, even though the allergy season appears to be more severe than in 2009.

Three, as Adrian has mentioned, we are pleased to add Andrew Koven to our team as Chief Administrative and Legal Officer. In conjunction with his appointment, we will have an estimated one-time non-cash equity compensation charge of approximately $2 million to administrative expenses in the second quarter.

In summary, we are pleased to begin the year with financial performance that positions us well to achieve our 2010 objectives.

Now I'd like to turn the call back over to Adrian for some closing remarks.

Adrian Adams

Thank you, Tom. Now we will wrap up on slide number 21. I would like to conclude with our focused corporate objectives for 2010. These are first, continuing to leverage our ophthalmology commercial infrastructure and enhance sales force productivity.

Second, driving excellence in research and development execution with a strong focus on denufosol for cystic fibrosis and AzaSite for blepharitis. Third, pursuing strategically aligned corporate development and licensing opportunities that will build on our anchor of ophthalmology and pulmonology business.

And fourth, continuing to deliver strong financial performance. In summary, we have made good progress to date on these corporate objectives and we look forward to building on these foundations for success to drive value creation for shareholders.

At this time, I would like to open the call for questions-and-answers. Operator, can you please give the instructions?

Question-and-Answer Session


(Operator Instructions). Your first question come from the line of David Amsellem with Piper Jaffray.

Mesha Dieterman – Piper Jaffray

Yes. I'm Mesha Dieterman [ph] for David. Just a question on AzaSite, so we have seemed pretty steady growth in prescriptions, as you mentioned. And I'm just wondering if that's a function of better managed care access or are you seeing off label usage also in blepharitis? Can you talk a little bit to that?

Adrian Adams

Well, I think you're right. We are pleased with the ongoing revenue and prescription momentum with AzaSite, a fit and upside increase in prescriptions in the first quarter compared to the same period of last year. And I think, as I mentioned on the call, this is related very much to the sales force, the quality of the sales force and execution, et cetera. I think – clearly, I think if one looks in the broader area of execution, we have been able to not only broaden but increase the depth of prescribing with AzaSite.

Clearly as we have mentioned on calls in the past, we know that within this market place for these products that there is some use of the product or other products in this class in their blepharitis, despite the fact that virtually no products are indicated for use in this area. Secondly we do not promote AzaSite in this area. It is difficult to assess the proportion of prescriptions that relate to the blepharitis area.

But we remain very focused on promoting to our core indication and we're very pleased with the reception that we are getting. And most certainly as we progress into the second and third quarters, we hope to see that evolution continuing, but so far, so good.

Mesha Dieterman – Piper Jaffray

Okay. And then just one more question on diquafosol in Japan, DIQUAS, I guess. Could you remind us how the royalty is structured and when Santen is planning to launch? Thank you.

Tom Staab

Sure, Mesha. Good question. In regards to that information, Santen has not given any information in regards to when they plan to launch the product. Certainly as soon as they provide that information, we will make sure that we get the information out in the public market in the United States.

And in regards to the royalty rate, we have not been able to provide that guidance. We are restricted from providing guidance like that until we either get clearance from Santen or its else wise available in the public domain.

Mesha Dieterman – Piper Jaffray

Thank you.


Your next question is from the line of Liana Moussatos with Wedbush Securities.

Liana Moussatos – Wedbush Securities

Can you repeat what you said about Elestat second half guidance this year and also the ATS data and the Cystic Fibrosis Society data? What presentations are going to be presented this year?

Adrian Adams

I'll ask Tom to relate to the Elestat comment that he made and Jenny will comment on the data presentation.

Tom Staab

Good morning, Liana. Thanks for the question. What I said on Elestat is, since there are no longer contractual minimums for that product, we're recognizing Elestat revenue as the product is sold. And because of that versus in previous years when we had to defer that revenue, the second quarter Elestat revenue for 2010 is expected to be less than what it was in 2009 in the second quarter, even though there was a stronger allergy season. And that's simply because of the deferred policy in previous years, but that doesn't apply in 2010 and any potential future years.

Liana Moussatos – Wedbush Securities

Okay. Got it.

Jenny Kobin

Okay. Great. And Liana in terms of the upcoming data presentation, we have an oral presentation and two posters at ATS which is later this month in New Orleans. And then we have an oral presentation and three posters at the European Cystic Fibrosis Society meeting, which is in Spain this year in June.

Liana Moussatos – Wedbush Securities

Thank you.


Your next question is from the line of Ian Sanderson with Cowen.

Ian Sanderson – Cowen

Good morning. Thanks for taking the question. This is for Tom. On the Q1 R&D spending, the guidance range implies a significant acceleration in spending through the balance of the year and wondering exactly what programs are going to drive that?

And secondly and I think from the call I'm getting the answer to this, but the – in your press release, you do talk about one of the priorities being expansion of the denufosol franchise. I'm wondering if you're considering other potential indications there or is that a reference to going after the earlier and potentially sicker patients?

Adrian Adams

I think in relation to the latter point, you're correct. I think we made reference in the call and then our discussion in the past actually and then our franchise development, clearly from a research and development point of view this year roughly three quarters of our overall R&D spend is focused on denufosol.

Not just in terms of moving TIGER-2 to its completion, but also looking at other franchise development activities, some of which relate to looking at the product potentially in the area of the younger patients and patients with more severe forms of the disease.

So clearly, we're investing for success in the event that we get positive TIGER-2 results and then obviously move very quickly to submit that to the FDA. We want to make sure that the ongoing programs that we have in place, in addition to a long-term extension, the potentials are after a long term sustainable shareholder value into the future.

Ian Sanderson – Cowen

And maybe could Tom address to the R&D spending, the number and Q1 relative to the guidance range and what we should look for in the balance of the year?

Tom Staab

Sure, Ian. As we mentioned, we still consider our total guidance, but including the R&D guidance that we gave in March, to be accurate. In regards to your question, actual Q1 spending actually was the same as what we guided in our March call which is we spent about 75% of our R&D dollars to cystic fibrosis.

And so, we would expect that to continue out through the year. So that is going to be the primary driver of the R&D spend throughout the year and it's generally based on what Adrian had outlined.

Ian Sanderson – Cowen

Okay. Thank you.

Adrian Adams

Thanks, Ian.


Your next question is from the line of Michael Smith with Leerink Swann.

Michael Smith – Leerink Swann

Thanks for taking my call. Can you talk a little bit more about the Q1 AzaSite revenue? It came in a bit lower than in Q4 by about $3.5 million. And I was wondering if some of that is due to potential inventory destocking effects at the end of last year and how we should think about AzaSite going forward this year?

Adrian Adams

Yes. Very good question. Thank you for it. I think, clearly if one looks at the (technical difficulty) hello?

Michael Smith – Leerink Swann


Jenny Kobin

Can you take off the headset or the handset, pick up the handset.

Adrian Adams

Okay. Can you hear me now? Okay. Well, I think as we mentioned, I think the – in comparisons of quarter 1 2010 to quarter 4 2009, clearly one of the differentials was the impact of the fact that we did not have the ongoing erythromycin shortage.

And clearly as we mentioned, that level of sales within the hospital environment has more or less gone back down to previous levels. So that was certainly an impact in quarter 1.

In addition, we have noted in the marketplace, obviously as we commented there is a strong allergy season. That has resulted in increased ocular allergy prescriptions and the short term reduction in other ocular product prescriptions that have been seen as across the board. So we're not just specific with AzaSite.

So on reflection, we are very pleased that we've seen a 41% increase in revenues versus the same period last year and a 39% increase in prescriptions. And clearly, as we look to our sales force and some of the signs we're seeing within the marketplace, we remain optimistic for AzaSite on a going forward basis.

Michael Smith – Leerink Swann

Okay. Great. Thanks.


(Operator Instructions). Your next question is from the line of Frank Pinkerton with SunTrust.

Frank Pinkerton – SunTrust Robinson Humphrey

Thanks for taking the question. Adrian, can you just make any further comment other than the brief one you made regarding discussions with Allergan as it surrounds Restasis and what is going on there?

And what is the ultimate goal here? Is that just to put more products in the Inspire reps bag as they go out to ophthalmologists? Or is there some change you're looking to seek in that contract?

Adrian Adams

Well, clearly we're always, as we mentioned in corporate under-licensing, we're always looking for opportunities to obviously more strongly leverage our sales force.

As it relates to any specific comments on the Allergan partnership, clearly as we mentioned, this partnership has been in place for a long time, during that partnership, we have had lots of discussions and debates. So I think Allergan, in addition to ourselves, we're disappointed with the results of the Prolacria studies.

And that said, that obviously is some of the points that we are discussing with Allergan on potential next steps in the overall impact in relation to the partnership and agreement going forward. So it's as simple as that.

And beyond that, I don't think it is appropriate to comment on it other than this is a long standing partnership that we have in place.

Frank Pinkerton – SunTrust Robinson Humphrey

Okay. And then, just as a follow-up, you mentioned Prolacria but what's the next step there? Is it going back and reworking the phase 3s for one of the different endpoints in dry eye? Or is that a drug that, given the study may not have a future? How do you see Prolacria in the future? Thank you.

Adrian Adams

Well, I think two points on that. Firstly, that is a subject of discussions that we hope to have with Allergan as part of the broader aspect as we've mentioned in our past calls.

And secondly, as it relates to Prolacria moving forward, we obviously have made reference in the last question to the fact that if one looks at our research and development expense this year and that 75% of that is focused on denufosol and the other 25% is focused on the development of predominantly of AzaSite and more focused in the blepharitis area. So I think that is the only comment I would make on this.

Frank Pinkerton – SunTrust Robinson Humphrey

Great. Thank you the questions.

Adrian Adams

Thank you very much, Frank. All the best to you.


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

Adrian Adams

Thank you, operator. And finally, I'd like to thank all of you for joining us this morning and we look forward as always to updating you on our progress on the next quarterly call. Thank you so much and please have a good day.


Thank you for participating in today's Inspire Pharmaceuticals first quarter 2010 financial results conference. You may now disconnect.

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