Durata Therapeutics' CEO Discusses Q4 2013 Results - Earnings Call Transcript

Mar.14.14 | About: Durata Therapeutics (DRTX)

Durata Therapeutics, Inc. (NASDAQ:DRTX)

Q4 2013 Earnings Conference Call

March 14, 2014 8:30 AM ET

Executives

Allison Wey – Director-Investor Relations

Paul R. Edick – Chief Executive Officer

Michael Dunne – Chief Medical Officer

Corey N. Fishman – Chief Operating Officer and Chief Financial Officer

John Shannon – Chief Commercial Officer

Analysts

Jeremiah B. Shepard – Credit Suisse Securities LLC

Adnan S. Butt – RBC Capital Markets LLC

John C. Ryan – Jefferies LLC

Heather A. Behanna – JMP Securities LLC

Gregory R. Wade – Wedbush Securities, Inc.

Operator

Good morning. My name is Jackie and I’ll be your conference operator today. At this time, I’d like to welcome everyone to the Durata Therapeutics Fourth Quarter and Year-End 2013 Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question-and-answer session. (Operator Instructions)

Thank you, I would now like to turn the call over to Allison Wey, Vice President of Investor Relations. Mr. Wey. You may begin.

Allison Wey

Thanks, Jackie. Good morning and welcome to Durata’s full year of 2013 financial results conference call. A copy of the press release we issued this morning is available on our website. In addition, we are conducting a live webcast of this call, which is also available on the website.

This morning we are joined by Paul Edick, CEO; Corey Fishman, COO and CFO; John Shannon, Chief Commercial Officer and Dr. Mike Dunne, our Chief Medical Officer. Paul will provide opening remarks and share some highlights of the year. Michael will then provide an overview of our current plan development programs and Corey will provide details of the financial results, we’ll then open the call for questions.

Please note that today’s conference call and webcast may contain certain forward-looking statements within the meaning of The Private Securities Litigation Reform Act of 1995. To the extent any statement made on this call contain information that is not historical these statements are essentially forward-looking and are subject to various risks and uncertainties detailed on the Company’s filings with SEC such as Form 10-K, Form 10-Q and Form 8-K reports.

I’ll now turn the call over to Paul Edick.

Paul R. Edick

Thank you, Allison. Good morning and thank you for joining us. 2013 was filled with a number of major accomplishments that moved Dalvance closer to patients and Durata as a company closer to commercialization. What I want to do is quickly recap key 2013 milestones before we take a close look at the year ahead.

In 2013, we released and presented results from our two DISCOVER trials, which showed dalbavancin that it’s primary and secondary endpoints of early response. We submitted our NDA to the FDA, which was accepted for priority review with an action date of May 26, 2014. We also submitted an MAA to the EMA, which has been accepted for review.

In addition, we raised $54.1 million in a follow-on offering last April. In the fourth quarter, we entered into a credit agreement with PDL, providing for up to $70 million in debt financing, which gives us tremendous operating flexibility as we move into our launch and other clinical programs in 2014 and beyond. Corey will talk a little bit more about that debt financing later in the discussion.

In 2013 we also began in earnest the development of our commercial and launch capabilities. We hired 10 medical science liaisons and nine of our current 10 market development directors. These groups have been in the field for the past year, listening to all of the relevant stakeholders in the top provider institutions.

Our aim is to fully understand how they currently treat serious skin patients. The patients flow by institution, whether they have infusion capabilities and locations by institution. The root to the access for new products, formulary processes, formulary leadership and decision-making were necessary. And more importantly, to gain a better understanding of the pressures providers are under to reduce costs reduce length of stay and/or avoid admissions altogether, for the patient population we will target post approval. We have a number of specific plans in place for gaining access and utilization in a significant number of top provider institutions by our FDA action date.

I’d now like to turn our focus to 2014, which we expect to be a pivotal year in the development of Durata, as a company, as we’re committed to further developing clinical indications for and advancing our lead asset dalbavancin. In that regard, I want to first spend some time updating where we’ll be headed next in the clinic, on additional indications and data development for Dalvance.

With that, I’d like to turn things over to our Chief Medical Officer, Dr. Michael Dunne to provide an overview of what you can expect from our clinical teams in 2014.

Michael Dunne

Thanks, Paul. Good morning everyone. I’d like to review our clinical priorities for 2014 and some of our additional medical affairs work we’ll be doing in 2014 in support of our anticipated launch of Dalvance.

Let’s review our current and planned studies. Our Phase 1 bone penetration study is fully enrolled, study is work we’re doing to support our pursuit of pediatric osteomyelitis claim. We should have data from this study by the summer and anticipate presentation at one of the fall conferences.

Our pediatric PK study is open and enrolling patients. This study, as with all the ped studies is slow to enroll. However, we expect to have a large enough cohort to inform the dosing for our pediatric osteomyelitis study in the second quarter.

Our Phase 3 pediatric osteomyelitis study is in advanced protocol development following some early FDA input. As many of you know, there’s currently no specific FDA guidance for this indication. However, we’re working closely with FDA and expect to submit our SPA request soon. Assuming agreement to our SPA request, we’d hope to begin the study towards the end of 2014 or early 2015.

Our Phase 3 pediatric skin study based on our PREA and PIP agreements with FDA and EMA is slated to start at the end of 2014. Completion will depend on enrollment of course. And as I mentioned previously, pediatric skin studies can be difficult to enroll.

As you know, all of our clinical work to date has been on dalbavancin at 1500 milligrams divided into two once-weekly 30-minute infusions; 1000 milligrams on Day 1, followed by 500 milligrams on Day 8. From a clinical perspective, we believe this regimen is well suited to fit with clinical practice for patients with these serious skin infections. And our five Phase 3 studies all confirm that a 1500 milligram dose is the right dose for treating these infections.

Although our current Phase 3 clinical trials have dosed 1500 milligrams of dalbavancin in a divided dose with 1000 milligrams on Day 1 followed by 500 milligram on Day 8, there is ample PK data and PK modeling to support the clinical efficacy of dalbavancin dose as a single 1500 milligram, 30 minute infusion in treatment of the skin and skin structure infections.

We believe giving the practitioner the option of a single or divided dose for Dalvance will offer a significant advancement in care of these patients. So today we are announcing our intention to initiative a clinical trial, which will evaluate the safety and efficacy of Dalvance in a single 1500 milligram dose, infused over 30 minutes to treat Gram-positive infections of acute bacterial skin and skin structure infections. Assuming success of this trial, we will then ask the FDA for a label change through our dosing section that would reflect a single or divided dose.

Additionally, we’re currently finalizing the protocol for our Phase 3 community-acquired pneumonia trial, which will be a 1500 milligram single dose trial as well. That protocol will be designed consistent with recent FDA guidance and the study will be scheduled to start in late 2014. We anticipate that this will be a two season trial covering the 2014-2015 and 2015-2016 pneumonia seasons.

Our Phase 1 lung penetration study is a companion trial on this pneumonia program, we had anticipated starting this quarter, but we haven’t done so yet and we’re now in discussions with the FDA around some of the technical aspects of this study design at the moment.

In addition to all the development programs I just mentioned, our medical affairs group will be initiating a practice patterns assessment study sometime in the second quarter. The purpose of this study is to document current practice patterns, determine key facility and patient demographics of those admitted or seen in the emergency department with acute bacterial skin and skin structure infection.

Each site that participates will be provided with benchmarking against peer institutions and national aggregate data to inform quality or process improvement and forecast the economic impact of Dalvance. We’ll also serve as a base case for post-approval cohort studies.

I’ll now turn things back over to Paul to continue with today’s agenda.

Paul R. Edick

Thanks Mike. As you heard Mike go through, we have a number of development programs getting underway late this year and we’re always looking to accelerate our programs and add new studies that will create value for healthcare providers and patients, such as the single dose study and single dose pneumonia study. I think you can see that Mike and his team will be busy during 2014 and even busier in 2015. We’ll get to that a later date.

Just a couple of addition comments on 2014 focus activities before I turn the call over to Corey to discuss our 2013 financial results and provide some color on going forward operating expenses. On the business development front, we’re actively seeking a partner to commercialize dalbavancin outside the U.S. and have increased our activities in this area coming into 2014.

As you know, we won’t have a decision on our MAA until the first half of 2015 and therefore we won’t be in a position to launch dalbavancin in any of the key EU markets before the middle of 2015. So we have time for this effort. That said, now is the time to increase our focus on these things. They take a while. In addition to outbound business development, we’re also looking to add additional assets to our Durata portfolio, either currently commercial assets to leverage our developing sales organization or late stage products in the hospital space.

Looking to the rest of 2014, this is a year of focused execution and delivery of major milestones, such as getting through the regulatory review process and completing our launch readiness program, which includes things like manufacturing and supply chain readiness.

Finally, I would like to take this opportunity to thank all our Durata employees for their hard work and diligence in making 2013 such a great success. There is much to do in the coming year and we set ambitious goals for ourselves. However, I’m confident that this growing organization is up to the challenge.

Now, I’d like to turn the call over to Corey to finalize our review our financial results and provide some perspective on our expectations for 2014?

Corey N. Fishman

Thanks Paul. Good morning everyone. I’ll spend the next few minutes providing a brief review of 2013, and then I’ll discuss some of our 2014 expected highlights and the corresponding financial outlook for the upcoming year.

With regard to 2013, we recorded a net loss for the year of $62 million. R&D costs were $37 million and as we’ve discussed previously the R&D category includes expenses for our clinical in-development programs, our CMC costs and our regulatory expenses.

The primary drivers of our R&D costs for 2013 were the clinical trial cost to wrap the DISCOVER trials and begin the Phase 1 trials discussed by Mike, the cost to manufacture product for commercialization, and cost associated with our regulatory submissions. It’s important to note that after the advisory committee at the end of this month, and assuming a positive recommendation, we will no longer expense future product manufacturing costs as these costs will be capitalized as inventory will become cost of goods sold when the related inventory is sold.

SG&A costs were $19 million in 2013 and largely headcount related as we build and maintained the necessary infrastructure to conduct prelaunch activities, support the commercial organization and operate as a public company.

At the end of 2013, we had cash on hand of nearly $60 million. As we’ve discussed based on our assumptions of performance going forward as well as the incremental $15 million of funding that will come into the Company upon approval of dalbavancin via our previously announced facility with PDL. We have the ability to continue our prelaunch activities launched dalbavancin in the U.S. and operate into 2015, without incremental funding.

In addition, upon dalbavancin approval and for up to nine months thereafter we would also have another $30 million available to us, should we won it, without any obligation to take that funding.

Now, I’d like to take a moment and remind everyone of the relevant facts with regard to the Pfizer milestone payment, which we have discussed in number of times in our past calls. As a part of the purchase of dalbavancin in 2009, there was a one-time $25 million milestone payment due to Pfizer upon first commercial sale in a major market. However, this milestone payment is deferrable for up to five years at our sole discretion which would mean it could be deferred until the middle of 2019 assuming a Q3 2014 first commercial sale.

Under our existing credit agreement, we are obligated to defer this payment while the facility is in place. Therefore, assuming approval of dalbavancin in May of this year and subsequent commercial sale. We will execute a promissory note to Pfizer and defer the $25 million milestone payments. The milestone payment will then begin to accrue interest at 10% per year. However, the interest would not be payable until payment of the milestone. Over the next 18 to 24 months we will reevaluate the timing of this payment in the overall context of our future capital structure.

Now, I’ll spend just a minute in explaining the accounting for this obligation, which can be a bit complicated. The value of this obligation is on our books based on an assumed probability of success of having to make this payment. Therefore, the obligation will not be on our books at the full $25 million until the product is approved. Currently, it is on our books at $21 million, which reflects an assumed 85% probability of success. This probability will continue to increase as additional milestones are reached, such as a successful advisory committee and corresponding favorable recommendation.

Any increase in the probability of success will generate a non-cash P&L operating expense recorded as an acquisition related charge on our income statement. It is likely that if we have successful advisory committee and receive a positive recommendation that the probability of success will be increased for accounting purposes and therefore a non-cash charge will be recorded on our books in that quarter. If all of these factors hold true, we would expect the probability of success to be increased at the end of the first quarter of 2014 to 95%, which would generate a non-cash acquisition related charge of $3 million, thereby raising the liability value to $24 million on our March 2014 balance sheet.

Now, I’d like to spend a few minutes and talk about how we think 2014 might play out for Durata. With regard to potential revenue if we assume an approval at the end of May we would expect to have labeled commercial product by the middle of the third quarter and will then ship product into institutions at that time. You should keep in mind that hospitals and institutions tend to keep a low level of inventory on hand and therefore we would expect that we will have sufficient product for initial usage in the institutions, but the overall amount of sales in Q3 will be relatively modest.

In the fourth quarter, we would expect to generate true demand sales. Therefore for calendar year 2014, we will only have one quarter’s worth of true demand revenue. Since we’ve already previously expensed the production cost of large quantities of commercial products in earlier periods, we would expect that there would be no cost of goods expense in the P&L related to our sales in 2014.

As you look at R&D, you’ve heard Mike discuss a couple of the ongoing studies that it will be reflected in our first-half expenses. The bone penetration study has been completed and results from that study will be available by the summer. The pediatric PK study is ongoing, and enrolling at a rate consistent with similar pediatric studies that have been done previously by other sponsors.

Additionally, in the first half of 2014, we will begin enrolling patients in the single dose study and begin putting in place the necessary infrastructure and clinical programs to be able to enroll patients in the pneumonia study in the later part of 2014, which represents the traditional pneumonia season. We expect first half 2014 spending on all of these programs to be quite modest.

As we move into the second half of 2014, our spending will be driven primarily by the enrollment rate of both the single dose and pneumonia trials. We have made our best estimated enrollment rates and the corresponding study expenses, but as you know, enrollment rates are quite variable and driven by a number of factors outside of our control.

Should we enroll at a faster or slower rate than anticipated? The related clinical trial spending will be larger or smaller than expected in that period. However, it’s very important to note that any spending in the second half of 2014 that is different than planned due to enrollment rate variability will purely be a timing item that will be balanced out in 2015, as the overall cost of the trial remaining largely unchanged over the course of the study. Taking all of these factors into account we would expect that our full year R&D spending in 2014 will be between $25 million and $35 million.

Now, I’ll take a few moments and discuss our SG&A spending. And as you know, our SG&A spending includes all commercial infrastructure and costs related to the prelaunch and launch costs for dalbavancin including the associated sales and marketing infrastructure. SG&A expenses also include the corporate costs and infrastructure to run and maintain our public company. The driver of SG&A expense will be the timing of the hiring of the sales representatives.

We expect that with an end of May approval we will have most of the sales reps on board toward the very end of the second quarter or early in the third quarter. If the timing of getting the majority of the representatives on board is faster or slower by few weeks, our SG&A expense will reflect a higher or lower than expected total SG&A costs respectively.

Given the set of assumptions we have just laid out. We expect that SG&A expense for the full year 2014 could be between $35 million and $45 million with much of that expense coming in the second half of the year.

As previously mentioned in the discussion on our $25 million milestone payment to Pfizer, and assuming a positive outcome following the advisory committee. We expect to bring the liability value of the milestone payment up from $21 million as of the year-end 2013 to $24 million at the end of the first quarter of 2014, which would be a $3 million non-cash acquisition related charge. Then assuming approval in the second quarter of 2014, we would take a final non-cash charge of $1 million to bring the liability balance to the full $25 million in that quarter.

With regard to interest expense, cash interest from the credit facility with PDL, will increase once we borrow the additional $15 million upon Dalvance’s approval. In the first half of the year, we estimate cash interest expense will be $1.9 million while in the second half of the year, we estimate cash interest expense will be $2.6 million. In addition, there will be non-cash interest expense in the second half of the year due to the $25 million promissory note to Pfizer of $1.3 million.

Finally, we’d like to discuss with you our tax position. As you’ll recall, we transferred our worldwide economic growth to dalbavancin to our Dutch subsidiary in June of 2012. As a result of this transfer and based on our forecasts, we expect to pay $3 million to $4 million of cash taxes in 2014 and we expect our global effective tax rate to be in the mid-20% range in 2015 and 2016. Beyond that we would expect our global effective tax rate to be in the mid-to-high teens.

One additional point, that I want to reiterate, based on our assumptions of performance going forward, which include the estimated spending we just reviewed, we expect to be able to fund our prelaunch activities, launch Dalvance in the U.S. and operate into 2015 without accessing the $30 million available to us from the PDL transaction after Dalvance approval.

Now, I’ll turn it back over to Paul for some closing comments.

Paul R. Edick

Thanks, Corey. As you can see, 2014 looks to be an exciting year for Durata. We have a number of Dalvance and clinical trials starting soon. We look forward to late May action date and potential approval, and most importantly a Q3 commercial launch of Dalvance. With Dalvance, we have a rare opportunity to change medical practice. With our once-weekly 30-minute infusion, we can move beyond daily infusions, ultimately benefiting healthcare professionals, hospitals and most importantly patients.

We will now take your questions.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from the line of Jason Kantor with Credit Suisse.

Jeremiah B. Shepard – Credit Suisse Securities LLC

Good morning. This is Jeremiah for Jason. Thank you for taking my questions. Regarding the single-dose administration, what was the motivation for pursuing this strategy and was this based on feedback from the marketplace?

Paul R. Edick

In terms of the single-dose infusion? Yes. I’ll turn that over to Mike Dunne. Just at a high level we’ve known for a long time that 1500 milligram is the optimal amount of drug, and we’ve got a ton of PK data that says that it can be done in either a single or divided dose, and we believe optionality is a good thing for the healthcare professional. Mike?

Michael Dunne

Yes, I actually agree. I think the PK data and the modeling data that we have for dalbavancin just reinforce that there is an optionality in the way we can dose dalbavancin, our depreciation, broad indications actually we’ve been focusing on skin, as long as the 1500 milligram dose is what we use overall using a single or divided dose should work just fine. I think optionality for physicians and patients could be a great thing.

Paul R. Edick

And Jeremiah, the labeling that we’ve been discussing is 1500 in a single or divided and, yes, we would like to see some additional data on the single. So roughly fairly easy decision.

Jeremiah B. Shepard – Credit Suisse Securities LLC

And regarding this arm act that was proposed in the House or potentially they could across the street changes the DRG pricing that’s typically used in the hospital setting, how do you interpret this proposal and how could this essentially change your analysis of your pricing analysis for dalbavancin?

Paul R. Edick

You’re talking about the NTAP payments, new technology add-on payments. We see that it’s potentially very positive especially for dalbavancin in the hospital. I’ll ask John Shannon, our Chief Commercial Officer to comment briefly on that whole process.

John Shannon

Yes, I mean that legislation just came out this week I think it was on 13, we just had a look at it. But we’ve already aware of the NTAP process and have been pursuing that opportunity, we are ready with CMS. It really does impact our thinking on pricing or anything else. But it does make it easier should this legislation be put in place. Should an NTAP be in place for the hospitals that would use these products in an in-patient setting.

Jeremiah B. Shepard – Credit Suisse Securities LLC

And last question, in terms of the upcoming panel meeting, what are you doing now to prepare for the meeting. And then also what is you take on fact that Oritavancin will not be discussed in the panel meeting?

Paul R. Edick

I’ll have Michael Dunne answer that.

Michael Dunne

Sure, well, I think we are doing what company typically do now in preparation for the advisory committee, just prepare the slides, get our messages very clear for the advisory committee, of course they have a big job ahead of them. We’re going to present a ton of data in a very short timeframe. So we try to make sure that they have all the information they need. Preparing our briefing book for them, having the last minute discussions with FDA, which we always have coming up to these meeting, all the typical processes that we have to look forward.

I think with regard to the Oritavancin advisory committee or not, I think that’s an FDA decision, between them and the sponsor. Oritavancin did have an advisory committee in 2008, so they have already had kind of an opportunity in front of the advisory committee to talk about the product in general. But not of course on this feedback getting the instructions in the study.

But I think this is an opportunity for us to be able to share what dalbavancin is all about. What it can do and give people chance to ask this questions and we are kind of looking forward to it.

Paul R. Edick

Thank you for taking the questions.

Operator

Our next question comes from the line of Adnan Butt with RBC Capital Markets.

Adnan S. Butt – RBC Capital Markets LLC

Good morning, everyone. Two follow-up on the single dose strategy, did I hear correctly that you’re seeking approval for 1500 mg as a single or that in the works. And then can you say a bit more about the study that you’re planning, how it will be designed and how long it could take. And when it could start?

Paul R. Edick

Yes, Adnan, we have ongoing discussions regarding the PK profile as a 1500 milligrams. The decision to make it to study as a divided dose was made years ago. Based on some Phase 2 data and we’ve always believe that the 1500 milligrams could be quite a convenient single or divided, and have that ongoing analyses of the PK relative to that.

In order to get a label that would stay single or divided 1500 milligrams, the agency would like to see some more data. So we are going to initiate trial as fast we can. I’ll let Mike talk about design.

Michael Dunne

And the approval for now is for divided dose, that’s what the discussion is about, not for single dose now. Yes, I mean we’re well advanced in the planning stages for this study. We were the kind of last date in the conversations of the FDA and make sure the protocol that we have now will be suitable for them, when we send it back down later. Hence we think that will those conversations will probably come to some conclusions shortly actually.

So our logistics have been in place for a while to get zero now obviously the study and define sites to work. We are not starting until we get the go-ahead from the FDA. And we think that will be shortly. Oh, the design…

Adnan S. Butt – RBC Capital Markets LLC

That’s correct, I was asking for that.

Michael Dunne

Yes, the design of the study will be a single dose dalbavancin 1500 milligrams compared to the divided dose of 1000 milligrams day one and 500 milligram on day eight. And the end point will be the same as the final guidance which has issued recently. And otherwise a pretty straight forward design.

Adnan S. Butt – RBC Capital Markets LLC

And the patient numbers? Would you expect the study to take the same amount of time or could this be shorter?

Michael Dunne

The power calculation again we are working through all the details of the end point and that can shift the power calculations around depending on where we end up with FDA. But roughly speaking it would be at maybe slightly smaller than some of the DISCOVER study actually because we’ve learned a few things about the targeted end-point. We know what the point of estimate is now, so we are able to power the things, with 90% power maybe not quite as many patients this year.

Adnan S. Butt – RBC Capital Markets LLC

So in this case it will be a single study or two study thus far?

Michael Dunne

Rightly, a single study for treatment of the skin infection.

Adnan S. Butt – RBC Capital Markets LLC

Okay. I’ll try and get back in queue, thanks.

Operator

Our next question comes from the line of John Ryan with Jeffries.

John C. Ryan – Jefferies LLC

Hi, guys. This is John in for Eun Yang. Just a couple of quick questions. Just provide a refresh on the status of your diabetic foot infection program?

Michael Dunne

Yes. We have the diabetic foot infection program kind of in our radar screen. Among all the things that we think are really important for dalbavancin to do in the short-term. We prioritize it, we just discuss some work on the single dose pneumonia study, the osteomyelitis program. But there is no question that the diabetic foot infection claims would be very interesting and well suited to the day that we already collected as part of the skin program.

We don’t have a specific protocol in place right now, but once we get onto the market, we will be talking with investigators and researchers about how to integrate that into our development program.

John C. Ryan – Jefferies LLC

Okay, great. And then just a quick follow up so that most of your hiring for SG&A will be done by end of second quarter, early third quarter. But previously it’s been about 140 customers facing people at the time of launch. Could you just provide a quick update on how many people have been hired currently including an all breakout potentially for sales reps.

Corey N. Fishman

Yes, I can handle that. As I mentioned in my comments, we had approximately 20 people in the field during 2013. In the first quarter, we anticipate hiring another 10 to 20 in couple of key territories, some reimbursements to build out a reimbursement group and national accounts. So maybe another 15 to 20 in the first quarter and then the balance would be post approval.

John C. Ryan – Jefferies LLC

Okay, great. That’s helpful. Thanks.

Operator

Our next question comes from the line of Liisa Bayko with JMP Securities.

Heather A. Behanna – JMP Securities LLC

Hey, guys. This is Heather in for Liisa. Thanks for taking question, and congrats on all the progress. Just on a couple of questions, first of all, the bone penetration study, are we going to see those data at a conference this year?

Paul R. Edick

Yes. We are planning and trying to submit that data through one of the fall conferences, pediatric and post during that meeting.

Heather A. Behanna – JMP Securities LLC

Great. And then just a few more questions, a lot of them have been answered. Just about the ramp up in the sense, so that for $35 million to $45 million we should probably see that in the, so you sort of end the second quarter, third quarter? We should expect that one turning approval.

Corey N. Fishman

Yes, I would say the ramp is going to be more third quarter.

Heather A. Behanna – JMP Securities LLC

And then if you could just remind me, do you need a J-Code for this product and will you have a miscellaneous code now, and if you could just remind me of how that dynamic work?

Paul R. Edick

Yes, we will need a J-Code, and we will apply for that. We will get a miscellaneous code, we will be able to apply for a C-Code in the interim as well, so we have all that mapped out and all that work is underway.

Heather A. Behanna – JMP Securities LLC

Okay, perfect, thank you.

Operator

Our next question comes from the line of Greg Wade with Wedbush.

Gregory R. Wade – Wedbush Securities, Inc.

Hi, good morning and thanks for taking my questions as well. Paul, could you just review for us what type of exclusivity period you would expect Dalvance in the U.S in a scenario in which there is a single dose on the label. Thanks?

Paul R. Edick

Yes, great good question. We would anticipate that our method of use patent we would still be dependable. But remember we have a 10 year data exclusivity because of our gained designation, and we are applying for a patent term extension based on the review times that this drug this then over the last many years.

So assuming a little bit of patent term extension and 10 years of data exclusivity a generic filing couldn’t happen until after the end of the ninth year, and then we would enforce the patents which we are getting new 30 month stay, so I think conservatively somewhere between 10 and 12 years market exclusivity.

Gregory R. Wade – Wedbush Securities, Inc.

When does the split dose patents expire?

Paul Edick

In 2023, some patent term extension maximum would be to 2027.

Gregory R. Wade – Wedbush Securities, Inc.

Can you maybe just run through the math? My read on the single administration label would be that you’d be for giving the 13 years of exclusivity plus or minus 30 months or so. Can you just run to the calculus on that? Thanks.

Paul R. Edick

Yes, we don’t believe that is the case as we said with the data exclusivity we get 10 years regardless, and we believe this pattern would still be enforceable because it does have multiple components, if you like to get into that in more detail happy to have that discussion at some point.

Gregory R. Wade – Wedbush Securities, Inc.

Great, thank you.

Operator

Our next question comes from the line of Jim Molloy [ph] with Summer Street Research.

Unidentified Analyst

Hi, guys, thanks for taking my question. I had a quick question on the outcome and looking at it, it’s a split panel you guys and Trius, any thoughts on a favorable, unfavorable really spend an half a day on you guys. And then can you talk at little bit of how the build-out space and looks for acquisitions you mentioned bringing in late stage, maybe on the market hospitalized products, talk a little bit about what you’re seeing? Is it a buyer sellers market out there?

Paul R. Edick

I’ll let Mike talk about the outcome first.

Michael Dunne

Assume I think your question was about first the structure of that day, such as today it would be going in the morning and we go in the afternoon. Hence I guess the question is there something to read into that FDA perspective on the compounds or likely to success or things.

I think it’s not atypical to split a day especially when you have two drugs with the similar client. I’m not reading anything into that about likely to success per se because of the structural calendaring at the meetings. We’ve been saying, we think the Dalvance is a safe and effective drug and we think the FDA has been out looking at our drug favorably and we are looking forward to the opportunity at the meeting to hear all the data come out and hear the feedback from the Advisory Committee.

Paul R. Edick

And on the business development front, Jim, I think the environment for outbound BD, especially Europe and Latin America is positive right now and we’re engaged in discussions. On the inbound side, I think it’s more competitive. It’s little bit of a seller’s market, and that’s something we’re going to have to deal with and we anticipate that we’ll soon be in a position to be more competitive.

Unidentified Analyst

And maybe just following up on that, I know that a big player in the space cube has made its move last year with a couple acquisitions, anything to talk about? Has there been a lot of interest on the inbound side among other competing companies looking to pick you guys up?

Paul R. Edick

No.

Unidentified Analyst

Well, certainly an easy answer. Thank you very much.

Operator

(Operator Instructions) Our next question comes from the line of Steve Byrne with Bank of America Merrill Lynch.

Unidentified Analyst

Hi, this is Sarah on for Steve. Thanks for taking the questions. Regarding the four buckets of hospitals to be spoken about in terms of readiness to administer Dalvance, are they equal in size and are the split between these four buckets any different for the target 500 hospitals versus the broader 1900 hospital group?

Paul R. Edick

I don’t know that we have a very specific split. We refer to the buckets just in terms of trying to characterize where the customers might be in terms of the way in which they behave today. What we’re trying to do is to better under those hospitals that – the longer acting drugs and the way in which the patient would be triaged differently and not having the need to admit them. That’s about a quarter of the population that we’re bumping into in terms of their ability to look at their business model and push more outpatient in more ambulatory care. You see people behaving that way and it’s really more about the customer business model.

The second group is – the business model is moving in that direction, but all the dots might not be connected and the various departments might not be talking to each other in a way that really gets it done efficiently and effectively and we’re trying to work with those hospitals to better understand what’s missing and what do they have to do differently and how can we help.

And then you go to lower half. A quarter of the hospitals that we bump into really aren’t ready. They have a different business model, but they would love to be moving forward and doing more ambulatory, et cetera, and they’ve just got a lot that they’ve got to do. And in that environment we’ve got to figure out the pathways for access for dalbavancin and to some degree they’re the traditional pathways, strict formularies et cetera, et cetera.

And then you’ve got a group at the bottom that are rooted in the past, very pharmacy oriented, very siloed, very budget focused, really don’t see the benefit of across departments and those are going to take a lot of work. So we’re trying to bucket things in order to best deploy our resources on those hospitals that might be earlier to adopt a drug like dalbavancin.

Unidentified Analyst

Okay.

John Shannon

This is John Shannon. The only thing I would add to that is that within the segmentations that Paul just described, the size of the opportunity seems to be fairly well balanced in those accounts. It’s basically even across all sizes of the segment.

Unidentified Analyst

Okay. And then drilling into the target hospitals, I guess what fraction of these would you say are ready to administer Dalvance in the year based on your conversations with those hospitals?

Paul R. Edick

Yes, that’s a good question.

Corey Fishman

Yes, I’m not sure we have quantified that yet.

Paul R. Edick

That’s still part of our process.

Unidentified Analyst

Okay and I guess would you be able to say how many Gram-positive skin infections are treated per year within this group or is that?

Paul R. Edick

No.

Unidentified Analyst

That’s really.

Paul R. Edick

No that would be – we’ll quantify it as we go forward.

Unidentified Analyst

Okay, thanks for taking the questions.

Operator

We have no further questions at this time. I'd now like to turn the floor back over to Allison Wey for any additional or closing comments.

Allison Wey

No, I just wanted to say thank you everyone for joining us this morning, and we look forward to speaking to you soon. Thank you.

Operator

Thank you. This concludes today’s conference call. You may now disconnect.

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