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Durata Therapeutics Inc. (NASDAQ:DRTX)

Q1 2014 Earnings Call

May 8, 2014 8:30 AM ET

Executives

Allison WeyVP, IR

Paul Edick – CEO

Corey Fishman – COO and CFO

Mike Dunne – Chief Medical Officer

Analysts

Steve Brian – Bank of America Merrill Lynch

Elissa Baker – J.P.M Securities

Jeremiah Wong – Credit Suisse

John Ryan- Jefferies & Co

Ed Arce – Roth Capital Partners

Jim Molloy – Summer Street Research

Operator

Ladies and gentlemen, thank you for standing by and welcome to the Durata Therapeutics First Quarter Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks there will be a question and answer session. (Operator Instructions) It is now my pleasure to turn the call over to Allison Wey, Vice President of Investor Relations. Please go ahead.

Allison Wey

Thank you Maria. Good morning and welcome to Durata’s first quarter 2014 financial results conference call. The 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 also available on the site.

We are joined this morning by Paul Edick, CEO; Corey Fishman, COO and CFO; John Shannon, our Chief Commercial Officer and Mike Dunne, Chief Medical Officer. Paul will provide opening remarks and share some highlights of the quarter. Corey will provide details of the financial results. We will then open the call for questions.

During this call, we will be referring to Non-GAAP financial measures. These Non-GAAP measures are not prepared in accordance with U.S. Generally Accepted Accounting Principles. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures is available in our press release issued this morning.

Please note that today’s conference call and webcast may contain certain forward-looking statements within the meeting of The Private Securities Litigation Reform Act of 1995. To the extent, any statements made on this call contain information that is not historical. These statements are essentially forward-looking and are subject to risks and uncertainties detailed in the company's filings with the SEC such as Form 10-K, Form 10-Q and Form 8-K reports. I’ll now turn the call over to Paul Ed.

Paul Edick

Thanks Allison. Good morning everyone. As most of you know, the big item that we can report on which kept up the first quarter of this year was the unanimous vote from the FDA’s March 31st Advisory Committee on anti-infectives recommending approval of Dalvance.

We are very pleased with the confidence that was expressed during that meeting regarding the safety and effectiveness of Dalvance. We were especially impressed with the level of importance members of the advisory panel attributed to the clinical relevance of Dalvance based on its long-acting profile and convenient dosing as it relates to the utility it could provide to the practicing physician.

Since then, we have had regular ongoing dialogue with the FDA regarding our potential label and things in general are progressing nicely on that front. As everyone would imagine, we have a few weeks left before our action date, which is I’ll remind everyone, May 26, which happens to be Memorial Day. So we could hear from the agency just prior or soon thereafter and you know, they will – surely they’ll let us know.

In the meantime, we are quite busy preparing for the potential launch of Dalvance. Our current activities remain focused on listening to our potential customers and building our commercial team.

As we’ve noted on previous calls, what we hear consistently from providers and peers alike, is that healthcare delivery is changing rapidly when it comes to the site of care, with increasing emphasis on avoiding unnecessary hospital admissions.

What we also hear loud and clear are the limitations providers face when treating complicated skin patients in need of antibiotic therapy with currently available products that require daily or twice daily infusions.

Current products are logistically difficult to administer in an outpatient setting and providers find themselves forced to admit patients for the purpose of giving their IV therapy. As we listen to our soon to be customers, we also sense a true excitement and anticipation for what Dalvance can potentially offer.

Physicians tell us that Dalvance’s profile of only two infusions, thirty minutes each administered once-weekly will represent a change in the ease of administration that will be much more facilitative of treatment in the outpatient setting whether it’s the emergency department, hospital outpatient department, the patients’ home or physician’s office.

Our medical science liaison team, reimbursement consultant team and market development teams are also spending their time profiling top institutions, understanding current patient flow when treating serious skin patients, understanding what drives admissions in each institutions, institution – pardon me, and potentially changing the availability, how that would change with the availability of products, long-acting product like Dalvance.

We are learning more about formulary requirements institution-by-institution, gaining an understanding of who the key stakeholders are et cetera. Our experience thus far is that interest in what Dalvance may be able to offer across these main departments, not just clinical pharmacy, which has been the historic norm with new product entries, especially in those institutions that are actively looking to move more care to the hospital outpatient facilities that they have developed.

At the same time, we are comparing to bring on the balance of the commercial team soon after our anticipated approval. On our last call on March, we also reviewed our current plan, current and planned studies for Dalvance. So, I’ll just take a moment and update you on progress with regard to those studies.

We announced in March the initiation of our 1500 milligrams single-dose study. As we said at that time, we believe that 1500 milligrams is the appropriate dose of Dalbavancin and our goal is to provide a singular divided dosing flexibility for the clinician depending on the circumstances, they face on a patient-by-patient basis.

The study is now well underway and enrolling patients. The implementation of this study should be simpler than what we had in the discover program for several reasons. It’s a smaller study, it’s a single-dose design and we are using many of the same sites that are experienced, that are enrolling patients in these kinds of studies.

We are also on track to initiate our Phase III community-acquired pneumonia trial in the fourth quarter. This will also be a single-dose 1500 milligrams study and we anticipate that study will take two seasons ending sometime in early 2016. Our pediatric PK study is enrolling albeit solely as is the case with most pediatric studies.

We do have enough data we believe that will help inform dosing of our pediatric studies in general and our planned pediatric osteomyelitis study in particular. The pediatric osteo study protocol is still in development and we are still targeting an early 2015 start for that study.

The Phase I bone penetration study that we referred to historically has completed and Mike and his team are currently preparing an abstract hopefully for one of the fall conferences.

In regards to conferences, we will have six posters at ECCMID next week, including some very interesting analyses of the patient demographics and treatment outcomes from the discover program, in particular those who are treated in the outpatient setting. The six posters will be on our website late next week.

Just a quick note on our European MAA application, that process is moving on as expected. As we have noted previously, we don’t anticipate an approval until first half of 2015 and we wouldn’t anticipate a country launch until mid-2015 at the earliest. You can imagine there is a lot going on among our employees and others to get Dalvance ready for market.

We are all very excited and extremely focused on successful execution. Looking beyond the launch of Dalvance and other possible indications that we are developing, we are also looking at how we continue to build Durata and our portfolio. To that end, we’ve started the process of identifying potential products for in-license either commercial products to leverage our sales force or late-stage products to leverage our development team and potentially add to our pipeline.

Our focus as we’ve said will continue to be acute care hospital-based products. We also continue to evaluate partnership opportunities for Dalvance in the Europe. We are still quite on ways from getting that done. I believe that is a successful launch in the U.S. will be important to our ongoing European partnership conversations.

All of that being our update, I’ll turn it over to Corey at this time for our first quarter financial results.

Corey Fishman

Thanks Paul. I am going to spend next few minutes providing a brief review of the first quarter and then I’ll discuss some of our 2014 expected highlights and the corresponding financial outlook for the remainder of the year.

Beginning this quarter, we will report our earnings per share and net earnings or loses on both the GAAP and non-GAAP basis. We report these non-GAAP measures to more closely reflect how our management team evaluates the performance of our business.

In the first quarter, we generated a non-GAAP net loss of $16.5 million or $0.62 per share, which reflects our GAAP net loss adjusted for stock-based compensation expense and acquisition-related charges which are both non-cash expenses. On a GAAP basis, we recorded a net loss for the first quarter of $20 million or $0.75 per share.

In the first quarter of 2014, R&D costs were $9 million compared to $7.1 million in Q4 2013. As we’ve discussed previously, the R&D category includes expenses for our clinical and development programs, our CMC costs and our regulatory expenses.

The primary drivers of our R&D costs for the quarter were costs to manufacture products for commercialization, clinical trial costs, such as those related to the recently introduced single-dose study and personal costs as we expand our clinical team to support ongoing development.

The primary driver of the $2 million increase in R&D costs from fourth quarter of last year was the initiation of the single-dose study. It’s important to note that following the positive recommendation of the FDA Advisory Committee on March 31, we plan to capitalize future product manufacturing costs as inventory until such time that the inventory is sold.

G&A costs were $7.2 million for the first quarter of 2014 versus $5.2 million in the fourth quarter of 2013 or a $2 million increase primarily due to additional headcount and infrastructure to conduct pre-launch activities and to support a future commercial organization.

At the end of the first quarter, we had cash-on-hand of nearly $42 million. As we have 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 through our previously announced facility with PDL, we have the ability to continue our pre-launch activities, launch Dalvance in the U.S. and operate into 2015 without incremental funding.

In addition, upon Dalbavancin approval and for up to nine months thereafter, we also have access to another $30 million should we want that without any obligation to take that funding.

Now I’d like to reiterate our intent to defer the $25 million milestone payment to Pzifer due upon first commercial sale of Dalbavancin. As soon the approval of Dalbavancin at the end of May and subsequent commercial sales, we will execute a promissory note to Pfizer and begin to accrue interest at 10% per year on the $25 million.

The interest would be payable upon 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 briefly explain the accounting treatment for this obligation, which can be a bit complicated. The value of this obligation on our books is 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.

Based on the FDA Advisory Committee’s unanimous positive recommendation in March, we increased the probability of success from 85% to 95% and recorded a non-cash charge of approximately $3 million on our books during the first quarter. This raised the amount of the liability to $24 million on our March balance sheet.

Any further increase in the probability of success will generate the non-cash P&L operating expense recorded as an acquisition-related charge on our income statement.

Now I’d like to spend a few minutes talking 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 we’ll then shift 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 trial and 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 have only one quarter of demand revenue. Since we have already previously expensed the production of launch quantities of commercial products in earlier periods, we would expect that there would be no cost of goods sold expense in the P&L related to our sales in 2014 other than distribution costs.

With regard to R&D, there are a number of studies to discuss and I will walk through those now. As Paul mentioned, the single-dose study was initiated and enrolment is now underway.

The bone penetration study has been completed and results from that study will be available later this year. The Pediatric PK study is ongoing and enrolling at a rate consistent with similar pediatric studies that have been done previously by other sponsors. All three of these studies are contributing to the R&D expenses in the first half of 2014.

Additionally, we began putting in place the necessary infrastructure and organization to be able to enroll patients in the pediatric osteomyelitis study and the pneumonia study that we expect to begin enrollment in the later part of 2014 or early 2015.

We expect first half 2014 spending and these additional two phase three trials to be quite modest. As we are moving to the second half of 2014, our spending will be driven primarily by the enrolment rate of our ongoing trials.

We have made our best estimate of 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 important to note that any spending in 2014 that is different than planned due to enrolment rate variability will be a timing item that will be balanced out in 2015.

Taking all of these factors into account, we confirm our previously issued guidance that we expect our R&D spending for the full year 2014 will be between $25 million and $35 million.

Now let’s take a few minutes and discuss our G&A spending. As you know, our G&A spending includes all commercial infrastructure and costs related to the pre-launch and launch costs for Dalbavancin including the associated sales and marketing infrastructure. G&A also includes the corporate costs and infrastructure to run and maintain our public comfort.

The key driver of G&A expense will be the timing of the hiring of the sales representatives. We expect that within end of May approval, we will have most of the sales reps on board towards the 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 a few weeks, our G&A expense will reflect a higher or lower than expected total G&A cost respectively.

Given the set of assumptions we just laid out, we also reconfirm that we expect our full year 2014 G&A expense 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 regarding our $25 million milestone payment to Pfizer, we expect to bring that liability up from $24 million as of March to the full $25 million by the end of the second quarter which, will generate a one million dollar non cash acquisition-related charge assuming the anticipated regulatory approval is achieved and that commercial product will be sold in Q3.

With regard to interest expense, cash interest from the credit facility with PDL will increase once we borrow the additional $15 million upon approval. In the first half of the year, we estimate cash interest expense will be approximately $2 million while in the second half of the year we estimate that cash interest expense will be approximately $3 million.

In addition, there will be non-cash interest expense in the second half of the year due to the $25 million promissory notes to Pfizer of approximately $1 million.

Now I would like to discuss with you our tax position. As you will recall, we transferred our worldwide economic rates 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 dollars of cash taxes in 2014 and we expect our global effective tax rate to be in the mid-20% range in 2015 and 2016 and then settle into the mid to high teens thereafter.

Finally, there is one additional point I would like 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 pre-launch activities, launch Dalvance in the U.S. and operate into 2015 without accessing the $30 million that will be available to us from the PDL transaction after Dalvance approval.

We have incredibly exciting opportunities in front of us both from a commercial and clinical perspective. We look forward to bringing Dalbavancin to the market and to providing value for patients, providers and institutions. Now we’ll take questions..

Question-and-Answer Session

Operator

Thank you (Operator Instructions) Our first question comes from the line of Steve Brian of Bank of America

Steve Brian – Bank of America Merrill Lynch

So, that SG&A guidance that you just laid out there Corey, in plenty of detail there, can you talk a little bit about, specifically how many reps you think you’re going to be able to bring on in the second half? And then what type of headcount that you think you will need in managed care and other not necessarily customer-facing functions?

Paul Edick

Steve, this is Paul. I’ll take the first shot at that, if there is pieces I leave out John Shannon is here he can fill in. We anticipate that we’ll have the full complement of hospital reps that we’ve disclosed historically of a 100 by early third quarter.

Process of trying to identify those people is ongoing. We will maintain the medical science liaison team at about 10 to 12. We are bringing on right now the reimbursement team which I think we have three to four, it will cap at about five or six. And management in the field will be ten regional business directors. So I think that adds up to about 135-isk right John? And we don’t anticipate any more than that and that will be our customer-facing organization for the foreseeable future.

Steve Brian – Bank of America Merrill Lynch

Okay that’s helpful, and any further update on your feedback from the hospital target, the hospital targets on the fraction of them that you think are prepared to make a change to treating the skin infections in an outpatient setting?

Paul Edick

No, I think we discussed that in March on our last call, it hasn’t changed that dramatically since then, it’s still a bell shaped curve, I think the top 25% of institutions are moving pretty aggressively to alter their business model toward a more ambulatory care, more outpatient care.

And I think you see, you know more hospitals that are kind of in the middle of that bell curve, that really addressing the business model relative to outpatient treatment more aggressively, but we are still working with a lot of them to understand their level of readiness.

Steve Brian – Bank of America Merrill Lynch

And then just lastly Paul, your interest in – in-licensing another hospital-based product, do you think that you will likely stay within infectious diseases?

Paul Edick

Well, we look at it kind of like an onion. We would love to stay in anti-infectives, both gram positive and gram negative. That would be the most obvious strategy. Infectious disease would be the second layer. Acute hospital care would be the third layer and things that are in the wound care center which will use a lot of anti-infectives, emergency department etc. would be the – kind of the outside layer.

But we are going to be, like everybody else, opportunistic. If we can find an asset that fits any of those parts, we will bring it into the company. We are going to be generating revenue here pretty soon. So we think we will be moving into a period where we will be more competitive at trying to get assets.

Steve Brian – Bank of America Merrill Lynch

Okay thank you.

Operator

Our next question comes from Elissa Baker of J.P.M Securities.

Elissa Baker – J.P.M Securities

Thanks for taking the question and congratulations on the successful interactions last year thus far. I wanted to just drill down a little bit on the sort of inventory you have on hand, I know that you are kind of – that will result in a nice low cost of goods. So I am just curious about how much – maybe you can quantify in terms doses or when can we expect inventory to?

Paul Edick

Yes, what we certainly say is, we would anticipate based on the amount of products we have got on hand that through 2014, we would not generate any P&L cost of goods. So we…

Elissa Baker – J.P.M Securities

And does that mean that starting of 2015, you will?

Paul Edick

Probably yes based on our forecasts.

Elissa Baker – J.P.M Securities

Okay, great, and then, as we – as we look at the market, I think the, sort of the competition for the outpatient market is clearly orals with Zyvox in today so that maybe you can just review with us how you intend to sort of compete there?

Paul Edick

Lisa, the current market, if you look at it, most of the outpatient business is oral because the majority of patients needing IV therapy are being admitted because of the kinds of products that are currently available, it’s either in every day infusion or twice a day infusion.

The real market opportunity we think is going to change dramatically with the long-acting drugs because a big chunk of those patients currently being admitted will be more likely to be treated in the outpatient setting. So the outpatient utilization we see today is not what it’s going to be in the future.

And I think you are going to see – you are going to see three companies pushing, admitting fewer patients, putting fewer patients on Vancomycin and utilizing drugs like Dalvance to treat those patients in an alternative setting. So, that being said I don’t think we will be competing with the oral Zyvoxes of the world.

I think they are going to continue to be used as step-down therapy from IV and for the less serious patient that comes into the ER just doesn’t really need IV therapy.

Elissa Baker – J.P.M Securities

Great, thank you. And then just your expectations for timing from enrollment to the Phase III b for the single-dose, I am just curious about then, if you can give us a range of when you expect it? And that’s my final question, thank you.

Paul Edick

We don’t know yet, because it’s early on and enrollment in single-digit still. A couple of things that I tried to kind of highlight in my opening remarks. It is a simpler study. If you recall, we did the two discovered trials in about 18 months each, but we had almost, I think over 200 clinical sites. We’ll have fewer sites in the III b single-dose study. But it is a simpler design.

So, could we still do it in a similar timeframe probably, but we’ll update people on enrollment rates as the year goes on.

Elissa Baker – J.P.M Securities

And not just an SNDA, is that correct and would it be a six month review? Just trying to get a sense of the timing.

Paul Edick

Correct.

Elissa Baker – J.P.M Securities

Great thanks.

Operator

Our next question comes from Jason Cantor of Credit Suisse.

Jeremiah Wong – Credit Suisse

Good morning. This is this is Jeremiah filling in for Jason.

Paul Edick

Hey, Jeremiah.

Jeremiah Wong – Credit Suisse

Just as a follow-up to the prior question about your single-dose study. Is there any changes to the inclusion or exclusion criteria that you have for discovered one and two? And also, do you plan to address a patient subset more than competitive like than you did previously?

Paul Edick

I will turn that one over to Mike Dunne.

Michael Dunne

Yes, hi, Jeremiah. The inclusion, exclusion criteria are pretty much the same. They are all consistent with the final guidance now for skin infections, but they are pretty much same as the last time around. And I didn’t – I don’t think I got the full question, second part of that question about subset analysis.

Jeremiah Wong – Credit Suisse

Yes, just wondering in terms of – are you planning to try and reach the patient population for certain subset, i.e. like more MRSA or any of the specific disease patient type?

Michael Dunne

We are not specifically targeting more MRSA in this program relative to the prior program. We are using sites where we know basically what their floral looks like. So there will be probably a little bit more enrollment from the U.S.

But overall they are not trying to target more MRSA. We had a very good continued more MRSA isolates than the previous program and we think we will see a similar kind of balance in this program.

Jeremiah Wong – Credit Suisse

And in regards to the MAA filing, you mentioned that you expect your decision back in the first half of next year, when could we start getting feedback in terms of the progress of that interaction and when could we start to narrow down that window?

Paul Edick

I think, Mike can answer that one also. What I would say is the MAA process is a very calendarized process. So Mike maybe you can shed some light on that.

Michael Dunne

Yes, yes so that’s all, as Paul was saying a very structured process. We get back comments mid-cycle that we respond to. They send us another round of comments after that and then it goes into CHMP review.

So I don’t think at this point, we have more clarity to add on the calendar of events other than just reinforcement we said before, the early 2015 we should start to see some definitive feedback from EMA about the application.

Paul Edick

And Jeremiah, just to add on to that, once you get your MAA review completed, then you get a CHMP opinion, it then goes out to the countries for final approval. So there is a number of steps.

Jeremiah Wong – Credit Suisse

Okay. All right. Thank you for taking the questions.

Operator

Our next question comes from the line of Eun Yang of Jefferies.

John Ryan- Jefferies & Co

Hi guys this is John Ryan in for Eun. Thanks for taking my questions. Just a couple, assuming approval with your timeline for launch in the third quarter, first, what do you expect for fiscal year 2014 Dalbavancin sales?

Paul Edick

Yes, so John we are not providing revenue guidance. So, can’t give you a number on that, we anticipate that from approval, it’s going to take at least six to eight weeks just to package, print the final label package, ship into the wholesalers and then wholesalers shipping out to customers.

So, that’s a pretty normal process, it takes pretty much that amount of time. And we will get some initial inventory in hospitals in the third quarter and demand sales in the fourth quarter. But we are not giving revenue guidance for the foreseeable future.

John Ryan- Jefferies & Co

Thanks and then one last question, in terms of the EU approval process, do you have any further color on discussions with potential partners and are you thinking about going it alone in the EU?

Paul Edick

Our strategy remains to partner. We are in discussions. As I mentioned, I don’t anticipate anything happening soon. We are taking that process one step at a time, because we really don’t anticipate any country launches until the middle of 2015.

I also believe that our potential partnership and the structure thereof will be impacted and potentially enhanced by a successful U.S. launch. So, we think that’s the most important next step.

John Ryan- Jefferies & Co

Thank you.

Operator

Our next question comes from the line of Ed Arce of Roth Capital Partners.

Ed Arce – Roth Capital Partners

Hi, good morning everyone. Just a couple questions. Now that you are down to the last two three weeks here before expected approval. Just wanted to ask how, in these discussions with FDA, how would you characterize those discussions especially with regards to labeling and other important factors?

Paul Edick

Mike, do you want to handle that one?

Michael Dunne

Yes, sure, there is a series of things that we work through at this stage of labeling. They are all pretty standard things frankly. I see it being a very productive conversation at this point, we are just working through some of the – the kind of the way we are describing some of the features of the label and it will all go into the point of plan.

Ed Arce – Roth Capital Partners

And in the discussion, given some of the prepared remarks about the transition of R&D expenses from the first half of this year into the second, I think I missed some of the couple of the studies that would initiate second half of this year, if you could go over that again for us? Thanks.

Paul Edick

Yes, the ongoing studies, and Mike correct me if I miss something here of the single-dose trial the pediatric PK and we’ve completed the bone penetration. In the later part of 2014, we would anticipate initiation of the pneumonia trial and probably early 2015 before we would initiate either of the pediatric trials osteo and skin. Mike, is that about right?

Michael Dunne

Yes, that’s right Paul.

Ed Arce – Roth Capital Partners

Okay, great. Thanks.

Paul Edick

Thanks Ed,

Operator

Our next question comes from the line of Cheryl Rousseau [Ph] of Jamie Capital.

Unidentified Analyst

Hi guys. Thanks for taking my call. My question just a couple here. The first one in regards to the – hospitals making the adjustments to a more ambulatory care business model, do you have sort of a sense of how long it takes these hospitals to move in that direction?

Paul Edick

Cheryl that’s a great question, when you see a hospital or a hospital system that has really figured out that they need to move or their business model needs to move, they act fairly quickly. Hospitals that we were talking to six months ago that really didn’t have infusion capabilities weren’t really pushing a lot of patients into their outpatient clinics weren’t really identifying and stratifying patients in the emergency department for outpatient as opposed to being admitted.

You go back six months later, three months later, and they’ve moved quickly and you now start to see them in an implementation mode. So we’ve seen quite a bit of change over the last year as we’ve been out there and that’s why I think we are pretty confident that there is, there is a pretty good chunk of these hospitals that are moving aggressively.

And if you take a bell shaped curve and you put it into 425, four quarters, the two quadrants in the middle or two parts in the middle, lot of those hospitals are moving very aggressively to a more outpatients focused business model.

So, we think – the problem they’ve got in our category, okay, is that current therapies don’t facilitate the movement of those patients. The biggest frustration anyone who is trying to do more ambulatory is that you have to get a patient to come back to the hospital every single day for 10 to 12, 14 days.

The prospects of only having to dose the patient when they present and bring on back once, it’s very encouraging to a lot of hospitals that are trying to do more of this.

Unidentified Analyst

So, you see the launch of Dalvance sort of a bit of a catalyst for the hospital to sort of accelerate into the more ambulatory care pattern?

Paul Edick

Absolutely.

Unidentified Analyst

Okay, great. And just two quick follow-ups, have you guys talked about your estimated COGS going into 2015?

Paul Edick

We have not.

Unidentified Analyst

Okay, and just one more. You often said that you are not planning on accessing that $30 million, is that correct?

Paul Edick

Yes, what Corey mentioned was we don’t plan to access it. I think, you know what, if we find an asset to acquire, that’s available to us, so it’s there if we need it.

Unidentified Analyst

Okay, great. Thank you guys.

Paul Edick

Thank you.

Operator

Our last question comes from the line of Jim Molloy of Summer Street Research.

Jim Molloy – Summer Street Research

Hey guys, thanks for taking my question. Could you talk a little bit about, sort of the competitors in you space, you look at Cubist in the discounts to patients, these areas or any areas particularly outside of antibiotics that are looking interest in particular at this point?

Paul Edick

I think, I mean, if you look at what we would try to do, anti-infectives is our space right now anti-virals would be interesting. So we are looking at a little bit of a broader cross-section of potential assets, if it’s acute hospital-based business, it would fit with the company we are trying to build.

Jim Molloy – Summer Street Research

And then looking at, again looking at one of the Cubist and one of the better products in the space, it took a while to get into a $1 billion of sales. It took a while to get there and is there anything lessons that can be learned from their launch that can really – I think one of the knocks – not one of the knocks, one of the concerns is, the panel would want – the product should get approved or hopeful that will get approved here coming up, but it’s kind of a long slot for antibiotics to start getting to big numbers. Is there anything from these other launches that you can use and form your launch, to perhaps shortcut that process?

Paul Edick

I think there is a number of things that we’ve learned and I think those are the things that we’ve acted on. I think if you look what’s Cubist has done is they’ve done a marvelous job and they’ve built a wonderful company as a part of the process. You have to look at several factors. When that broke and others were launched, it was during a time when the business model was solidly in the patients in beds model.

So. A lot has changed. And in the last three to five years that change has accelerated dramatically. So that’s number one, if you then look at their business, a lot of their business has moved into the outpatient environment even though within everyday infusion.

So, hospitals want to do this and patients would prefer to not to sit in a hospital bed. So, you know that there is potential momentum and releasing people from an everyday visit to the hospital, I think it’s going to increase that momentum. The other thing that we studied very hard before we started this, and I think we’ve learned a lot is, to better understand customer-by-customer what is their business model and what are their drivers,

And I think, as an industry, we are learning to listen to our customer better than we did a decade ago. And I would say the final thing is, the team here at Durata has launched a number of drugs in a lot of different situations lot of different therapeutic categories and our perspective has always been, what you do in terms of understanding your customer and understanding the landscape in the 18 months prior to launch is probably more important than what you do in the six months post launch. And that's where we spend a lot of our time.

And our investors have been incredibly supportive of allowing us to put people on the ground than they have people in the field well ahead of anticipated approval.

Jim Molloy – Summer Street Research

Okay and a quick follow-up, any anecdotal comments from potential customers that you can share?

Paul Edick

Well, I think I touched on it in my opening remarks. The level of awareness of Dalbavancin in general going back ten years is amazing. People, when you talk to them for the first time, they say, what are you guys selling?

The answer is nothing. But we are developing a product called Dalbavancin and they say, oh, yeah, I remember Dalbavancin whatever happened to it. So, there is a level of awareness that is surprising. And I think today there is an increasing level of anticipation especially with the advisory committee getting on this.

Jim Molloy – Summer Street Research

Well, great. Thanks for taking the questions.

Operator

Thank you. I’d now like to turn the floor back over to Paul Edick for any closing or additional remarks.

Paul Edick

I would just like to thank everyone for participating and listening in this morning and for all the great questions and we look forward to continued updates in the future.

Operator

Thank you. This concludes today’s Durata Therapeutics First Quarter Results Conference Call. You may disconnect your lines at this time and have a wonderful day.

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Source: Durata Therapeutics' (DRTX) CEO Paul Edick on Q1 2014 Results - Earnings Call Transcript
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