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Executives

Philip Yachmetz - SVP & General Counsel

Paul Hamelin - President

Analysts

Kim Lee - Global Hunter Securities

Laura Ekas - Collins Stewart

Cory Kasimov - JPMorgan

Eun Yang - Jefferies

Joseph Schwartz - Leerink Swann

John Newman - Oppenheimer

Steve Byrne - Bank of America

Carol Werther - Summer Street

Katherine Xu - Wedbush Securities

Laura Ekas - Collins Stewart

Gene Mack - Soleil Securities

Liisa Bayko - JMP Securities

John Newman - Oppenheimer

Gene Mack - Soleil Securities

Liisa Bayko - JMP Securities

Savient Pharmaceuticals Inc. (SVNT) Q3 2010 Earnings Call October 26, 2010 8:30 AM ET

Operator

Good day ladies and gentlemen and welcome to the Savient Pharmaceuticals conference call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. As a reminder this conference may be recorded.

I would now like to turn your conference over to your host for today, Mr. Philip Yachmetz, Senior Vice President and General Counsel for Savient Pharmaceuticals.

Philip Yachmetz

Thank you and good morning. Welcome to this morning’s conference call. Last evening we issued a press release providing an update regarding our efforts to identify a strategic transaction for the sale of Savient.

This press release is available on our website at www.savient.com. Before today’s call, I would like to read our safe harbor statement. Comments made during this conference call will contain forward-looking statements that involve risks and uncertainties regarding the operations and future results of Savient Pharmaceuticals.

In particular, we need to stress that when we discuss information regarding our efforts to identify strategic alternatives for the company, our preparations and plans to commercially launch KRYSTEXXA and our preparations for regulatory submissions for KRYSTEXXA outside the United States, our work with our primary and potential secondary supply sources and our beliefs with respect to our ability to gain and maintain market acceptance with KRYSTEXXA by physicians, patients, healthcare payers and others in the medical community as well as related matters. No inference of the overall success with respect to these matters can be implied as they are subject to a number of risks and uncertainties.

We encourage you to review our press release dated October 25, 2010 and our company’s filings with the Securities and Exchange Commission including without limitation, our quarterly reports on Form 10-Q and 10-K which identify important factors that may cause actual results or events to defer materially from those described in the forward-looking statements.

Furthermore, the content of this conference call contains time sensitive information that is accurate only as of the date of this live broadcast October 26, 2010. We undertake no obligation to revise or update our statements to reflect events or circumstances that occur after the date of this conference call.

Joining me on the call this morning is Paul Hamelin, our President. However before I turn the call over to Paul, I would like to take a moment to review the announcement made last night in our press release. We are in the process we have engaged in directed towards identifying a strategic transaction for the sale of Savient.

As we stated in last night’s press release, this process did not result in the sale of the company at this time. We can confirm that we conducted a broad process open to all companies that we consider to be potential acquirers of Savient and ultimately that process did not result in the sale of the company at this time.

Our Board of Directors will continue to evaluate strategic alternatives available to the company to maximize value. However, we believe would not be in the best interest of Savient’s shareholders to discuss in detail beyond what we have stated, the process that we have conducted.

Therefore, we will have no further comment on the sale process. What is important is that we have an FDA approved product in KRYSTEXXA and it is our belief that it is in the best interest of our shareholders to rapidly advance the launch of KRYSTEXXA in the US. Thus on this conference call, we intend to focus exclusively on providing some further details around our launch plans and again, we'll not provide further comments on the sale process and related matters.

At this time I would like to turn the call over to Paul Hamelin.

Paul Hamelin

Thank you Philip and good morning everyone. Thank you for joining us. As Philip mentioned the purpose of this morning’s call is to discuss the progress we’ve been making in our preparations for the commercial launch of KRYSTEXXA.

I’d like to remind everyone that in our September 15th conference call, immediately after approval, we stated that the company’s plan was to continue preparations for launch while in parallel we were pursuing a strategic transaction. By following this parallel or dual path, we have made significant strides in our launch preparation and implementation work which I will highlight this morning in the call.

As you are aware the FDA approved KRYSTEXXA last month was an indication for the treatment of chronic gout in adult patients who are refractory to conventional therapy. These patients are desperate for a therapy that can transform their lives by reducing the crippling flares, eliminating the disabling, disfiguring chronic inflammation associated with tophaceous deposits of uric crystals in their joints and soft tissues.

We’ve been moving air commercialization plans forward and look forward to bringing these desperate patients the treatment that they deserve and that they have been waiting for, for decades. Towards that end I am pleased to announce that we intend to commence shipments of KRYSTEXXA to specialty distributors in December of 2010 in order that these deserving patients for the first time ever have access to a life changing new therapy. This was not an incremental benefit that KRYSTEXXA provides; it is a life transforming benefit.

In December, rheumatologists and nephrologists will then be able to write prescriptions for KRYSTEXXA and access the product for the treatment of their patients. We will also announce the price for KRYSTEXXA at the time we commence our shipments to the specialty distributors which we’re planning for December.

There is much more to a commercial launch than simply making it available for prescription. So let me lay out some of the details of our other launch plans and activities. In terms of product supply, we have already put product labeling on vials, packaged and placed these vials in the cartons. We have already prepared large quantities of KRYSTEXXA in order to meet the anticipated requirements for the commencement of shipments into commerce in December.

We also have on hand in the United States sufficient quantities of additional product ready for final packaging and labeling later this quarter and additional supply quantities at various points throughout 2011.

As previously disclosed, shortly after the FDA’s approval last month, we completed our preparations of our proposed promotional selling materials or KRYSTEXXA’s introduction and we submitted these materials for review to DDMAC. DDMAC is the FDA’s Division of Drug Marketing Advertising and Communications. This review process typically takes several weeks and some times months depending on the workload of the DDMAC team.

We hope to receive initial set of comments from DDMAC some time in the month of November. After review those comments we'll be able to firm up the target types of completion of our promotional and selling materials and this will set the timing for a full commercial sales force launch in the US.

However, not wanting to delay the launch until we have a response from DDMAC, we have elected to begin the introduction of KRYSTEXXA to one of our key constituent groups through our implementation of an initial package insert or limited launch Phase I at the American College of Rheumatology meeting or ACR, annual meeting in Atlanta November 7 through the 10. This was the largest annual gathering of rheumatologists in the US.

There could be no better venue than an ACR in two weeks to begin the initial launch process. At the ACR meeting we will introduce KRYSTEXXA to this key audience and discuss its benefits and risks by utilizing the approved package insert which has all the relevant product information for the prescribing physician. We will staff this effort with our existing internal staff and selected external consultants who will have them extensively trained. This will be an exciting meeting for the company, as we know the rheumatology community awaits the product.

We also intend to repeat this initial package insert launch, the following week, the week of November 15 with a second key audience in which we will introduce KRYSTEXXA at the American Society of Nephrology or Renal Week meeting in Denver. Remember many chronic gout patients have reduced renal function due to urate crystal deposition in the kidney and hence the nephrologists are good sources for patients to be treated in a subset of nephrologists due infusions.

Coming out of the ACR and the ASN meetings, in anticipation of the availability of KRYSTEXXA for prescription in December. We will then active both our pharmacovigilance hotline and our reimbursement support services hotline just before we make KRYSTEXXA commercially available in December. The pharmacovigilance hotline is a federally mandated support network that allows patients, physicians and other healthcare professionals to contact the company or it’s designate to report or call our attention to adverse events that might be associated with our use of KRYSTEXXA.

We have entered into an agreement with an external company PPD, who'll provide similar services to many pharmaceutical and bio pharmaceutical companies to provide this service on our behalf. The pharmacovigilance hotline also enables us to meet our obligation to timely report adverse event information the FDA once KRYSTEXXA is effectively out on the market.

Our reimbursement support services hotline is a very important and an integral resource for patients, clinics and physicians. As with our pharmacovigilance hotline, we have entered into agreement with one of the leading companies Covance, in the reimbursement hotline field to provide these services on our behalf to key groups.

Our reimbursement support services vendor currently provides the same support for other leading biologics that are marketed by other major pharmaceutical companies. This hotline access the liaison between patients and the physician's office building and reimbursement management personnel and the private and public payers. They collect all relevant information to ensure the payer has enough information to accept the therapy and for the patients and physicians to receive payments.

Pharmacovigilance and reimbursement support services are a perfect illustration of infrastructure that Savient does not need to build yet will provide the same quality of services as large pharma. Speaking of reimbursement since the announcement of FDA’s approval of perspective we have engaged in numerous discussions with several private and public payers in order to try them, additional product information that they require in order to make coverage decisions with respect to KRYSTEXXA and with respect to its inclusion on their formularies.

We believe given our discussions to date to these payers have a high level of recognition of the unmet medical need that KRYSTEXXA addresses in this orphan population covered in their plans.

In fact, we have already received notification of one of the largest private payers as measured by covered lives has already placed KRYSTEXXA on formulary and apparent launch of the product and receipt of product pricing will reimburse this breakthrough novel therapy from day one. And they have made this decision without knowing the price.

Once we release the product in December, we expect to began the hiring of a 60% sales force with the target to have them on board and ready for training in mid January 2011. Assuming completion of the DDMAC review process of our initial promotion and selling materials.

Given that we believe that we’ll receive initial comments and recommendations from DDMAC and these selling materials sometime in the month in November we would anticipate that we’ll be able to conclude the DDMAC review process on the timeline that would allow us to train our sales force with a final material in mid January. This would allow us then to commence the second phase of a full promotional detailing with a sales force launched early in the first quarter of 2011.

Let me recap the accomplishments of our implementation plans for launch. We have already submitted our commercials and materials for DDMAC review; we have labeled, packaged and placed into cartons initial launch quantities of KRYSTEXXA. We have prepared to implement a package insert launch at ACR in two weeks, immediately flowing ACR we plan to conduct a packaged insert launch at Renal week in the second week of November.

We then plan to activate our already trained Pharmacovigilanc partner PPD, we next plan to activate our already trained Covance partnership to provide telephonic or web based reimbursement hotline to support for patient positions and intuition centers.

In December, we plan to release the product and now a surprise begin the building of our staffing infrastructure. And in January we expect to hire and train and experienced team of 60 sales representative that have biologic selling experience.

These plans have been in place for many months and we are substantially down the path towards launch. Another important and critical goal for the company is the filing for marketing application in the EU. We previously notified the European medicines agency that we will file our marketing authorization application on January 4th, 2011 and we believe we remain on track to met our filing commitment.

We believe that it is in the best interest of our shareholders that we move rapidly forward with the commercialization of KRYSTEXXA here in US and with the filings of a marketing authorization application in Europe.

For next several months are full of exciting opportunities for the company to achieve many of these important goals. Next week we anticipate releasing our third quarter financial results and we’ll take that opportunity to discuss our launch plans further.

This concludes the formal presentation, I would now like to turn the call back over to the operator and open up for questions and answers. Thank you

Question-And-Answer Session

Operator

(Operator Instructions). Our first question comes from Kim Lee of Global Hunter Securities. Your line is open

Kim Lee - Global Hunter Securities

So first off, what are the strategic alternatives that you are considering still?

Philip Yachmetz

Kim as we said we are really not going to comment on the sale process related matters we just think that we need to really to focus moving the company forward on the launch plans as the company and the board of directors continues the examination

Kim Lee - Global Hunter Securities

And related to launch, would a partnership be on the table for either ex-US or otherwise?

Philip Yachmetz

Again Kim you are wandering into the strategic area these are discussions that directors are considering and having private discussions and its just inappropriate to comments any further than we have in the press release on today’s call.

Kim Lee - Global Hunter Securities

Okay, understood. And as far as your launch plans go, exactly how much supply do you have and how much additional supply of drug do you have?

Paul Hamelin

Yes Kim I think we feel very confident that we have got adequate supplies of product already packaged and labeled and we have an additional several batches of product that are wading right now placing of the labeling on it and encouraging and packaging. So I think with that we feel in our mind, adequate supply and support this launch and then we have a number of batches that are continuing to be manufactured by our partner to continue that supply in the 2011.

Kim Lee - Global Hunter Securities

So, when you say adequate, are you talking like a year's worth of supply, two years, can you quantify it a bit more?

Paul Hamelin

Well we have two years shelf life dating granted towards in the approval process, and so we have with a long shelf life that’s a very god initial shelf life. We can produce enough products and have that on hand to be able to meet our demand. Its not like we have a short shelf life and hence are afraid to make batches in advance. With a long shelf life we have the ability to produce batches because we know we have a long commercial shelf life on that so that’s part of reason why I think we are confident that we have adequate supplies currently already manufactured in here in the United Sates .

Kim Lee - Global Hunter Securities

For your European filing plants go, what is needed for the M&A filings?

Paul Hamelin

Yes there are number of things that we have to accomplish leading up to the filing we have illustrated previously that one of the elements is a pediatric investigational plan, we have submitted and you call that we submitted that actually back last spring received comments over the course of this summer adjusted the plan and resubmitted it. We are anticipating that pediatric plan will get approved in the month of November. So that’s one aiding event. We also have a little bit of infrastructure that we need to put in place through the outside third parties and that will be in place in the month of November and December, thus allowing us to file the application on January 4.

Some people might be a little puzzled why there is such a specific date and it's actually in the EU you do decide and work with the European authorities and they do look for a specific date. So that is the date that we have collectively agreed to with the EU to submit on. Other questions, operator?

Operator

Our next question comes from Salveen Richter of Collins Stewart. Your line is open.

Laura Ekas - Collins Stewart

Good morning it's Laura on behalf of Salveen. I was just wondering if there are any intended upper management hires as you ready yourself to execute the launch. For example the operations person or?

Philip Yachmetz

We don't comment on internal staffing issues, so particularly for senior management level, so that'll be a no comment.

Laura Ekas - Collins Stewart

Okay. And then just quickly how much cash do you guys currently have on hand and how much will you require to launch KRYSTEXXA?

Paul Hamelin

Well, we will be updating everyone next week in our earnings call with respect to what our third quarter cash position looks like. But we've reported back to the end of second quarter that we had approximately $89 million of cash and if you recall we have managed carefully our spend in burn through the last several quarters. So I think we're in good shape right now.

Operator

Our next question comes from Cory Kasimov of JP Morgan. Your line is open.

Cory Kasimov - JP Morgan

So I have a bunch of questions. You obviously realize that our hands are tied here if you refuse to discuss the sales process. So, in trying not to go into the process itself I do want to just ask something here. Phil, in your comments you seemed to emphasize that you did not find a buyer at this time. Can you just tell us whether or not this process is actually over or if you are still entertaining interested parties?

Philip Yachmetz

Cory as we said, I mean, the company has certain fiduciary responsibilities and the board is continuing to examine and all remain open to other strategic alternatives. To comment further in detail on the process would be inappropriate.

Cory Kasimov - JPMorgan

Okay. Then how confident are you in your market research that you've referred to numerous times in the past that concludes that there are at least 170,000 patients that could be candidates for KRYSTEXXA in the US?

Paul Hamelin

We remain confident in that number and let me kind of walk through a little bit. So we in the last few earnings call said, we believe that there is approximately 172,000 patients in United States that have severe enough symptoms, meaning that they are flaring frequently and they have (tophi), that will be candidates for KRYSTEXXA, and let me triangulate a little bit with that number so that's on the basis of us conducting four quantitative (Technical Difficulty) market research in the United States. But let me triangulate in a different set of numbers from this, I know at times people refer to the FDA noting that there are three million gout patients and 90,000 patients that might be viewed as candidates for KRYSTEXXA.

Let's the triangulate on those numbers for a minute, actually we know and it's been reported that they're almost 2.8 million patients right now in the United States taking allopurinol. So I'm not sure that the 3 million number that the FDA quotes would indicate that everyone who has gout is on allopurinol. If you then step back for a minute and you look to what other companies are postulating as the size of the gout market, you'll see that a number that's talked about frequently is 6 million patients. And our number is that we talked about publicly we believe there's about 5.1 million patients. So if you believe more on the research that farmers conducted, 5 million to 6 million, you can then see these number’s up from 3 million to that you would have a population that will be closer to a 170,000 to 180,000. And again, that triangulates well with our quantitative research thing that there's roughly a 172,000 patients that have the more severe and of the symptoms of product gout.

Now one thing to make very clear, is that these patients are not all sitting in rheumatology practices today or not sitting in nephrology practices today. And I think sometimes that's where people begin to loose little bit sight of and that's what makes market projections a bit difficult, because many of these patients are sitting out in primary care practices, many of them were sitting in other specialty practices. And in the future what we will need to do is once rheumatologists and nephrologists are comfortable with infusing the product, we will need to help ensure that these patients move from their primary care position into the rheumatologists and nephrologists practices in order to be infused. And that's again a typical process but that is an intense process that we'll take us sometime to achieve.

Cory Kasimov - JPMorgan

Okay, but you understand where the skepticism is out there this morning in that, I mean, you're talking about a patient population that's a lot larger than most investors are currently modeling yet, if it was in this range you'd think a deal could've gotten done. So is there some sort of fundamental difference that was at play? And again, I'm trying to not get into the process itself, but just trying to understand where the different assumptions may have lied that prevented something from getting done.

Paul Hamelin

Yes. Obviously Cory, that, we cannot comment as to what people's perception was may or may not be. I think we're trying to stake what we believe to be the case here based on the research we've conducted and based on numbers that other organizations or companies that put forward in the public domain. What people and how people interpret that is obviously open for everyone's interpretation.

Cory Kasimov - JPMorgan

Okay.

Paul Hamelin

Okay.

Cory Kasimov - JPMorgan

Okay. And then I realized you're not disclosing price until you launched the product in December, but can you just at least throw us a bone and provide some sort of range of what you're thinking, has it changed materially from what you've said in prior calls?

Paul Hamelin

Well, so again I don't want to narrow it down to a range. But, Cory, what we have said in the past is that we believe it will carry a premium to TNF-alpha and we've also said probably a multiple of TNF-alpha and so again I think within a matter of few weeks here, we're not that kind of from December will formerly announced the price.

Cory Kasimov - JPMorgan

Okay. And then my last question is you just commented on where your cash position was at the end of the second quarter. But looking ahead can you provide us with some sort of guidance in terms of how much it may cost you to launch this drug on your own perhaps just for the first year?

Paul Hamelin

Well, let me first comment on the fact that one of the regions why we have always liked this market and this opportunity for KRYSTEXXA is that it does not require tremendous infrastructure build, this is a specialty product. And hence it's not a large sales organization and as I was trying to illustrate in my prepared remarks, there are a lot of infrastructure that’s existing out and we just need to partner with that, so I use Covance and PPD as an example. The whole point of this is, is that it is a modest amount of infrastructure enhanced costs are reasonable, as we go forward having said that though launching the product is a complex matter and there is a lot of variables and we're still developing and integrating some of those variables. So as we move forward we're going to continue to be judicious in our spend and we're going to do are up most to ensure that we've got a very successful launch here. And we will continue to evaluate in the future any steps that we may or may not need to augment our cash resources as we move through the launch process.

Operator

Our next question comes from Eun Yang of Jefferies. Your line is open.

Eun Yang - Jefferies

Thanks very much. When the drug was approved did you mention that are you guys are going to conduct a post approval of the rational safety study in 500 patients? Can you comment on when you might start this study and whether that might impact the initial uptake of the product when you launch the product by end of this year?

Paul Hamelin

Sure. Eun as part of our approval we have a post approval commitment and one of the post approval commitments that we outlined is a 500 patient observational trial and I want to be very clear is in the observational trial, it's not a registry, it's not part of whelms at all. It is an observational trial and in the next few weeks, I am certain that this approval in this post marketing commitment will become in the FDA will put it on this website and you will be able to see that that study we need to initiate in a year. So we will go through the next several months, developing the protocol and preparing to enroll patients but we don’t need to enroll patients for the first year and then we will enroll patients through out in the next couple of years obtaining 500 patients over this time frame so I don’t think specifically to your question, that it will impact any adoption curve because we have got plenty of time to set up the trial and plenty of time to enroll patients over the next few years.

Eun Yang - Jefferies

And the second question, I understand that you don't want to go into specifics of how much supply that you have in hand. But when I looked at the consensus number, the KRYSTEXXA sales for next year is close to $100 million. So can you just comment whether you feel comfortable to supply the level of the drug next year?

Paul Hamelin

We believe we have got adequate quantities of product already in our possession here in the Unites States to be able to support the launch and several months well into 2011. So again I do not believe at this point in time that quantities of product will be a rate limiter as we move forward.

Operator

Our next question comes from Joseph Schwartz of Leerink Swann

Joseph Schwartz - Leerink Swann

I was wondering if you could give us some insight into the mix of reimbursement that you expect.

Paul Hamelin

Joe in our work that we have done on a couple of different occasions now, we are anticipating that the payer mix is actually similar to the payer mix of the patients who have RA or OA and so what that really means is we are anticipating roughly about 50% of the patients will be supported by private payers and then about another third of patients will be Medicare, that it may seem a little bit high to you but again recall that most of the age of the patients who have our product (inaudible) refractory conventional therapy or patients in their 40s, 50s, 60s and 70. So you will see a fair amount of Medicare. And then there is a very little Medicaid and then there is probably about 10% or 11% that we believe will be in the VA system.

So again that matches up somewhat similarly with the RA markets or OA market.

Joseph Schwartz - Leerink Swann

And how many of the 15 Medicare administrative contractors have you been able to gain some clarity of their coverage for KRYSTEXXA?

Paul Hamelin

Well at this point in time, our outreach program is really starting to gain tractions. Historically, what we have been doing is we have actually been working with CMF in Washington DC and so we have been up to this point in time kind of taking a top-down approach and our next steps are then go to the regional approach which your are alluding to here. One of the things that’s important, whether it’s with the federal government, the public payers or whether it’s the private payers. We have referred a number of very positive comments because people understand that this is this high unmet medical need in this patient population and these patients are crippled and disabled and they need life transforming or clinically beneficial therapy because it doesn’t exist today. And so that’s why I was using the example earlier that we have already had, one of the top private payers already acknowledging that they need to reimburse this product and they have already placed them on the formulary. So we are getting good reception at the payer level and I would expect that will continue.

Joseph Schwartz - Leerink Swann

So where is the lowest hanging fruit for KRYSTEXXA to penetrate, what clusters of patients do you see in the marketplace? Because when we talk to physicians they say that they can each envision one or two patients in their practices that are very desperate for the therapy, at least as an induction. But it's hard to gross up to some of the numbers that have been put out there, 170 plus thousand.

Paul Hamelin

Joe what we see, what will happen initially and this we believe in rheumatology practices and in nephrology practices you already have existing sources of patients. We think it’s a little bit higher than one or two propositions, if you actually look at allopurinol prescription, there are 10s of thousands of patients sitting in the rheumatology and nephrology practices. So we would anticipate the number, there are more patients in the rheumatology practices. And then probably what you are quoting, they are based again on our research. So the initial patient base will come from those existing practices. Then from there we need to ensure that patients and primary care physicians understand that there is a new clinical approach to treating chronic gout. And then they will refer the patients, and there is a huge pool of patients sitting in internal medicine and primary care practices.

Again I will go back to if you look at allopurinol prescriptions to give you an idea of where patients reside, 80% of allopurinol is prescribed at the primary care level and we know from our work there, there are a number of tens of thousands of patients sitting in primary care that have chronic gout that’s refractory to conventional therapy and they have high numbers of flares annually and tophi. But there has been no reason up until now for the primary care physicians to refer them to the rheumatologist because all they are going to get at the rheumatologist is allopurinol.

So again, we think the initial source of patients will be in existing practices of rheumatology and nephrology and then from there we'll need the referral patterns to be established to move these patients, either through referrals by the physicians or patients themselves say I know there is now new disease modifying or transforming therapy that I want to get access to.

Operator

Our next question comes from John Newman of Oppenheimer.

John Newman - Oppenheimer

Just had one follow-up question to Cory's on market size for KRYSTEXXA. Could you talk to us a little bit about the type of market research that you've done? I mean, have you guys looked at the insurance claims in terms of patients that are diagnosed with having tophi? And also, you've been talking about this in the last couple questions, but could you talk to us about the percentage of gout patients that are treated in the rheumatologist's office overall? I know there is a split between allopurinol type patients and refractory patients, just curious there. Thanks.

Paul Hamelin

Let me just start with the last part of that if you look at allopurinol prescriptions as a proxy for where patients reside. As I stated earlier, 80% of the prescriptions are of primary care. There are only about 2% of allopurinol prescriptions, 2% to 3% that are actually rheumatologist in the orientation. So you can see just from that number itself that the bulk of the patients are not in rheumatology practices. There is in primary care and then the remainder of that 80 plus two, so the remainder of that 18% are patients sitting in nephrology, patients sitting in cardiology practices, patients sitting in podiatry, patients sitting in these other specialty groups. If there is something that’s challenging here, it’s the fact that these patients are distributed widely in the healthcare system. They are not just concentrated in the rheumatology practices.

So when we do our quantitative market sizing exercise we don’t just do it exclusively with the rheumatologist, we actually do those where we are serving other specialties, where we are serving extensively primary care practices. And when we do that quantitative research, that is where again we come up with our numbers of the numbers of patients that are our there. And over time, again we need to migrate patients into the rheumatologist's office or nephrologist where they can actually get the infusion.

John Newman - Oppenheimer

Okay, and on the research that you've done, the size of the market?

Paul Hamelin

As I stated earlier, we've done four different quantitative studies here in the US and we've also done a lot of literature-based studies or managed care database studies and several of those have been published in 2007, 2008 and 2009, and again it all supports what we've been stating. One of the things and may be this is what is difficult for people to grasp, if you look at the ICD-9 codes, you know ICD-9 codes are the universal codes used here in the US and Europe in which a physician will do a diagnosis and they will place that ICD-9 code in and its part of the reimbursement package. ICD-9 codes for gout have never been changed from the 50s and as a result the old ICD-9 codes are not informative at all. And that makes database analysis at managed care difficult that makes some avenues of research difficult because they are old non-informative ICD-9 codes.

We took the opportunity about a year ago now. We worked with a former President of the ACR and we actually suggested that the ICD-9 codes be changed, and they were changed. There are now four new ICD-9 codes that are out and physician’s practices are beginning to use in code. That will help us in time to get much more quantitative in terms of the diagnosis of how many patients have flares, how many patients have flares and tophi, how many patients have tophi, and at what time point in their course or in their course of therapy do these exists. So I think in the future databases will be much better as a result of these changes in the ICD-9 codes. So again, I think unfortunately is source for confusion historically.

John Newman - Oppenheimer

And I know you've already been asked about your plans in Europe, but could you maybe just sort of give us an idea as to the range of options that you're considering whether it be launching the product on your own, partnering the product, doing some sort of a royalty deal? Just kind of trying to understand how we should think about European opportunity whether it's going to be entirely yours, split with someone else and sort of how that could happen?

Paul Hamelin

For our plans in Europe, right now our initial plan is to file this application on January 4. We know that typically a review in Europe will take about a year. So if we file an early January of 11, it will take a year for review and then once its reviewed and assuming a positive review and approval then we need to negotiate pricing with various countries, and that can take in some countries that are free market access countries such as the UK and Germany, that pricing discussion becomes very short because we have the ability to determine our own price.

For other countries like France, Italy, Spain, that negotiations may take several months in order to agree to a pricing. That’s my long winded way of saying right now we don’t have to declare what a strategic plan is for the company beyond us filing and getting this approved and we have a number of months yet where we can make plan and determinations as to how we should commercialize or someone should commercialize in Europe.

Operator

Our next question comes from Steve Byrne of Bank of America. Your line is open.

Steve Byrne - Bank of America

Continuing the discussion on Europe, what are the infrastructure requirements that you mentioned earlier that you need to develop prior to filing?

Paul Hamelin

Steve, what we need to do is we need to have, I'll use as an example; we need to have our pharmacovigilance established or a pharmacovigilance partner established in Europe as part of our application process. That doesn't mean and that’s not a resource intensive process, its just working with a company in Europe that has the capability of doing pharmacovigilance in Europe and providing a write-up on the process of collecting pharmacovigilance through that infrastructure in our marketing application. So that’s an example of something that we have been working with and we are in the final stages of completing that will be part of this. So I want to ensure that I don’t leave anyone with the impression that the infrastructure to file is extensive, it really is not.

Steve Byrne - Bank of America

So in terms of your requirements for funding for 2011, do you have a budget for selling and marketing costs for 2011?

Paul Hamelin

The short answer to that question is, yes, we always are running budgets and forecasts and thinking through that process. We never disclose those as there are always things that we were finding and working towards and always for almost every company that I have ever been in the fourth quarter of every year is a big part of budget discussions and working up the ensuing next year and five year plans for companies.

Steve Byrne - Bank of America

Well let me ask in a different way. Do you anticipate having to access the capital markets in order to provide funding through 2011?

Paul Hamelin

As I said earlier, at the end of close of second quarter and we'll be updating everyone next week at the end of third quarter our cash position, we had approximately $89 million at the end of second quarter, we've managed tightly our burn over the last quarter and we know that launching a product is complex and there are a lot of variables to it. We're going to continue to be judicious in what we spend and how we spend and we'll continue to evaluate whether or not we need additional resources going forward or not. Beyond that, I don’t want to comment at this point in time.

Steve Byrne - Bank of America

And Paul, you mentioned that it was in the interest of shareholders to move rapidly on this launch in the US. Is it fair to say that your intentions of a rapid launch exceeded what your perspective buyers were thinking?

Paul Hamelin

Again Steve, I don’t want to comment as to what anyone may or may not perceive about our launch plans, but we feel as I said a couple of calls ago, we feel morally obligated to get this product out to patients because there is just high unmet medical need. These patients are desperate for a life transforming therapy, and we need to get it out to them. And that’s our intended plan, that’s why we're going to ACR in two weeks and the Nephrology Renal Week meeting the week after that, we're doing an initial package insert launch, we'll put product out in December and then we’ll build our infrastructure for a full sales force launch of 60 people in January. We think that it is a very workable plan and hopefully through some of my earlier comments you’ll get the sense of we've already completed everything that we need to in order to follow that plan and will continue to follow that forward.

Operator

Our next question comes from Carol Werther of Summer Street. Your line is open.

Carol Werther - Summer Street

Thanks for taking my question. Given the label that you have, do you intend to mainly target doctors that have practices associated with hospitals in case there's an allergic reaction?

Paul Hamelin

Carol, our focus will be on infusion centers, infusion centers associated first of all with rheumatology practices and nephrology practices. Those infusion centers represent approximately about 70% of what we believe will be where the product is used. These remaining 30% will be infused not in the physician’s infusion clinics, but will be infused in hospital based clinics, and so we will cover those clinics as well. But it’s roughly that 70%-30% model which we’ve seen with other infused biologics, and so our concentration effort will be in these clinician’s infusion centers and hospital infusion centers where the patients will be treated.

Carol Werther - Summer Street

How many infusion centers do you estimate there are?

Paul Hamelin

There are approximately 1,700 to 1,800 infusion centers that we are targeting at the rheumatology level. There are another few hundred infusion centers that are in nephrology clinics, and then there large infusion centers that are hospital-based which all specialists can access. And so, we’ll go after all of those. And that’s part of how and why we decided to size the sales force of 60 people, so that we can provide adequate coverage to those clinics.

Carol Werther - Summer Street

And my second question is, given the fact that a lot of the patients will probably need to be referred from primary care physicians, are you planning a direct-to-consumer ad to facilitate that next year?

Paul Hamelin

Carol, once the rheumatologist and nephrologists have some experience in infusing and get comfortable with the drug, then we will do activities very specific activities focused around patients and very specific activities focused around high prescribing primary care physicians that are sitting on large pools of these chronic gout patients that are refractory.

So we will use very specific targeted programs as opposed to, I think the implication might have been large commercial television advertising or something like that. We do not see that as a necessary means of referring and moving patients into the clinics.

Operator

Our next question comes from Katherine Xu of Wedbush Securities. Your line is open.

Katherine Xu - Wedbush Securities

You're not very clear about the timing of hiring the sales force. So Paul, you were saying that you will have the sales force in January or you will start hiring the sales force in January?

Paul Hamelin

Katherine, we will begin the process of recruiting as early as December. It will culminate then hopefully into a hiring and training of a sales organization in January, and we hope then a subsequent full sales force launch to follow very shortly. One of the gating events is our DDMAC promotional materials. We would like to have the sales organization launch with DDMAC approved materials as opposed to sending them out with just a package insert. So, if the time lines from DDMAC discussions review hold, then I think we will be in a position that will be able to put in field the sales organization very early in the first quarter of ‘11 and begin a full launch at that time.

Katherine Xu - Wedbush Securities

And, Paul, when you said there are 170,000 patients and understanding is that the crippled and disabled patients need these products the most urgently. So, are those 170,000 patients all crippled and disabled?

Paul Hamelin

The 170,000 patients that our research has identified, represents about 3% of the gout population. This 3% or 170,000 patients represents those chronic gout patients that have the highest symptom burden. So these patients generally are flaring multiple times a year and generally speaking the majority of them have tophi. Those are the patients that we believe will receive the drug. The challenges I outlined earlier is these 170,000 patients are not all sitting in the rheumatology practices or offices today. They are scattered amongst other specialties and a significant number in primary care. So we will need to over time help migrate those patients that are diffused in the healthcare system into the rheumatologists where they can get infused.

Katherine Xu - Wedbush Securities

This part of symptom burden, I'm just curious about how urgently these patients feel the need to receive such products. Of course, the higher the burden, the higher the need, so I'm just curious whether the 170,000 patients in your research, they indeed have a burden high enough to want to issue the product immediately.

Paul Hamelin

Again, our research would indicate that these 170,000 patients have symptom burdens very similar to the symptom burdens of the patients who went into our clinical trial. So they do represent a population or the most severe and of symptoms in the chronic gout population. And again, it’s our belief that these patients are motivated and just as they were motivated to enter into our trial and remained on drug for many of them almost three years because their symptom burden is so crippling and disabling to them, they are motivated to get into therapy and they are motivated to stay on drug every two weeks. Sometimes people are still surprised that we had patients and were receiving drug every two weeks for three years. And again, I think that speaks of the crippling aspects of this disease and that’s the population that we believe will be initial population treated with KRYSTEXXA.

Operator

Our next question comes from Salveen Richter of Collins Stewart. Your line is open.

Laura Ekas - Collins Stewart

It's Laura again on behalf of Salveen. I just wanted to clarify, I know you said 80% of allopurinol patients are seen in PCP offices. So, I guess how do you think about effectively getting those patients to infusion centers? And when will those efforts begin?

Paul Hamelin

Laura, the 80% of allopurinol prescriptions are in primary care. We will hopefully try to help access that in a matter of months after we launch, right away say months, month after month. The first thing we need to do is ensure that the rheumatology infusion centers and the nephrology infusion centers have experience with the drug and reimbursement is in place. There is no reason to push a patient from primary care right now into a rheumatologist practice if the rheumatologist is not ready and prepared to infuse this. So we need some experience to develop at the rheumatology core point and at the nephrology core point. Once there is sufficient experience there, then we will begin programs at the patient level and at the primary care level, very specific targeted programs to help identify these patients and move them through the referral network.

How we do that? I will give you an example. Not only today given the sophistication of the prescription database do we know that 80% of the prescriptions are in primary care, we actually can cut that data and we can go exactly physician-by-physician and we know we are largest pools of gout patients are sitting. So it is not an equal distribution at primary care. So, if you had 100 primary care physicians, not everybody has an equal number of gout patients. What you find is that 20% of the physician population has 80% of patients. So it is a very concentrated pool that will allow us to do very specific programs with rheumatologist and with those primary care physicians to migrate those patients.

It is a lot like the work that was done back in the late 90’s with initiation of TNF-alpha therapy, because again at that time TNF-alpha therapy could only be given in an infusion clinic and primary care physicians didn’t really have access to it.

So if you will repeating a bit of history as we build this chronic gout market that’s refractory to conventional therapy.

Operator

Our next question comes from Gene Mack of Soleil Securities, your line is open.

Gene Mack - Soleil Securities

I just was wondering if I could follow up on patient outreach. I think when you guys were enrolling in Phase III trials, part of what you used was actual newspaper ads sort of direct to patients. Is that something you think DDMAC would allow for given the label? Not that it's any worse or better than when you enrolled the trials, but just given the label, do you think that's something that they would allow you to go back to doing and do you see any wisdom in doing that?

Paul Hamelin

Gene that is an example of types of programs that yes we believe the FDA will allow us to do, provided we remain within label and we will do everything to remain within label. But that is an example of a specific program that low cost that’s generated to tremendous amount of interest at the patient level. We had if I would recall for memory over 6000 patients contact the network that we had set up. Network I don’t want it to sound it like there was a lot of infrastructure because it really wasn’t.

But we have 6000 patients that identified themselves as having very high symptom burdens and being refractory to conventional therapy, wanted to participate in the trial and get on drug. So that is an example Gene of a program that we think in the future might have benefits and there are others to allow us to get access to patients and mobilize the patients and mobilize the patients who have high symptom burdens.

Gene Mack - Soleil Securities

Given the work you've done and where you are right now in terms of building up your infrastructure, when do you think you'd be able to start providing some expectation or guidance about the launch and some numbers that maybe investors can start to gauge your performance against?

Paul Hamelin

Next week, we are anticipating having our earnings call and at that earnings call I think we'll talk a little bit more about our launch plans. But typically to my knowledge most companies do no give a lot of guidance in terms of the sales projections and penetration for the projections going forward.

Philip Yachmetz

Historically we have not provided any sales or market penetration projections and we really believe that the product needs to be on the market and even if we were inclined to provide such sales projections, we would not be in a position to do so until there is substantial time in the market and experience with the product.

Gene Mack - Soleil Securities

Okay. So all right, so this isn't something we would get in December when the product is on the market?

Philip Yachmetz

You would have a report of actual sales, but not projections going forward.

Paul Hamelin

Right, so in future quarters after we introduced the product we will be updating the market out of earnings calls with respect to sales that we have recorded in that quarter.

Operator

Our next question comes from Liisa Bayko of JMP Securities. Your line is open.

Liisa Bayko - JMP Securities

Hi, good morning. Can you maybe walk us through your patient profile in terms of their reimbursement status? So in terms of your target patient population how many are on Medicare, how many are private pay and all that kind of stuff?

Paul Hamelin

Liisa, we anticipate that approximately half of patients will be covered under private plans. We then expect about a third of the patients who will go on KRYSTEXXA will be Medicare and then approximately 10% of patients will be in VA. The percentage for Medicare in the VA reflect the fact that gout and chronic gout that is refractory to conventional therapy tends to be in older age groups. Predominantly men, but women as well in their 40s, 50s, 60s and 70s. And so, we think that will be the payer mix. About half in private pay, the remaining half, not quite half in the public domain and then there will be some out of pocket payers as well.

Liisa Bayko - JMP Securities

Have you had any discussions with Medicare yet regarding reimbursement?

Paul Hamelin

We have had interactions with CMS and we will continue to have interactions with CMS. We will be filing for our J-code very soon.

Liisa Bayko - JMP Securities

And then in terms of penetrating that sort of private pay, are you going to be doing that on your own? Are you're going to be outsourcing that just to get on formulary in the different and what tier are you going to be going after for the different private payers?

Paul Hamelin

Sure, we have already had a number of private payers who have already contacted us asking for additional information. In some cases we’ve already provided that, but there are three main ways to really support the payer activity and we plan on using all three. There are services and companies that are already set up to supply formulary packages and kits and information to the private plans and all P&T members. So, we will be accessing those plans through that mechanism, that’s a very complete and robust process that a lot of companies use today to ensure that you get formulary packages and information to these committees. So, that’s one avenue.

Second avenue is there are meetings that are set up and established again by third parties that allow a company access to many plans simultaneously. In order to provide overviews of the product that’s benefits and risks. So, we will use those avenues as well and we have several of those activities with third parties plans coming in the future.

And then the last effort is actually feet on the ground, we don’t at this point in time, but we will shortly have a small number of people who will actually be out and have the ability on a regional basis to interact with the regional headquarters of these various payer groups. So we use all those avenues to establish payer connections and provide them the information. One of the most important aspects of this drug is the fact that is for high unmet medical need and it's for a population that is severely disabled. Plans understand that and I think that is a reason why we have already had so many plans contact us and why one of the largest private plans already in United States has already put it on formulary. They know there is unmet medical need and this population needs this drug.

Operator

Our next question comes from John Newman of Oppenheimer. Your line is open.

John Newman - Oppenheimer

Hi, guys, thanks for taking the follow-up. I just wondered if you could tell us how many patients are currently still on KRYSTEXXA via some of the open label studies and extension studies that you guys have had running over time?

Paul Hamelin

John, we actually stopped patient exposure to KRYSTEXXA in July 0f 2009. So there are no patients currently on drug anywhere. We stopped it in 2009 after we had expanded the open label expansion three times. So when we concluded and stopped access in July of 2009, we actually had almost a quarter to a third of the patients who had initially started the product in a randomized controlled trial, we are on the drug till July of 2009 which represented almost three years of exposure for these patients.

When we look back to the average patient exposures, if you take every patient who enters the trial starting at RCT, all way through July of 2009, most patients averaged about 19 months of therapy. So, that includes patients who started on therapy and might have dropped off in the first month because of a flair and that includes all of the patients right up to July of '09 who were on the drug for over three years. On average, the patients were exposed to drug for about 19 months.

Operator

Our next question comes from Gene Mack of Soleil Securities.

Gene Mack - Soleil Securities

I was just wondering, have you guys heard from any of the outstanding warrant holders? I think there's $40 million in warrants that could be exercised November 2nd. Have you heard from any of those holders and what they might do with their exercise option?

Philip Yachmetz

We'll be reporting on that in our Q, but we had a number of warrant holders who have been exercising over the last couple of months. Some for cash, some for on a cashless basis.

Gene Mack - Soleil Securities

That will come in the updated cash number. Will that be included in the Q3 cash and equivalents number that you provide?

Philip Yachmetz

To the extent they were exercising during the third quarter, yes on some current, some exercises happened after September 30.

Gene Mack - Soleil Securities

Okay, all right. But will we get any sort of idea of what that's going to be?

Philip Yachmetz

Next week.

Operator

Our next question comes from Liisa Bayko of JMP Securities.

Liisa Bayko - JMP Securities

I know you're going to hire 60 sales reps. Can you maybe comment on surrounding hires that you may need including managers, medical science liaison types, commercial, other commercial folks, reimbursement people? What is the full picture of what kind of hires you're going to be doing in terms of the number?

Paul Hamelin

Liisa, we will need to bring out some people at the medical science liaison area, we will need to bring on some people in managed care. We will need to add a few people here in the home office infrastructure and then we will need these 60 sales representatives and these six regional business managers who will manage that 60 person sales force. We will add that and probably a little bit of other internal infrastructure over the next if you will 90 days, but again I will just repeat one of the things that we very much like about this market, is that it’s not a tremendous recourse intensive market because of the external infrastructure like Covance and PPDs that already exist.

Operator

Ladies and gentlemen this does concludes today's conference. Thank you for your participation and have a wonderful day. You may all disconnect.

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