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InterMune, Inc. (NASDAQ:ITMN)

Q1 2014 Earnings Conference Call

May 1, 2014 4:30 pm ET

Executives

Jim Goff - VP, Corporate Communications & IR

Dan Welch - Chairman, CEO & President

Jonathan Leff - EVP, R&D

John Hodgman - EVP & CFO

Sean Nolan - EVP & CBO

Analysts

Geoff Meacham - JPMorgan

Brian Abrahams - Wells Fargo Securities

Terence Flynn - Goldman Sachs

Andrew Peterson - UBS

Ritu Baral - Canaccord

Brian Skorney - Robert Baird

Rich Goss - Leerink Partners

Stephen Willey - Stifel

David Friedman - Morgan Stanley

Operator

Ladies and gentleman, thank you for standing by. And welcome to the InterMune First Quarter Results Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards we will conduct a question-and-answer session. (Operator Instructions). As a reminder, this conference is being recorded Thursday, May 1, 2014.

I now like to turn the conference over to Jim Goff with InterMune. Please go ahead, sir.

Jim Goff

Thank you, operator. Good afternoon everyone and welcome to the InterMune earnings conference call. This afternoon we issued a press release that provides details of the Company's unaudited financial results for the first quarter ended March 31, 2014. The press release is available on our website at www.intermune.com.

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

We refer you to the Company's publicly filed SEC disclosure documents for a detailed description of the Risk Factors affecting our business, including those discussed in our Form 10-K filed with the SEC on February 24, 2014. These documents identify important factors that could cause our actual results to differ materially from our projections and other forward-looking statements. These risk factors include regulatory, revenue, intellectual property, clinical development, capital resources, and other risks relating to our business.

On the call today are Dan Welch, InterMune's Chairman, Chief Executive Officer and President; Dr. Jonathan Leff, EVP, Research and Development; and John Hodgman, EVP and Chief Financial Officer; Sean Nolan, EVP and Chief Business Officer will join us for questions-and-answers.

I will now turn the call over to Dan Welch.

Dan Welch

Thanks, Jim and thank you everyone for joining us today. We are very pleased to report today the remarkable progress we made in every part of our business during the first quarter. Among the key highlights, our commercial momentum in Europe and Canada continues. First quarter Esbriet revenue is $30.3 million, increased by 188% compared with the first quarter of 2013 and by 18% over the prior quarter.

Based on these solid first quarter results, we today raised our 2014 Esbriet revenue guidance from $115 million to $135 million to a new range of between $130 million and $150 million -- sorry, to a range of $130 million to $140 million. This new range translates a year-over-year revenue growth rate of approximately 85% to 100%.

On February 25, we announced very strong top-line results from the Phase 3 ASCEND trial of pirfenidone in IPF. Following the ASCEND results, we are working hard to prepare our NDA resubmission and currently expect to resubmit pirfenidone NDA to the U.S. Food and Drug Administration early in the third quarter of 2014.

We also made solid progress during the quarter on our lifecycle extension programs for Esbriet and on our anti-fibrotic research pipeline. In particular, our pirfenidone analogs, one of which we currently plan to bring to the clinic in the first half of next year.

We recently had our 18th U.S. patent for Esbriet allowed, further strengthening our already robust patent estate for the brand and our strategy to extend patent protection of pirfenidone into the 2030s.

Last but not least, we made solid progress in the implementation of our pre-launch plans for pirfenidone in the United States. We will now comment further on each of these important developments.

First, looking at our global Esbriet revenue, we achieved the 10th consecutive quarter of Esbriet revenue growth since the first launch of Esbriet in Germany, in September of 2011. Remarkably, the first quarter of this year was one of the few quarters during our European launch of Esbriet, which did not include a new country launch of the brand.

As we have previously reported, new country launches bring out one-time effect on revenues related to the conversion of non-paying, named patient program patients to commercial patients upon launch. Despite the lack of a new country launch in the first quarter, we posted an 18% quarter-on-quarter increase in revenue.

On April 1 of this year, Esbriet became the first reimbursed treatment for IPF patients in the Netherlands, the largest of the so called 10 midsized European countries. This reimbursement provides access for all IPF patients with a percent predicted forced vital capacity or FVC of more than 50%. This is consistent with our product label in the European Union.

The Esbriet price in the Netherlands is roughly €31,000 or about U.S. $43,000 per patient per year and the launch in this country has begun.

We are pleased to announce that with the Netherlands reimbursement in hand; Esbriet is now attractively priced, reimbursed, and launched in 14 of the 15 priority countries that we originally targeted for our European launch plan for Esbriet. Therefore, we have effectively completed stage one of our European launch plans for Esbriet, specifically the achievement of attractive pricing, reimbursement, and initial launch of the brand in the top 15 countries.

We now have begun stage two of our European commercialization plan, which is to continue to grow Esbriet revenue country-by-country, quarter-by-quarter into the major European brand. It is already on tack to become. As noted in our new guidance, we expect to make a strong stride in this direction in 2014.

I'll now ask Jonathan Leff, our EVP of R&D to provide an update on our progress and plans in R&D.

Jonathan Leff

Thanks, Dan. Good afternoon everybody. As most of you know, on February 25, we reported top-line results from the ASCEND Phase 3 study of the pirfenidone in IPF, which is intended to support marketing approval in the United States.

In ASCEND, the primary endpoint was the difference between pirfenidone and placebo in decline in percent predicted FVC between baseline and week 52. The study achieved this endpoint with a ranking called the p-value less than 0.000001. Significant treatment effects of pirfenidone were also demonstrated on both of the key secondary endpoints of six-minute walk test distance and progression-free survival.

A pre-specified mortality analysis was conducted on the pools population of ASCEND and the two previous Phase 3 capacity studies, taking capacity mortality data through week 52. This analysis said included 1247 patients. The results of the mortality analysis showed the risk of all-cause mortality, was reduced by 48% in the pirfenidone group compared to placebo, with a hazard ratio of 0.52 and a log rank p-value of 0.011.

Additionally, in ASCEND the well characterized safety and tolerability profile of pirfenidone was confirmed.

The most common AEs with a higher incident in the pirfenidone group were primarily gastrointestinal, such as nausea and dyspepsia and skin related such as rash.

The GI and rash AEs were generally mid-to-moderate in severity, manageable, reversible and only infrequently lead to treatment discontinuations.

Regarding our regulatory plans with the United States, we are now actively preparing to resubmit the pirfenidone new drug application to the FDA. The NDA will include the ASCEND Clinical Study Report as well as the pooled analysis of efficacy and mortality from the three InterMune Phase 3 trials. The NDA resubmission will also will also include a safety update that includes patient exposure of pirfenidone in approximately 15,000 patients, including clinical studies and the extensive post-marketing experience on pirfenidone collected since 2008.

The pirfenidone safety database that will be reported in our NDA is remarkably large and robust for any compounds let alone in medication intended for patients within orphan disease. We currently plan, as Dan said, to submit our NDA early in the third quarter of this year.

As a class 2 resubmission FDA's reviews expected to be completed within six months. If FDA approval occurs within that timeframe, we currently anticipate that we would be prepared to launch pirfenidone in the United States early in the second quarter of 2015. Of course, we will be ready to launch if an NDA approval arrives sooner.

At ATS, pirfenidone will have a remarkably strong presence. A total of 27 abstracts on pirfenidone will be presented by InterMune or others at the meeting. A total of 18 abstracts sponsored by InterMune will be presented at ATS, covering pirfenidone in our expanding anti-fibrotic R&D pipeline. We expect to provide additional information on the presentation of InterMune sponsored abstract prior to the ATS meeting.

Among our anti-fibrotic research programs, we look forward to sharing for the first time at the pulmonology community at ATS; the performance characteristics of ITMN-30162 and ITMN-14440 our two lead second generation pirfenidone analogs. These compounds are potent and display high anti-fibrotic activity at low doses in animal model. A pharmacokinetic profile that predict once or twice daily dosing in humans and as deduced from nonclinical studies a reduced potential for GI and photosensitivity effects.

These novel agents built on the clinically validated pirfenidone chemical scaffold are now in preclinical development and the developing candidate is currently expected to enter the clinic in the first half of 2015.

Changing gears to an update on our lifecycle programs for pirfenidone. We announced today that enrollments was completed on schedule for our LOTUSS trial. LOTUSS is a Phase 2, four-month safety and tolerability study of pirfenidone in patients with systemic sclerosis-related interstitial lung disease or SSc-ILD.

SSc-ILD is an orphan disease with a prevalence of approximately as large as that of IPF with no approved therapies.

In November 2013, pirfenidone was granted orphan drug status for the treatment of SSc-ILD in the United States. The data from LOTUSS are expected in the fourth quarter of this year.

I will now turn the call back to Dan.

Dan Welch

Thank you, Jonathan. Since we announced the top-line results of ASCEND investors and analysts have been asking us many questions about our patent portfolio and our exclusivity assumptions for Esbriet in European Union and in the United States. To response to these questions we thought it would be efficient to make some remarks on this topic on today's call.

As most of you know, pirfenidone enjoys orphan exclusivity in the EU to 2021 and we've been granted orphan drug designation for pirfenidone in the United States. Assuming an NDA approval in United States in 2015, orphan exclusivity for pirfenidone would run to 2022.

Over the past eight years, we and our IP experts have been steadily assembling a patent that stayed on pirfenidone that now includes 18 issued or allowed patents in the United States. In the European Union 6 patents are issued or allowed and further patent applications in the EU are pending.

The large number and characteristics of these patents provide us with the tool to implement what we believe is the solid strategy to extend patent protection for Esbriet for roughly 10 years beyond orphan exclusivity periods. The InterMune IP strategy for Esbriet is relatively simple and is supported by four pillars.

First, we patent novel discoveries that we made during our research, development, and commercialization of pirfenidone. An important common characteristic of these patents is that they help ensure that the patients who receive pirfenidone treatment do so as safely and as effectively as possible.

Second, we strive to have the clinically meaningful safety and efficacy observations of our patents described in the prescribing information for pirfenidone. Since these safety and efficacy observations come directly from our clinical experience with pirfenidone, the data supporting the observations are included in our NDA, which of course, is the source document for the prescribing information of our pharmaceutical product. We've been successful in this part of our patent strategy in the EU, as our patent protected uses for pirfenidone are part of the current approved prescribing information for Esbriet.

The third pillar of our exclusivity strategy is to fully utilize the legal and administrative defenses that are institutionalized in each territory. Specifically, in the United States, we expect to list in the Orange book our projected 18 patents to benefit from the legal and administrative protection that this approach affords. In Europe, the approach is to take advantage of the fact that generic companies must invalidate or avoid each of our projected six patents and any future patents we get issued in each and every country in which they wish to commercialize Esbriet. This is obviously a very long, costly, and risky proposition for generic companies to undertake.

The fourth and final pillar of our IP strategy, and this is one of the areas in which our approach is different than most. It's to take the approach and multiply its power with large numbers. In other words, patent has many clinically relevant aspects of pirfenidone as possible. As just mentioned, we currently have 18 issued or allowed U.S. patents, 6 in the EU and more are in the conception and application processes.

An important concept to keep in mind is that for a company to legally commercialize a generic form of a branded medicine they have to successfully invalidate or avoid each and every claim of every patent covering the innovators product. On the other hand, the innovator need only prevail on one claim of one patent to maintain patent protection.

Historically, method of used patents like hours, have been upheld in the United State's courts in the majority of cases, when challenged by generic companies. When you recall that we currently have 18 patents issued or allowed in the U.S., we believe that the yard stacked very well for us.

In summary, we believe our four pillared strategy is comprehensive and robust and is medically and legally relevant. And we have already shown in Europe that critical parts of this strategy can be successfully implemented. We strongly believe that our strategy will provide patent protection for pirfenidone in the EU and in the United States for a period that is very substantially beyond the orphan exclusivity period and possibly into the early 2030s.

Turning now to U.S. pre-launch preparations. We remain on track to be prepared to launch pirfenidone in the United States, should an FDA approval of pirfenidone NDA be granted.

A very experienced senior commercial management team has been hired and we are successfully implementing our comprehensive, strategic, and tactical pre-launch plan, including the building of all commercial, medical affairs, and infrastructure, required for a very successful launch.

I'll now turn the call over to our Chief Financial Officer, John Hodgman, for the financial discussion. John?

John Hodgman

Thank you, Dan. InterMune today reported total Esbriet revenue in the first quarter of 2014 of $30.3 million, compared with $10.5 million in the first quarter of 2013, an increase of 188%. Sequentially, Esbriet revenue in the first quarter of 2014 increased 18% from $25.7 million in the fourth quarter of 2013.

In terms of expenses cost of goods sold in the first quarter of 2014 were $3.4 million. It is important to remind you that this figure includes the 4.25% royalty to Shionogi & Company on sales of Esbriet in the European Union, which became effective January 1, 2013, under our settlement agreement with Shionogi. As an additional reminder, this settlement established that royalties on Esbriet revenues with not be due in Canada or in the U.S.

The gross margin was 89% in the first quarter 2014, compared to 77% in the first quarter of 2013.

R&D expenses in the first quarter of 2014 were $32.1 million, compared with $25.9 million in the first quarter of 2013, an increase of 24%. Increased R&D expenses primarily reflected activities to complete the ASCEND Phase 3 trial, a higher number of patients in the recap extension study of pirfenidone and activities related to the preparation of pirfenidone NDA resubmission. R&D expenses in the first quarter of 2014 also reflect the increased activity related to our product development and registration activities, primarily the conduct of the LOTUSS, PANORAMA, and PASSPORT studies, as well as several other advancing anti-fibrotic research programs.

SG&A expenses were $44.3 million in the first quarter of 2014, compared to $30 million in the same period a year earlier, an increase of 48%. The increased expense for the three month period in 2014 compared with the same period in 2013 is primarily attributed to our increasing investment in our pre-launch preparation in the United States and to a lesser extent continued development of our EU commercial infrastructure and launches of Esbriet in Europe and Canada.

InterMune reported a net loss for the first quarter of 2014 of $53.6 million or $0.59 per share, compared with a net loss of $49.9 million or $0.64 per share in the first quarter of 2013.

As of March 31, 2014, InterMune had cash, cash equivalents, and available-for-sale securities of approximately $606.4 million. The March 31, 2014, cash balances include net proceeds of approximately $268 million from our March 2014 public offering of common stock.

Turning to our forward-looking financial guidance. We today raised our 2014 revenue guidance, now projected to be in a range of $130 million to $140 million, previously a $115 million to $135 million. The range represents potential growth in 2014 of approximately 85% to 100% increase of our Esbriet revenues of $70.3 million in 2013. We anticipates a positive impact on Esbriet revenues in the EU from the positive ASCEND results announced in late February of 2014. We expect to begin to observe this impact in the fourth quarter of 2014 and after following the steps, the following steps were taken.

First, the result of ASCEND need to be published in a peer review journal that reaches beyond the very small number of so-called key opinion leaders who have seen the details of the ASCEND results beyond our investor press release.

Second, the product labeling or SmPC, needs to get updated to reflect the ASCEND data and we expect that this will occur around the end of 2014.

Third, IPF patients need to see their doctors. And the normal cycle for patient visits is every three to six months. Therefore, we expect the ASCEND data to positively affect EU revenues, beginning in the fourth quarter of this year and not meaningfully until early next year. We anticipate that revenue growth in Europe will be less affected by the one-time effects of individual country launches and will primarily be driven by growth in countries in which Esbriet has already been launched and in a limited number of smaller new markets.

Regarding Canada, our revenue guidance accounts for the fact that Esbriet has not yet achieved reimbursement in Canada from any of the public payors provincial or territorial, and we do not expect to achieve public reimbursement there until late in 2014.

Regarding Spain, the only country of our original 15 top priority European countries for which Esbriet reimbursement and product launch have not yet occurred, economic conditions in that country continue to make it challenging to predict the date by which we can expect to conclude pricing and reimbursement. We now expect to provide an update in the pricing and reimbursement discussions on Esbriet in Spain in the second half of this year. Our previous guidance was to expect an update on Spain in the first half of this year.

Our guidance for research and development expense is unchanged and is currently anticipated to be in the range of $110 million to $120 million. Anticipated increase of approximately 0% to 5% in R&D expenses in 2014 compared to that of 2013 reflects a reduction in expense from the completion of ASCEND trial, which is expected to be more than offset by several factors increased expenses in 2014 related to the whole year effect of expenses of the RECAP study. During 2013 an increasing number of patients in the ASCEND study were enrolled in the open-label RECAP study and will remain in the study until pirfenidone NDA is approved. Expenses related to the preparation, submission, and prosecution of the Esbriet NDA resubmission and new investments in the company's advancing research, preclinical, and clinical development programs.

Our guidance for selling, general, and administrative expense is unchanged and is currently anticipated to be in a range of $210 million to $225 million. Approximate 45% to 50% growth in SG&A expense in 2014 compared to that of 2013 is anticipated to come from three areas in descending order of magnitude. Infrastructure, building, and commercial prelaunch preparation for the potential launch of Esbriet in the United States, the full year effect on 2014 expenses of commercial organizations in Italy and the UK that were established in the summer of 2013, and additional infrastructure to support the marketing of Esbriet in the European countries beyond the company's 15 initial top priority targeted EU markets.

As we've noted in previous conference calls, we expect the revenue from our European entity sales of Esbriet will exceed their direct expenses from operations in the second half of 2014.

We're now ready to answer your questions. Operator, please open the line for questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions). And our first question comes from Geoff Meacham with JPMorgan.

Geoff Meacham - JPMorgan

Just want to talk a little bit more about the U.S. opportunity -- you can go into a little bit more detailed about your any specific plans pre-commercial plans -- may be the pace of those investments and then kind of what you guys would view as an effective strategy to help build the market, raise awareness and things like that?

Dan Welch

Sure, thanks for the question, Geoff. So I'll ask Sean Nolan, our Chief Commercial Officer, who is spending a lot of time on this topic to answer your question. Sean?

Sean Nolan

Thanks, Dan. Thanks for the question, Geoff. In terms of the U.S. opportunity starting first with the patient size, recall that IPS is a large orphan and in the U.S. we're estimating that there is 70,000 patients with IPF. And keep in mind, I think many of us have talked in the past that the 70,000 number that we provide is a diagnose prevalence rate based off of claims data. So we know that there are those many patients, if you will, in the U.S. healthcare system. So that's the first piece.

Secondly, Geoff, you talked about raising awareness and what we're doing from a preapproval point of view. In terms of the awareness, in the last 60 days we've actually launched a couple of different programs. We've been working very closely with key opinion leaders to develop content to help educate physicians on the disease and make them more cognizant of not only diagnosing but also the importance of early intervention and treatment once someone has been diagnosed.

And so we introduced the rally program, ipfrally.com is where that could be found, and this is an example of education that has been put forward to help physicians with things such as explaining the heterogeneity of the disease to the community pulmonologists as an example, letting them know with data that there is no such thing as a stable IPF patient. There is always some level of subclinical manifestation occurring where the disease is progressing, and you just don't know at what point in time that manifest itself clinically to a particular patient. So there is work and education going on in that particular area.

Second topic about education is there is certainly a lot of discussion around clinical endpoints, and physicians -- community physicians are asking what are the most relevant endpoint, how should I interpret the endpoint. That's another example of what we're doing in the interim to help educate physicians so that they really are able to understand and sit through the data that's going to come their way.

Interestingly, we did some research and found out that the most important thing from an FDC standpoint for physicians is determining what percentage of the population actually has a 10% decrease in their FVC. So that is very clinical meaningful to physicians and something they will definitely look for as they evaluate data.

Additionally, we want the knowipf.comnow website and program, that's know_now. And this is an initiative we work very closely with patients themselves as well as advocacy to increase the awareness of IPF and also really consolidate where resources can be found for patients so they better understand their disease, understand the options that they have in terms of what's available now to them, how they can manage their daily activities to really work to take control of their lives.

And so these are just a couple of the pre-approval initiatives that we have ongoing in addition to all the work that our medical affairs colleagues are doing with advisory boards publications, et cetera.

So, hopefully, Geoff, that gives you some perspective on what we're doing. And I would just close with the fact that Jonathan mentioned in his comments, we're planning to be ready to commercialize this product upon should we receive but upon U.S. FDA approval.

Geoff Meacham - JPMorgan

And just a real quick follow-up after that, just with respect to the approval is there any updates to CAPACITY or any other trials that you had you guys have done previously that the FDA is going to want? Or is it more a question of again just plugging in the ASCEND data into a relatively straightforward package? Thanks.

Dan Welch

I'll have -- thanks. Geoff, I've have Jonathan Leff take that.

Jonathan Leff

It's pretty much the latter, Geoff. It's submitting the clinical study report through the ASCEND trial and then just integrating that into the package that they already have summarizing any new safety findings of note, and there weren't any summarizing the efficacy vis-à-vis the CAPACITY program, a couple of administrative items, and the CMC, but nothing really major at all.

Dan Welch

There's quite a lot of work that goes into everything that Jonathan described but it's in terms of the -- there are integrated efficacy analysis particularly cooling at various time points, and so that's a huge amount of work. So flexibly is very substantial but the structure is as Jonathan described.

Operator

Our next question comes from Brian Abrahams with Wells Fargo Securities. Please go ahead.

Brian Abrahams - Wells Fargo Securities

Hey guys. Thanks for taking my question and congratulations on the continued progress on all fronts. I was wondering if you could may be talk a little bit about the influence of the ASCEND data that you're seeing on European news patterns may be as it relates to the types of patients being treated, the persistency, the way physicians may be framing the benefit risk and then given what we know now about (inaudible) drug I'm just wondering how that influences the way you're thinking about positioning Esbriet both in Europe and the U.S. from a commercial detailing point of view. Thanks.

Dan Welch

Sure, thanks for the comments, Brian, and the question. So in terms of impact if any of the ASCEND data on prescribing patterns, use persistence or any metric of use since you've Esbriet there, I think we all have to remind ourselves even though we as a company and you as investors and analysts have been aware of the data for a couple of months, the only information that exists today is investor related press release materials and slides.

Of course, we've shared this information with advisors to get their input, to get their advice on how it should be interpreted, to get their advice on how it should be communicated but that is -- that number of key opinion leaders in the various countries or clinical study investigators, et cetera, it's a relatively small number especially when you kind of spread it across all the doctors who could treat.

So the awareness in this context, therefore, is relatively low yet. That's why we explained John explained in his prepared comments that we really need to have the primary manuscript published, we need to have the label update, we need to have medical education done. I mean, we have to have the reps new materials prepared following the label uptick all that takes time and, therefore, we wouldn't expect meaningful impact of the ASCEND results until first quarter of next year.

So just reminded everybody -- now at the same time I can say that those advisors and clinical study investigators who are involved with the Sun with whom we had shared the results, they're extremely enthusiastic. And when you look at all of -- with the robustness of the data they come away with a very higher -- higher level of conviction about the efficacy and a reassurance that the safety and tolerability profile having exposed more patients is confirmed. So they walk away with a much higher level of conviction about the benefit risk of pirfenidone than they had before they saw the data.

So if these advisors are surrogate for those who will later to see the data, we're very, very encouraged that the uptick will be improved once certain things take place in terms of awareness and communication.

There was a second question I think --

Brian Abrahams - Wells Fargo Securities

Just on -- the limited amount we know about the competitors data -- how that actually influences your positioning and your thoughts on that that to the extent you can comment. Thanks.

Dan Welch

Great question. All we have to go on is the abstract, which was fairly parsimonious and the details that were shared. So we look forward with anticipation to the full presentation that we expect to be made at the ATS meeting coming up here in a couple of weeks. I wouldn't want to speculate. So I wouldn't want to go beyond that. What was in the clear in the abstract is that the primary endpoints of the two studies were met, and then there was a -- there were discordant results interestingly on their two key secondary endpoints the acute exacerbation and quality of life meaning in one study both hit, in one study both missed, which is concerning of course. And then no mention of mortality. We may see some mention at ATS I've no idea, and then some very minimal comment about the principal side effect of or tolerability effect of diarrhea. So that's all we have to go on. I think we should all stay tuned and we'll be in a better position to respond after ATS.

Operator

Your next question comes from Liisa Bayko with JMP Securities. Please go ahead.

Unidentified Analyst

Hi, this is (inaudible) Chan on for Liisa. Thanks for taking the question. I wonder if you could comment on whether you anticipate an Adcom for the U.S. regulatory process.

Dan Welch

Right, thank you for the question. We are preparing for one. So at this stage it's since we haven't yet submitted the NDA or had any feedback from them and NDA does not get submitted we can't -- we're not in any position. So we will be fully prepared; we're already preparing for and should we get notice from FDA that Adcom would not be necessary then we would be happy to hear that, but we will be fully prepared to do a fantastic job should we get called to the panel.

Operator

Your next question comes from Terence Flynn with Goldman Sachs. Please go ahead.

Terence Flynn - Goldman Sachs

Just two questions for me. The first was with respect to the first quarter sales, can you may be tease out for us how much of the 18% sequential growth was due to organic growth versus the change in the rebate in Germany? And then, just a question on the LOTUSS trial, can you help may be frame for us the efficacy data you're going to gather recognizing it's only a four-month study but may be what data are you looking for their in terms of making a go-forward decision? Thank you.

Dan Welch

Sure. So on the Q1 sales and the rebate in Germany so for those of you who aren't familiar with this topic I'll briefly recap. The rebate on pharmaceutical products, these are all products, not just Esbriet, was reduced in Germany as of the first of the year. And so, in other words, the net price to manufacturers increased by about 9% more or less. Since Germany is just one of 14 countries currently reimbursed, this represents a 9% of a portion of the 14 countries. So it's a very low-single-digit contribution in the first quarter came from the rebate change. The balance of the 18% will all be organic growth.

In terms of the LOTUSS study I'll Jonathan Leff to handle how we're looking at this study and how the results of it will be used on a go-forward basis.

Jonathan Leff

So the LOTUSS trial was planned as a 50 patient safety and tolerability only study. So being only four months in duration it's really hard, virtually impossible to decipher any efficacy signals that we might find. That said we are measuring biomarkers in LOTUSS. We're measuring pre and post skin biopsies in some of the patients. We will be looking at FVC of course during the course of the trial. But I really wouldn't want there to be any expectations that we will see, even a hint of efficacy. It's just way too small. It's open-label, uncontrolled and it's a very short trial, in duration four months only.

So if things work out well and if it's safe and well tolerated in the trial, then we will have scleroderma as a very interesting consideration moving forward. There are reasons to think that the biology of scleroderma may be amenable to pirfenidone. We would throw that in the basket with other opportunities for our late stage research.

Terence Flynn - Goldman Sachs

Okay. Can I just ask one quick one on ATS? Are we going to see the ASCEND data before the presentation on Tuesday, so will we see that on Sunday, just wanted to clarify that? Thank you.

Dan Welch

Fair, Terence. I have Jim Goff handle that question.

Jim Goff

Yes, we expect multiple presentations on the ASCEND data at ATS, including the sky fall session on Tuesday afternoon you mentioned. We also understand there could be some important IPF related sessions on Sunday afternoon. So we -- ATS is still finalizing these sessions. So we encourage you to continue to monitor their website. Our investor event is still scheduled for Sunday evening.

Operator

Our next question comes from Matt Roden with UBS. Please go ahead.

Andrew Peterson - UBS

Hi guys. This is Andrew Peterson for Matt. Congratulations on all the progress as well. Just a couple of quick questions. The first one in the EU what specifically do you expect to change in the label that you think is going to be kind of the key driver of additional uptick following ASCEND and related to that, do you expect mortality to be included in the U.S. label? And then on the IP front, appreciate you guys going through kind of the four pillars of IP strength. But if I understood you, I think you're identifying something around 2031 as potential -- as kind of final potential. So is that driven by the last of the strong patents expiring in 2031 or is it more of a combination of everything that you went through?

Dan Welch

Got it. All right, Andrew. Let me take the three questions. So in EU the updating of the label would include the results of the ASCEND study. And already there's a small mention of mortality in the European SmPC or label. So our intention would be to essentially update the SmPC for the ASCEND results. And that we expect to be -- to happen around the end of the year more or less.

In terms of our expectations for getting mortality in the U.S. label, we believe that since the mortality analysis was pre-specified and since the results are so robust and the number of patients involved over 1200 patients and finally, since mortality is of high interest to physicians, patients, and regulators, we think there is every reason why mortality information should be in the label. But the FDA has to make that decision and we wouldn't want to create expectations that it would be in the label. Even if the mortality claim were not included in the label, the preponderance of the data and ASCEND alone and when pooled the efficacy results when pooled and even the capacity results standing by themselves collectively along with the very long and reassuring safety data base of pirfenidone and exposures of over 15,000 patients, the collective benefit risk of Esbriet or pirfenidone is extremely compelling.

And so, even if they were not included we have a great -- we believe we would have a great brand, a very successful brand. On top of that of course, there will be opportunities to publish all kinds of analyses, of all of our collected experiences and observations that may include pooled efficacy analysis, mortality analysis, et cetera. So that's our view on mortality to be great, would be thrilled if it found its way into the U.S. label, we don't want to raise expectations that it will. We think there's every reasons that it should, but even without it we will a great success.

In terms of the patents going out to 2031, I think maybe you took the 2021 and added 10 years to that to get to 2031. So the way that the latest patent issued on our patent to state goes out to 2033, so that's why I said into the early 2030s. I hope that clarifies it. And that is our thinking. There is most of the patents that we had been issued or allowed had happened in the last few years. And the vast majority of them expire in the very late 2020s and into the early 2030s.

Operator

Our next question comes from Ritu Baral with Canaccord. Please go ahead.

Ritu Baral - Canaccord

Just a follow-up actually to just question at the very beginning, what are you guys seeing in your market research efforts as far as the US landscape? Who diagnoses these patients? Who tries to treat these patients? How many ILD centers are there? You guys did a really nice job of the stratification of these centers in your European launch. What are you seeing in the U.S. landscape?

Dan Welch

Thanks Ritu. I'll have Sean answer that question about how many physicians we think are out there, where they are, who diagnoses, who treats and I think that should cover it. Sean?

Sean Nolan

Sure. In terms of the landscape of physicians Ritu, we are working to finalize that right now. But I think you're going to end up -- we're going to end up in a situation between about call it 3200 to 4200 or so key physicians in the U.S. that are treaters of IPF. It's going to be I think a situation where the majority of those physicians are community-based physicians. Probably, quarter two or third, may be in the ILD typesetting and we will have all of those centers obviously covered. But I think the key point from what we see here in the U.S. is that the preponderance of the patients will be cared for by community physicians.

Ritu Baral - Canaccord

And as far as who diagnoses and who tries to treat at this point, it seems to be that you are saying it's mostly the community physicians?

Sean Nolan

That's right. That's where most of the patients are getting cared for. There may be about a 20% to 25% of the patients or solely cared for by an ILD center. The remainder of those are either solely cared for by a community pulmonologist or a combination of a community pulmonologist and an ILD center.

Ritu Baral - Canaccord

Got it. And a quick follow-up. What is the size of the RECAP right now? And can you talk to the retention or rollover rate?

Dan Welch

Thanks. Ritu, I will take the question. So we don't -- we haven't disclosed nor do we plan to. The number of patients, I think that's what you meant by the size. So number of patients. What we had said in the 555 patient study of ASCEND over 90% of the patients who were offered, who were still living and non -- who were still living at that time, who were offered open-label pirfenidone in the RECAP study, over 90% of those chose to do so. And then, we finished that study as you know late last year.

So there are still a meaningful number. There is a meaningful number of patient still from the capacity rollover which completed itself over five years ago. And that's speaks strongly about the persistence rate of patients overtime. So we haven't disclosed the number meaningful and -- but we are not giving very -- we are not giving hard numbers on that.

Operator

Our next question comes from Katherine Xu with William Blair. Please go ahead.

Unidentified Analyst

Hi, good afternoon. This is Phil in for Katherine. Thanks for taking our questions. First one, it's interesting. If you go back to Europe and you're able to include the ASCEND study into the label, do you think you would be able to go back to the countries and renegotiate a higher prices for Esbriet there?

Dan Welch

Thanks for the question Phil. I think that would be wonderful if we could. The kind of modus operandi in Europe are the way the pharmaceutical industry has worked in Europe for decades is that, the best price you're ever going to have in Europe is the day you launch and over time, usually every two years or so the government asks the manufacturer for a small single-digit price decrease.

Now, having data as strong as ASCEND, I think puts us in a very good position to be able to sustain our very attractive prices that we have today for longer than we might otherwise have hoped. There are a few places, countries that you -- the very quantitative formula to determine what the value is of a pharmaceutical medicine. This is using the quality adjusted life year or incremental cost effectiveness ratio, so called quality or ICE respectively. And in these countries which are the UK, Sweden, Netherlands, when you can demonstrate more efficacy then the value that gets fit of out this formula increases and you at least have a very legitimate basis on which to ask for a price increase.

But I would -- this has been done in the UK and under the nice umbrella, in limited circumstances. And I'm not aware that it has been successful in the Netherlands or the Sweden. So I would say that it's unlikely that we can raise the price in Europe. I would say that we hope to forestall the eventual small every few year prices decreases that one might expect. So that's how we look at this Phil.

Unidentified Analyst

That's fair. I appreciate the color on that. Real quick. And looking over the U.S. you briefly touched on the IPF market there. Do you currently know the number of IPF patients that are under care right now in the U.S. by these specialists and or by community? And I'm just trying to get round about numbers, I know we've talked about the market before, but if you have any hard numbers as to what you believe was out there?

Dan Welch

In the U.S.?

Unidentified Analyst

Yes.

Dan Welch

Yes. So yes, we are in a good position. Rather than rely on epidemiology studies in taking ranges and averages of those, we actually have hard claims data in United States and it was recently updated and recoded. And we have a very high level of confidence. There are currently approximately 70,000 IPF patients diagnosed and under care at this time.

We would expect that like most diseases for which a new drug is introduced, the number of diagnoses to increase, exactly when that would happen and at what pace that remains to be seeing. But the general rule, you have seen it many times. When the drug is -- when the first drug or drugs comes to market for disease for which there has never been a treatment, diagnosis tend to go up. But as of today, there are 70 -- 70 -- 70,000 patients diagnosed and under care in the U.S.

Unidentified Analyst

That's great. And one quick last one. Just once, I know you touched upon the pre-clinical pipeline. You said you selected one for -- to enter Phase 1 the clinic in 2015. Just want to see which one of the two you had selected?

Dan Welch

We haven't disclosed that one yet.

Operator

Our next question comes from Brian Skorney with Robert Baird. Please go ahead.

Brian Skorney - Robert Baird

Hey, guys. Good afternoon. Congrats on another good quarter of Esbriet sales and obviously, a great progress with the ASCEND read out. I just have a couple quick ones. Regarding the NDA submission, is this an entirely a new NDA or is this just -- is this an open-NDA from capacity studies that's just been resubmitted? And do you have any idea -- would you expect, I mean I guess you would expect priority review, but do you know statutorily would be the FDA we required to honor the priority review out in 2010 or would it be in your request?

Dan Welch

Sure. Thanks Brian. I'll have Jonathan answer your second question.

Jonathan Leff

So Brian, this is not a new NDA. So everything that we previously submitted is still open. So therefore, we can refer to old clinical study reports, toxicology, manufacturing segments of the old file. So we will be adding the old NDA which is still open. It is a resubmission within a six month timeline. So they've been pretty clear on that being the target.

That said, it's not unheard of, of FDA near the end to just request the sponsor another two or three months. That just happened recently with Mankind, and it doesn’t mean that its guaranteed to be six months, but that is our expectation, that's what we are hoping for. And frankly, it should be done, it's not a very large and complex trial our submission, you never know.

Operator

Our next question comes from Howard Liang with Leerink Partners. Please go ahead.

Rich Goss - Leerink Partners

Hi, this is Rich Goss calling for Howard. Thanks for taking my question and congrats on the quarter. Regarding the FEC endpoint in ASCEND are you planning on presenting both the percentage change and the absolute change in the letters of ATS?

Dan Welch

Thanks for the question and comment, Rich. In terms of FEC and what will be presented at ATS, so Dr. Thomas King is the co-chair of the ASCEND study and it's his presentation of course. What gets presented in the end is his decision and his choice. So we can't guarantee what may or may not be presented on FEC or any other metric at ATS.

As the sponsor of the study, of course, we have views on what would be viewed as interesting to the audience but in the end its Dr. King's choice.

What could be in terms of the MLs, been MLs that's an interesting metric we would think but I couldn't guarantee if that will be shown at ATS.

Operator

Our next question comes from Stephen Willey with Stifel. Please go ahead.

Stephen Willey - Stifel

Hi, thanks for taking the question and congrats. Just with respect to ATS, I know that we are also getting single agent NAC data from the PANTHER study, and I'm just wondering maybe if Sean can provide just color around the prevalence of NAC utilization that you're still seeing out there in the mild to moderate setting? And I guess if that data is indeed positive is that a combination that you would look to pursue in the clinic? Thanks.

Dan Welch

Stephen, thanks for the question. It's a good question. As background of this filling for everybody, NAC is N-acetylcysteine it's a mucolytic antioxidant. It's not registered anywhere in the world for IPS; its available in most countries over the counter. In Europe, its prescribed either alone or with steroids, and it depends on the country but as much as 20% to 25% of patients get some form of NAC at some stage in their IPS disease. In the United States, it's a lower percentage. It's probably in the range of 15% to 20% of patients some of NAC at some stage in their disease.

We have a study running right now in Europe called PANORAMA. And that's all patients get Esbriet and then they randomize; they either get NAC or placebo. So Esbriet plus minus NAC. And that's meant to 200 patents. And should the results of (inaudible) that be positive in one way or another, having an extensive placebo control database of safety and tolerability and some measures of efficacy, although modest, would be extremely important. And so the PANORAMA study was undertaken partly to be ready in case the PANTHER results were positive in some way. If the PANTHER results are negative in every way then we would have to revisit the rationale for continuing the PANORAMA study. And I hope I've answered your question on that.

Stephen Willey - Stifel Nicolaus

Yes, maybe just as a quick follow up. I think there is also presentation from a Japanese group looking at pirfenidone and NAC in a more severe patient population and I know it's kind of a small end but it seems to suggest that there's some kind of incremental benefit occurring with the combination. And just wondering too if that's something that might on your radar screen just with respect to expanding the addressable patient population?

Dan Welch

Yes, great question, Stephen. We obviously noted that abstract. That's one of 27 abstracts at ATS that touch upon pirfenidone. So pirfenidone is going to have a very large footprint at this ATS, remarkably large. That is we are looking at lifecycle management of pirfenidone. One place to go is towards the more moderately severe or severe patients and a combination with NAC could make sense. That's one of many areas we're taking about taking Esbriet into lifecycle management along with the SSCIO, along with several other ideas as well. but the results are intriguing from the Japanese on that topic.

Operator

Our next question comes from David Friedman with Morgan Stanley. Please go ahead.

David Friedman - Morgan Stanley

Hi, thanks for taking the question. My question was whether you're going to be using data from Shionogi during your filing? If so, will it the same royalty arrangement as you have in Europe where its 4.25 until the end of orphan designation? Thank you.

Dan Welch

Thanks for the question, David. So unlike other registrations, our resubmission of our NDA will have no Shionogi efficacy data in it, no patient level data whatsoever. The previous NDA does have information, efficacy data in it. Under the terms of our settlement of the conditions or the understanding is the agreement is that the Shionogi data that are in the original NDA would not be subject to a royalty. And since we are not using any Shionogi efficacy data whatsoever in our resubmission then there would be no royalty due to Shionogi from U.S. revenues, 0%.

Operator

Mr. Goff, there are no further questions at this time. I will turn the call over to you.

Jim Goff

Thanks again for joining us today. To sum up briefly, we are really happy with our strong progress in the first quarter of this year in every respect of the business, notably our revenue growth, our ASCEND data, our solid R&D pipeline progress and further patented state expansion. We look forward to sharing more of the ASCEND data at the ATS later this month where we will also highlight the progress on our anti-fibrotic product pipeline in particular the performance characteristics of our pirfenidone analogs. We look forward to updating you on our continued progress. Thank you again and goodbye.

Operator

Ladies and gentlemen, that does conclude the conference call for today. We thank you once again for your participation and ask that you please disconnect your line.

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