Savient Pharmaceuticals Management Discusses Q3 2010 Results - Earnings Call Transcript

Savient Pharmaceuticals (OTC:SVNT) Q3 2010 Earnings Call November 5, 2010 9:00 AM ET


Philip Yachmetz - SVP & General Counsel

Paul Hamelin - President

David Gionco – Group Vice President and Chief Financial Officer


Eric Smith – Cowen and Company

Colleen Richtar [ph] Collins Stewart

Kim Lee - Global Hunter Securities

Gene Mack – Soleil Securities

Cory Kasimov – JP Morgan

Joseph Schwartz – Leerink Swann

Liisa Bayko – JMP Securities

Katherine Xu – Wedbush Securities

Carol Werther – Summer Street Research


Welcome to the Savient Pharmaceuticals third quarter 2010 financial results conference call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session. As a reminder this conference may be recorded.

I would now like to introduce your host for today, Mr. Philip Yachmetz, Senior Vice President and General Counsel for Savient Pharmaceuticals. Sir, please go ahead.

Philip Yachmetz

Thank you. Good morning and welcome to Savient Pharmaceuticals third quarter 2010 financial results conference call. Last evening we issued a press release providing financial results and highlights of the third quarter of 2010. The press release is available on our website at

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 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, our beliefs with respect to our ability to gain and maintain market acceptance of KRYSTEXXA by physicians, patients, healthcare payers and others in the medical community, and are continuing evaluation of strategical alternatives available to maximize shareholders value 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 November 4, 2010 and our company’s filings with the Securities and Exchange Commission including without limitation, our quarterly report on Form 10-Q which will be filed on or before November 9, 2010. And our Form 10-K which identifies 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 November 5, 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 and David Gionco, our Group Vice President and Chief Financial Officer.

However, before I turn the call over to Paul, I would like to take a moment to address a couple of matters.

As we previously announced, our recent strategic process, did not result in a sale of Savient at this time, and we are now focused on the commercial launch of KRYSTEXXA. As a result, we have been working very hard to refine our launch plans for KRYSTEXXA, including our anticipated cash expenditures over the coming months.

Based on our current plans and assumptions, we believe that our available cash resources will last approximately nine months. We believe that we will require additional financing and are actively considering our alternatives with respect to timing, structure, and size.

However, I would like to remind listeners that moving forward, we will have no further comments on either of these 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. Today I’d like to discuss the key milestones that we’ve achieved during the third quarter of 2010 as well as further details regarding our priorities going forward. But before I go into those operational highlights, let me turn the call over to David Gionco, our Chief Financial Officer, who will review the financial results for the third quarter of 2010. David?

David Gionco

Thanks, Paul. Let’s review the financial results to the third quarter and nine month ended September 30, 2010 that we reported in last night’s press release. Since I will only be discussing highlights from our financial results, I refer you to our quarterly report on form 10-Q, when filed for more specifics and details.

We ended the third quarter of 2010 with $78.1 million in cash and short-term investments, a decrease of $10.9 million for the quarter. As of Tuesday, November 2, 2010, we have approximately $75.7 million in cash and short-term investments.

During the third quarter, investors exercised warrants to purchase shares of our common stock, and we received cash proceeds from these exercises of $850,000. These warrants were issued in connection with our April 2009, registered direct offering.

Subsequent to September 30, 2010, investors exercise all of the remaining outstanding warrants, to purchase shares of our common stock, through cash and cash exercises, as we received additional cash proceeds of $3.4 million.

For the third quarter of 2010, the company had a net loss of $59.4 million, inclusive of a non-cash valuation adjustment of $43.2 million related to warrants, or $0.89 per share on total revenues of $1 million compared with a net loss of 13.9 million or $0.23 per share on total revenues of $0.3 million for the same period in 2009.

The net loss for the first nine months for 2010 was $72.7 million or $1.09 per share compared with a net loss of $90.6 million or $1.56 per share for the first nine months of 2009.

Looking more closely at the details, total revenues for the third quarter of 2010 were $1 million, an increase of $300,000 from the same period in 2009.

Research and Development expenses were $9 million in the third quarter of 2010, down from $17.7 million in the third quarter of 2009, a decrease of $8.7 million. The lower part of the expenses were primarily due to higher prior-year costs relating to manufacturing and development expenses and clinical trial costs.

Selling, General and Administrative expenses were $7.3 million in the third quarter 2010, a decrease of approximately $1.2 million from the third quarter of 2009.

This concludes the financial piece of the conference call; I’d like to now turn the call over to Paul.

Paul Hamelin

Thank you David. The most significant event since our last earnings call was our receipt on September 14, of FDA approval for KRYSTEXXA, a PEGylated uric acid specific enzyme indicated for the treatment of chronic gout in adult patients for refractory to conventional therapy.

We believe that KRYSTEXXA will provide an important new life-transforming treatment that addresses a significant unmet medical need for the treatment of chronic gout in adult patients refractory to conventional therapy.

KRYSTEXXA is now the only therapy available to address this unmet medical need for the approximately 170,000 chronic gout sufferers here in the United States.

As we announced last evening in our press release, we plan to commence shipments of KRYSTEXXA to specialty distributors on November 30, 2010. We expect KRYSTEXXA to be commercially available for prescription the following day as of December 1, 2010.

In conjunction with a commercial availability of KRYSTEXXA through our partnerships with Covance and PPD, we plan to launch our reimbursement and pharmacovigilance hotline services the week before on November 22, 2010 for the benefit and use of prescribers and patients.

We expect to announce the pricing for KRYSTEXXA on November 30, 2010 when we introduce the product.

With our approval in hand, and as we approach the commercial availability of KRYSTEXXA, we are looking forward to participating in the American College of Rheumatology or ACR conference, this upcoming week.

Preparations for this conference have been underway for months and I’d like to provide you with overview of our plans.

Clinically, we have three abstracts that were accepted and have been expanded with more detail for poster presentations. And in late September we submitted a fourth abstract for late-breaking abstracts and it was titled Safety and Efficacy of Long-Term Pegloticase KRYSTEXXA Treatment in Adult Patients with Chronic Gout Refractory to Conventional Therapy.

This abstract was accepted and granted a podium presentation in the main plenary session where attendants can generally be as high as several thousand attendees. This presentation will highlight the continued long-term safety and benefit for patients treated for up to three years. It will further demonstrate the durable clinical benefits of long-term KRYSTEXXA therapy on the reduction of flares, elimination of Tophi, and the life-transforming improvements in quality of life for these patients with this crippling disease.

There is no other therapeutic option that can reduce serum uric acid to below 1 milligram per deciliter, and sustain that low level for months. Yes, that’s not a mistake, I did say less than 1 milligram per deciliter.

While other gout therapies struggle to lower SUA to just below 6 milligrams per deciliter, this is why we expect the KRYSTEXXA will have such a profound impact on the clinical aspects of this disease, and transform these patients’ lives.

In addition to our clinical presence with these abstracts, we will have a strong presence on the exhibit floor with a KRYSTEXXA-branded booth. The exhibit booth will be staffed by our medical science liaison, marketing, and managed care team. We plan on detailing physicians with our enlarged annotated package inserts sales aid.

Our managed care team will be introducing rheumatologists and their staff to the appropriate reimbursement codes and demonstrating to them the web-based reimbursement services site that has been built by Covance to assist the patients and physicians to obtain approval and support from the pair.

The booth will be anchored with two high-definition TV screens where we will be showing, on a continuous loop the patients baseline tophi and the results of KRYSTEXXA therapy in eliminating those tophi for patients from our clinical trials.

We believe this is the largest collection of clinically meaningful changes in tophi ever collected in a chronic gout population in history.

The ACR conference is typically a very well-attended event and therefore were estimating approximately 3,000 rheumatologists will visit our booth over the three-day meeting. This is truly an exciting time for Savient and chronic gout patients.

Immediately following ACR, we will attend the American Society of Nephrology meeting, or what’s called Renal Week in Denver, and have a chance to repeat the process and begin our detailing to another key group of approximately 3,000 nephrologists.

Beyond our presence the next two weeks at these premier congress meetings in the United States, let me provide some color around our sales organization structure and strategy going forward.

Over a year ago, we hired Derek Redcross, as our VP of Sales. Derek, who has significant experience infused by logic sales in managed care. Derek joined us from a J&J organization where he was the National Sales Director and had seven years of selling experience and marketing of [inaudible]. Prior to that, Derek was the Manage Care Executive at AmGen and worked closely Enbrel among other products in their portfolio.

Derek and I, along with other senior marketing staff, have over the last two years worked with leading outside companies who specialize in the design and implementation of sales territory operations and capability to design our plans for hiring a sales force, and establishing our sales regions and territory structures. These sales management-consulting firms provide the same service and function for the major pharmaceutical companies here in North America.

We believe we have a solid plan for a field-based sales team. We have configured the anticipated size of the field force to be 60 people to cover the 4,000 rheumatologists and the 800 nephrologists, along with their certified infusion nurses who provide the care to patients here in the U.S.

We also expect this sales force to spend a significant amount of time in the approximately 17,000 rheumatology and important hospital-based infusion centers within their territories.

We have already identified two of six regional business unit directors or RBDs, that will report to Derek and plan to complete the process of identifying and hiring the remaining RBDs in the next few weeks, such that we expect these critical hires to be completed by the time we make KRYSTEXXA commercial available.

Working with a company called Leaders Professional Recruiting, Inc. who we have chosen as our contract sales organization, we have already identified 3 to 4 sales representatives candidates for each territory. These candidates all have biologic selling experiences and been in the pharma at least five years, and are all familiar with the buy-and-build model in reimbursement process for biologics.

In mid-December, we plan to have interview teams, led by our VP of Sales, and his six RBDs and our CSO company that will conduct the interviews of potential sales people in two cities, during two consecutive week periods.

We believe this approach will be an effective strategy for building a quality experienced biologic sales organization. Our goal is to have approximately 66% of our sales force identified by late December with effective hiring dates in January 2011.

We expect to continue our interviewing the remaining 20 hires in the first few days of 2011, allowing us to begin our advanced training of the full sales team by mid-January.

We have planned a launch meeting to start late January in which we expect to be immediately followed by the full promotional launch of KRYSTEXXA throughout the month of February.

Another important recent development is that this past week we received comments from DDMAC on our marketing materials, and we were very pleased about this timely feedback as it was earlier than expected, and will allow us to advance our efforts towards the timely, full sales force launch of KRYSTEXXA.

Having now had the opportunity to review DDMAC’s comments, we believe that our selling material can be efficiently modified to address their comments, keeping us on track for our scheduled and planned activities in the coming months. This removes one of the uncertainties in our launch sequence and commercialization schedule.

With those broad timelines, let me dig deeper into some of our launch plan details and what we have accomplished to date.

Managed care and reimbursement. As previous mentioned, we entered into an agreement with Covance to be our reimbursement support services hotline and website provider. A service they perform for other leading biologics that are marketed by major pharmaceutical companies.

This is a very important and an interictal resource for patients, clinics, and physicians. This hotline acts as the liaison between patients and the physician office billing and reimbursement management personnel, and the private and public payers.

We have completed all supporting materials needed for this hotline and website, and the website has been beta tested. We plan to preview these materials at the ACR next week, and at Renal Week the following next two weeks.

There are approximately 75 private payers that control most of the covered lives here in the United States, and we’ve already engaged in numerous discussions with many of these private payers.

This past week, we commenced a series of meetings, which will conclude later this month, during which we are presenting KRYSTEXXA to 45 of these 75 private payer plans. These meetings are the first step in the coverage review process, with these plans. We’ve already concluded these meetings with almost half of these 45 planned, and we’re very happy with the perception that these plans are providing to KRYSTEXXA.

We believe there’s a clear recognition to the unmet medical need and recognition of the clinical benefits that KRYSTEXXA provides to its crippled and debilitated population.

Many of these plans have signaled their interest in providing access to KRYSTEXXA as a medical benefit, and many have already begun to take action in collecting the necessary formulary information on this orphan therapy.

We are also nearing completion of our AMCP dossier, which some of these plans require in order to make final coverage determinations.

On the public payer side, we also had a meeting scheduled with CMS, or Medicare in the month of November, and we will be taking one of our rheumatology thought leaders who participated in our clinical trials to help make the clinical presentation to this important public payer.

We also plan to submit our CMS temporary C-code application, on or before December 1, and our permit J-code application will be submitted prior to January 1, 2011, as both applications have been completed.

If approved, our temporary C-code will become effective April 1 of 2011, and between December 1 and April 1, we expect Medicare to accept a miscellaneous code for reimbursement which is J3590, for unclassified biologics.

As we have stated before, we believe these payers have a high level of recognition, the unmet medical need that KRYSTEXXA addresses in this orphan population covered in their plans.

As previously discussed, we’ve already received notification that one of the largest private payers as measured by covered lives, has already placed KRYSTEXXA on formulary, and upon the launch of the product and the receipt of product pricing, we’ll reimburse this breakthrough novel therapy from day one.

In summary, we have moved forward with and advanced our plans in the managed care, promotional materials areas, plans for ACR and Renal Week attendance, reimbursement, pharmacovigilance, product packaging, manufacturing, all allowing us to move forward with our plan to release KRYSTEXXA into the market on December 1 for physician and patients.

It will also allow us to begin the process of hiring an experienced biologic sales force, targeting a formal full promotional launch in February of 2011. There has never been a more exciting time in the history of Savient, nor for the crippled, chronic patients, chronic gout patients who have waited so long for a therapy that can change the course of their lives.

Operator, I’d like to open up the lines for Q&A.

Question-and-Answer Session


(Operator Instructions) Our first question comes from Eric Smith of Cowen and Company.

Eric Smith – Cowen and Company

Good morning. Thanks for the call, and the details, and taking my questions as well.

Paul, I just want to make sure that I understand all the capabilities that you’ll have in place by December 1 when the product is first available. Obviously, you don’t want to risk aggravating patients or physicians.

I got the hotline and the pharmacovigilance support. Will there be a full team of those? Will there be any further reimbursement staff at Savient itself? Those sorts of details.

Paul Hamelin

Sure. We will have, as I noted, even attending with us at ACR this next week, MSL. So we plant to have MSLs on the ground and we also have managed care executives on the ground beginning to make actual regional-based calls on various plans.

In addition to that, your second part of your question was REMs materials. We’ve already substantially completed many of our REMs obligations. We released earlier this week our dear healthcare professional letter, and dear healthcare fusion center REMs letters were sent out. And we have some REMs obligations that are part of our congress attendance at ACR this week and at Renal Week the following week.

So we are well on our way to meeting all of those REMs commitments as well.

Eric Smith – Cowen and Company

Would you be able to provide us with the numbers of managed care execs and MSLs that you basically have access to, either on your payroll or via partners?

Paul Hamelin

In general we – we’ll have a staff of about four to six MSLs and about the same number of managed care executives.

Eric Smith – Cowen and Company

Okay. And then a question just on the quarter. There was a tick up in both R&D and SG&A in third quarter ahead of this commercial activity. Is that easily explainable relative to Q2 or where should we see R&D trends going in the future?

David Gionco

Hi. This is David Gionco. In the third quarter, our R&D ticked up a little related to commercial batches that were produced at BTG during the quarter. And as you probably know, prior to an FDA approval, commercial-batch production expenses are R&D until you obtain an FDA approval.

Paul Hamelin

And on a go-forward basis, Eric, I think part of the inquiry in your question, I want to be clear, I think most people know that we have a post-approval observation trial that we will be initiating in 2011. That actual trial will be initiated late in the year. That was our agreement and as a post-approval commitment with the FDA. But it is not your typical clinical trial from an expense standpoint.

This will be an observation trial within current label, and as such patients and physicians will use their normal reimbursement sources. So this will be a trial where we will incur – if you will, much diminished expense as we put that trial out and enroll those patients over time.

So the plans will be reimbursing us for the patients in those plans. If that makes sense.


Thank you. Our next question comes from Colleen Richtar [ph] of Collins Stewart.

Colleen Richtar [ph] Collins Stewart

Good morning. Thanks for taking my questions. Just a couple of questions. I guess the first one is when you talk about cash being sufficient for nine months, can you help us understand what this means to the launch in terms of number of targeted physicians and how will you tier your approach to the PCPs to unlock the treatment failure in gout patients there?

Paul Hamelin

So the resources that will have allow us to implement our launch sequencing exactly as I went through in my prepared remarks. So we’re going to be covering the 4,000 rheumatologists, 800 infusing nephrologists and their associated infusion centers will allow us to field the sale organization of 60 people with six sales representatives and the medical science liaison and managed care executives that I’ve just addressed in an earlier question.

So we will have a full launch. And the resources that we have on hand will allow us to accomplish all of that.

From a primary care standpoint, it has always been our strategy that the first part of a full launch is to focus on these infusion centers on the rheumatologists and these nephrologists. We need them to have familiarity with the product and it needs to be part of their routine course of business.

So any primary care initiatives who we would put into place would not happen until late into 2011 after the specialists have some experience and have treated a few patients and they will then become more efficient in terms of being able to treat more patients with that experience.

So it’s kind of a two-step process. Get the specialists and get plans covering the drug and then we begin to push on primary care activities and the patient activities to drive patients into the special conference for continued infusion.

Colleen Richtar [ph] Collins Stewart

Okay. And then in terms of pricing, I mean, that is typically tied to the size of the population. So how should we think about that given the varied assumptions of the size of the treatment failure gout market?

And then have you received any payer pushback on price? What are plans for copayment assistance? Any clarities you can give us here?

Paul Hamelin

Sure. We have not talked with payers at this point in time, whether they’re private or public, about our intended price point. We will be introducing the price on November 30. We have indirectly, of course, discussed price ranges with payers through our quantitive pricing research, but we will not announce it until the 30th.

As I said previously, we know from our quantitive research with payers and physicians that this therapy and the benefits that patients receive from this therapy will allow us to charge a price that’s higher than TNF Alpha, significantly higher. And as I said previously at a multiple of TNF Alpha pricing.

We continue to still believe that and hopefully, I think that will become very clear on November 30.

As it relates to payers and patient support, financial support, we do plan on announcing on the 30th of November, a patient assistance program, which virtually all companies who have biologics provide a patient assistance program. We will be announcing that on the 30th. And then we will be announcing early next year a different type of patient reimbursement program geared more for co-insurance. As you know, many of the private plans have co-insurance requirements and many patients, unfortunately cannot help or cannot pay for that co-insurance. So most companies today are providing some monetary assistance for that co-insurance and we will be introducing a plan to do so as well.


Thank you. Our next question comes from Kim Lee of Global Hunter Securities

Kim Lee – Global Hunter Securities

Good morning. I apologize if this is already covered, but can you remind us when you expect to get a specific J-code, and if you think that there will be some late adopters because you don’t have a specific J-code yet?

Paul Hamelin

Well, let me run through the, again, the sequence as it relates to CMS and coding. We expect starting December 1, to use a miscellaneous code, which is J3590 for reimbursement of unclassified biologics.

On December 1, we will then submit an application for a C-code, which is a temporary code and that temporary code, if accepted, would be available for use on April 1 of 2011. And we would hope to then get that renewed three more times through the course of 2011.

On January 1 of 2011, we will file our J-code application. That’s for a permanent long-term code. It will then take CMS a number of months to review that and hopefully grant us that permanent J-code. Once that permanent J-code is issued, it will become effective then in 2012 and we will no longer need the C-code application.

That’s kind of the sequence. We’re prepared for all of those elements and as I said earlier we have a meeting with CMS later this month to help lay all of that out with them.

Kim Lee – Global Hunter Securities

Great. Thanks for that clarity. One last question as far as patient population goes, internally how many patients do you believe you can target in just the rheumatology and nephrology settings? At least in the first year?

Paul Hamelin

Yeah, we know from, again, using prescription data bases, such as the prescription for Aloprim prescribing, we can use that to estimate the number of gout patients that are in rheumatology practices and nephrology practices currently.

We’ve said in the past that there are probably between 60 and 80,000 gout patients in those practices currently. Now that’s – I don’t want to leave the impression that all 60 to 80,000 of those patients are chronic patients – chronic gout patients refractory to conventional therapy, but many of them are.

What we would expect is that those would be some of the communications that these clinical would begin treating hopefully within the first year of launch and then as I mentioned earlier as we established the drug in these specialist’s hands and in their infusion centers, then we need to go after the well over 100,000 patients that are sitting out in primary care practices and need to work through referral patterns to begin to migrate those patients to the specialist for this transforming therapy.

So that’s kind of phase one, and then phase two will launch, which would occur later in 2011 after we’ve really established these infusion centers as sites of excellence.


Thank you. Our next question comes from Gene Mack of Soleil Securities.

Gene Mack – Soleil Securities

Thanks for taking my question. First, just maybe a follow up from an earlier question in terms of timing a patient would take to get on drug. Let’s say – first of all, what percent off the top of your mind is the patient population that you think is going to be covered by Medicare versus private practice?

Paul Hamelin

Yeah, I’m just reaching for a piece of material here where we’ve got – what we are expecting is roughly 24% of patients will come from – or be reimbursed by Medicare and then we’ve got roughly about 50% of patients who will come from the private payer site of the business. Another 12% or so will be from VA patient sources and then there’ll be some self-pay, which again is – I don’t know, there’s 6%, and the Medicaid is one of the smallest components at about 4%.

So that’s where we see the payer phase. And hence, as you can tell from Gene, my earlier comments, we’ve been focused a lot on CMS or Medicare and on the private payer side of the business right now. Together, those two represent probably 75% of the potential patient lives that we would be treating. So we’ve concentrated around that 75 and, you know, over time and into the future we’ll be reporting, I’m sure, on what level of penetration of lives that we’ve got covered in those plans in those areas.

Gene Mack – Soleil Securities

Okay. And then from the Medicare perspective first, the patient walks into the doctor’s office on December 1 looking for drug, how long do you think it will take before they are actually infused?

And then, again, on private pay, that same duration, but assuming obviously that the plan is already adopted the drug on their formulary.

Paul Hamelin

Yeah. We anticipate that – what would happen – let me use CMS as an example. There is this miscellaneous code that’s available. So assuming a patient is into a rheumatologist practice in December or January and the physician feels comfortable with his knowledge about KRYSTEXXA, then he might introduce the concept to the patient and then if the patient is willing, then I think they would begin the scheduling process and they would probably contract through hour Covance partnership with CMS to ensure that they would accept that miscellaneous code for reimbursement and then the patient would start therapy.

A similar process would occur at the private payer level. Once the patient is identified before they would get therapy the infusion staff or office manager typically in those infusion centers will contact the private plan. If it’s the plan that’s already placed it on formulary, off they would go. If it’s a plan that hasn’t yet made the final decision to incorporate a reimbursement code in that system, we believe based on our conversation with many private plans already, they know this is an orphan drug and as such they will begin the reimbursement process that way as well.

Both of those, in the initial stages company biologic launches take a bit more time than later in the product’s life cycle where codes are permanent and things move much more quickly through the payer system.

So there’s a little bit of lag, but that’s why we provide the services of Covance to help push both sides of the system on the reimbursement level.

Gene Mack – Soleil Securities

Do you think in both cases patients will probably be able to get access to drug within two weeks?

Paul Hamelin

Well, I think certainly having the product available – I don’t know, it’s hard to tell whether someone will be on it that quickly. I know certainly from our discussions with rheumatologists and with questions and calls we’ve gotten from patients, we believe there are people, and we anticipate people who will try to access it as early as December but we just don’t have a real feel for right now whether we will start significant sales in December or whether significant sales will start a little bit later after we have a full commercial launch where we can really get into these infusion centers and really spend some detailed time with the rheumatologists.


Thank you. Our next question comes from Cory Kasimov of JP Morgan.

Cory Kasimov – JP Morgan

You have extension data with patients on KRYSTEXXA for significant time. I'm just wondering in the real-world setting what duration of treatment are you expecting with patients being responsible for some of the comp themselves and make it – how might this trend of the next few years?

Paul Hamelin

Well, in our label, of course, there is no restriction on duration of therapy. And when we look at our clinical trial results you’ll see in our posters and abstracts at ACR that we have treated a significant portion of patients upwards of a ¼ of patients who started in our trial continued on therapy for over 30 months. I would say on average, if you took every patient who started on our therapy, it would average roughly about 19 months of therapy, of exposure, but we’ve had a significant portion of patients out to three years.

And that actually gets into one of the reasons for the duration of the therapy being on average 19 months and out to 30 years, is as people will see in the long-term benefits in the papers, posters at ACR, one is going to see that there are a number of – and [inaudible] is an example to get in complete resolution beyond the 12-month time frame. And so we think in some of these cases there patients will need to be longer therapy to receive the full clinical benefits that they can achieve. Certainly, they get clinical benefits within the first six months, but they also get continued clinical benefits as they remain on therapy.

Cory Kasimov – JP Morgan

Okay, that’s great. Thank you.


Thank you. Our next question comes from Joseph Schwartz of Leerink Swann.

Joseph Schwartz – Leerink Swann

Good morning. Thanks. It sounds like you are trying to cover a lot of ground, 1,700 focused accounts and hospitals with around 60 reps plus some MSLs. I'm wondering, A, are you confident that you’re getting the right kinds of sales reps that are able to deal with physicians who might have patients that need to have steroids ahead of time, and then they could still have infusion reactions and other AEs that could take up a lot of their time and expertise to manage and keep customers happy? And then B, you know, do you think that this is an adequate sized sale force because it doesn’t seem like the typical or concentration of a market since it’s carved out of a larger gout market?

Paul Hamelin

Well our exercise in sizing this and covering the 4,000 rheumatologists, those 1,700 centers and the 800 nephrologists was based on a lot of analytical work that we completed. And we actually compared the size and reach of this sales organization to other rheumatology sales forces that have been created by let’s say Abbott, by BMS, by Novartis, by J&J. And so we know that this sales organization size, not only from the analytical work, but just comparing to these other organizations, our size of a 60-person sales force is right in the middle of the size of what these other companies have built in order to be able to adequately get into this population.

So we do think that this is the right size to give us the kind of depth and reach that we need certainly in the first year.

Joseph Schwartz – Leerink Swann

Okay. And I was wondering if you could give us a sense of how you intend to bridge the capital you have on hand with what you might need to reach sustainability?

Phil Yachmetz

Joe, it’s Phil. How you doing. You know, as we said earlier, we – launching a product is a complex matter and we’re refining our plans. And we have determined that we have sufficient cash on hand to last approximately nine months and we’re currently exploring potential financing size, timing, structure, etcetera. But at this point we’re not going to comment any further on that.

Paul Hamelin

And certainly, within the $75 million that we have and the nine months that we think that cash will provide us, we certainly can do all of the plans that we’ve been articulating here and effectively launching this with a full sales force in February.

Joseph Schwartz – Leerink Swann

Great. Thank you.


Thank you. Our next question comes from Liisa Bayko of JMP Securities

Liisa Bayko – JMP Securities

Hi, good morning. I was wondering if you could just walk us through sort of how the distribution flow works. So you’ll be putting product into specialty distributors. Maybe comment a little bit on who they are. And then from there, product that goes to the infusion centers, who takes ownership of that inventory and how does that sort of flow to the patient?

Paul Hamelin

Lisa, we have product right now that is packaged, labeled and cartoned that is sitting at ICS. ICS is a company that is a subsidiary of AmeriSource Virgin. ICS effectively acts as our Savient warehouse, so product from there is ready to be shipped and on November 30 we will then ship the product from our warehouse partner, ICS, and ICS does this for a number of other companies as well. ICS will ship it then to – we hope, four specialty distributors on the 30th. We have some of these under contract already, those specialty distributors then will have product. They will take possession or title of the product at that time. And then they are ready to ship product to any infusion center across the country that requests the product and they can in [inaudible] within 24 hours a vial or as many vials as an infusion center would request.

At some extent today these specialty distributors are just-in-time distributors and from there it – let’s say it’s not a physician-owned infusion center, but let’s say it’s a hospital-based infusion center and we expect that this will be the case for about 25 to 30% of the infusions.

In that case, what will happen is the order will come in from the hospital or medical center. It will go into a request into the wholesaler’s system. The wholesaler will then call our warehouse at ICS and ICS will drop ship the product immediately to the hospital. And the billing of that will go through the wholesaler.

So that’s kind of the two routes of where the product will go. Now, there is a third route, which is as you know probably Liisa, that some private healthcare plan in the United States require that a product be available through their specialty pharmacy. And where that is the case, we will then sign an agreement with that healthcare plan and with that specialty pharmacy in order to be able to have product shipped to that specialty pharmacy for their distribution within their healthcare plan.

Liisa Bayko – JMP Securities

Okay, great. That’s helpful. Thank you.


Thank you. Our next question comes from Steve Byrne of Bank of America

Steve Byrne – Bank of America

Hi, Paul. Can you remind us the protocol that you’re going to require of physicians to test for non-responders? What’s the frequency of testing in those patients and what would be the criteria for declaring a patient a non-responder?

Paul Hamelin

Steve, in our label we’re suggesting the label recommends that physicians do serum uric acid testing every two weeks as the patient comes in for an infusion. If the patient has on two consecutive two-week periods, an increase in their serum uric acid above 6, then we recommend that that patient be discontinued from therapy. Two consecutive levels above 6 would indicate the patient is going to be a, and will continue to be a non-responder and they will just not have as much a clinic benefit and they carry increased risk for infusion reaction.

So that’s the basis, and typically what we have seen in all of our clinical trial patients is that if you’re going have two consecutive serum uric acids above 6, that generally happens within the first four months of therapy.

Steve Byrne – Bank of America

Okay. I have another one. Do you have any plans for a post-approval trial or to test any of these patients to measure alantin in their blood to really directly quantify how much – what is the rate of dissolution of uric acid out of the body? I get that question a lot, how long is it going to take for these [inaudible] to be reduced? I was just wondering if you were going to pursue that?

Paul Hamelin

You’re exactly right, Steve. Today there is no way to predict or to know with true analytical precision when you’ve removed urate source from patients. We know, again from our study, that there’s a lot of urate being removed in the first six months because we’ve seen clinical benefit in the first six months. But we also see continued resolution of more tomite as patients remain on therapy. Long-term scientifically, your question about alantin is a good one. I think somewhere in the future, but we still need a lot of preliminary research that we have to do before we could potentially use alantin as a marker. But it is something that we would like to explore so that hopefully we have a better quantitative model in the future predicting when patients should be nearing the end of a good course of therapy with KRYSTEXXA whether disease has been dramatically modified by the removal of the urate storage in these patient’s bodies.


Thank you. Our next question come from Katherine Xu of Wedbush Securities.

Katherine Xu – Wedbush Securities

Good morning. I’m just curious, how important has the [inaudible] that you could actually differentiate non-responders earlier?

Paul Hamelin

That is a concept that payers value immensely. One of the things that’s – so we get a lot of receptivity out of that. One of the things that drives payers crazy is you can lobby to keep patients on drugs when they’re not getting the correct clinical benefit. And that happens, unfortunately, with the vast majority of therapeutic agents that are available in all classes of medicine today. So the ability to be able to identify a non-responder in the first four months is a very important characteristic that the payers truly appreciate, and I think will help us in our establishing the payer support for us.

Katherine Xu – Wedbush Securities

Does that influence your pricing assessment?

Paul Hamelin

Well, we believe that all facets and all components, political components play a role in the establishment of price. So yes, this is also an important characteristic because we can identify non responders quickly. And we also know now that responders have a tremendous clinical benefit and an expensive clinical benefit. So all of that does play a role in our pricing decisions.


Thank you. Our next question comes from Carol Werther of Summer Street Research.

Carol Werther – Summer Street Research

Thanks for taking my question. Can you just tell us how much you think the launch is going to cost?

Paul Hamelin

Well, Carol, we normally – and we will continue to stay with this policy – we won’t give forward guidance on expenses on what we think our marketing costs will be, or sales organization, or revenue streams. We have articulated earlier on the call that it’s going to take 66 [inaudible]-based people. We know we’re going to have a number of other MSLs and managed care executives and we need a small number of additional home-office people to support that field deployment. But that’s about the extent of the guidance that we’ve given on what our expensable file will look like going forward.

Carol Werther – Summer Street Research

Okay. And can you just update us on your EU plan?

Paul Hamelin

Sure. Our EU submission remains on track for early 2011 and we remain very excited about that filing. We remain excited now for the filing, but for the mere fact that the European Union is an even bigger market for chronic gout patients and so we’ve very excited to get that filed and hopefully after about roughly a 12-month review process, they’d be able to make the product available in 2012 in Europe.


Thank you. Our next quest comes from Gene Mack of Soleil Securities.

Gene Mack – Soleil Securities

Thanks for taking my question. I guess on the sales organization, should we start thinking about, maybe someone is going to want to be a Chief Commercial Officer and is going to – as far as the structure of that and the six supervisors reporting to him? Is that the way to think about that?

Paul Hamelin

Well, Gene, we normally don’t talk about what or organizational plans are, you know, going forward. Derrick is a very capable individual. He has run large sales organizations before with J&J. So we definitely feel very comfortable and confident in his ability to lead our field-based organization and to help provide direction with our managed care team as well, which is a very iatrical part of the whole commercialization process.


Thank you. And our final question comes from Kim Lee of Global Hunter Securities.

Kim Lee – Global Hunter Securities

Thanks for taking the follow-up question. Just a bookkeeping question here. When do you expect to recognize the sale, when you ship to the distributors or when the drug actually gets used?

David Gionco

Hi, Kim. This is David. Regarding revenue recognition, our policy and our plan is we will record revenue once the product is received by the specialty distributor or if it’s a hospital, when it’s actually physically received by the hospital. That’s our policy and you know, we plan on monitoring the levels of inventory in the distribution channel on a go-forward basis, basically on a day-to-day basis so we’re well aware of the product that’s out in the channel.


Thank you. That concludes our Q&A session for today. I’d like to turn the call back over to Mr. Paul Hamelin for closing remarks.

Paul Hamelin

Thank you, everyone, for participating this morning. We believe our launch plans are very solid and are on track. We have seen here, we have the experience to excel. We have a therapy in KRYSTEXXA that is what patients have desired for decades, a product that can transform their lives is now with their reach. Thank you, everybody.


Ladies and gentlemen, thank you for your participation in today’s conference. This concludes the program. You may all now disconnect. Thank you and have a nice day.

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