Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  
TRANSCRIPT SPONSOR
Better Than AdSense

MedImmune Inc. (MEDI)

Q4 2006 Earnings Call

February 7, 2007 8:00 am ET

Executives

Peter Vozzo - Director of IR

David Mott - President and CEO

Lota Zoth - CFO

Peter Greenleaf - SVP of Marketing and Sales

Ed Connor - Chief Medical Officer

Analysts

Craig Parker - Lehman Brothers

May-Kin Ho - Goldman Sachs

Mark Schoenebaum - Bear Stearns

Geoff Meacham - J.P. Morgan

Steve Harr - Morgan Stanley

Ian Somaiya - Thomas Weisel

Phil Nadeau - Cowen and Company

Eric Ende - Merrill Lynch

Jim Reddoch - FBR

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2006 MedImmune Earnings Call. My name is Nicole and I'll be your coordinator for today. At this time, all participants are in a listen-only mode. We will conduct a question-and-answer session towards the end of this conference. (Operator Instructions). I would now like to turn the call over to Mr. Peter Vozzo, Director of Investor Relations. Please proceed.

Peter Vozzo

Good morning and welcome to MedImmune's quarterly conference call with investors. This call is being electronically recorded and is copyrighted by MedImmune. No reproductions, retransmissions or copies of this conference call may be made without the written permission of MedImmune.

In this call, members of our senior management will discuss MedImmune's financial results for the full year and fourth quarter of 2006 as well as the Company's business outlook. Please note that any statements about the Company's prospects or future expectations are forward-looking statements. As you know, forward-looking statements involve substantial risks and uncertainties and actual results may differ materially from expectations. Please refer to the press release issued earlier today that is related to this call and to our filings with the SEC for more information on the risks and uncertainties that could cause actual results to differ.

Please note that as part of this morning's press release and filing with the SEC, we have included schedules that present the most directly comparable GAAP measures for each historical non-GAAP measure as well as a detailed reconciliation between the two. Also, MedImmune assumes no obligation to update the information in this morning's press release or as presented on this call except as may be required by applicable laws or regulations.

Today's press release describing our results for the full year and fourth quarter of 2006 may be found on our website at www.medimmune.com in the box marked "News" or with the archived press releases on the Investor Relations page.

And now I will hand the call over to David Mott, MedImmune's President and Chief Executive Officer.

TRANSCRIPT SPONSOR

Better Than AdSense

What if there was a way to promote your company to a perfectly targeted group of potential customers, partners, acquirers and investors? What if you could tailor your pitch to them at the moment of maximum interest? And what if you could do this for a no-brainer price?

This is exactly what Seeking Alpha is offering with transcript sponsorships.

Seven types of companies are sponsoring earnings transcripts on Seeking Alpha:

1. Company sponsors its own earnings call transcript (example).

2. Company sponsors partner's transcript (example).

3. Company sponsors competitor's transcript (example).

4. Issuer-sponsored research firm sponsors client's transcript (example).

5. Investment newsletter sponsors transcripts of successful stock picks (example).

6. IR firm sponsors transcript of micro-cap company (example).

7. Consulting company sponsors company's transcript in sector of interest (example).

Your company's name and promotion could have been on this transcript! Learn more, or email Zack Miller for details.

David Mott

Good morning everyone and thank you very much Peter. First of all for those of you that can recognize my regular voice I will assure that this scraggly voice is not the result of having the flu; as you might imagine I am impervious to flu, I do have a cold which is merely the product of having four young children at home, so bear with me as we go through this call this morning.

In addition to Peter Vozzo, with me on the call today are Lota Zoth, our Chief Financial Officer; Ed Connor, our Chief Medical Officer and Peter Greenleaf, our Senior Vice President of Marketing and Sales and a proud new papa. Peter actually had a, or his wife more precisely, had a son yesterday. So he is a little groggy today as well, but we are all very excited for him.

During 2006, we continued here at MedImmune to make excellent progress on many fronts toward our long-term objectives of achieving $2 billion in revenues and $2 in earnings per share before stock option expense in 2009. Some of the recent highlights from our business include achieving total revenue for the year of approximately $1.3 billion, thanks to a 7% increase in fourth quarter revenues over the same period in 2005. We exceeded our earnings guidance range of $0.17 to $0.22 for 2006 by achieving earnings per diluted share of $0.30 excluding share-based compensation expense, which was a substantial increase from adjusted net earnings of $0.13 per diluted share in 2005.

We reported approximately $26 million in royalties and milestones during 2006 related to cervical cancer vaccines from Merck and GSK for our pioneering development of the virus-like particle technology used in the vaccines.

We received approval for the refrigerated formulation of FluMist, just a few weeks ago, and last June we submitted a supplemental biologic license application to expand the label to include children, 12 to 59 months of age, who do not have a history of wheezing or asthma.

We announced preliminary data from our pivotal Phase III trial with Numax showing that it managed primary endpoint of non-inferiority by reducing the incidence hospitalizations caused by respiratory syncytial virus in infants at high risk for serious RSV disease by 26% when compared to Synagis.

In business development, we had another productive year by in-licensing four targets from our portfolio, including two that are in clinical development and licensing our reverse genetics technology to CSL Limited of Australia. In addition, we made a strategic decision to sell our CytoGam business, which resulted in a $49 million gain and may provide future gains if sales milestones are achieved.

We filed two investigations on new drug applications to begin clinical studies with MEDI-538, our BiTE molecule focusing on B-cell derived Non-Hodgkin's Lymphoma and with our cell-culture based seasonal influenza vaccine.

For the remainder of the call today, we'll review our financial results for 2006, which Lota will cover, then Peter Greenleaf will discuss the commercial progress we've made in the quarter, and then Ed will provide a brief synopsis of the progress being made in our pipeline, and I will then finish with some closing comments. Of course, we'll leave time to answer your questions at the end.

So, let's start by getting things -- go on Lota.

Lota Zoth

Thanks Dave and good morning everyone. I would like to begin discussion of our financial results with revenues. As Dave mentioned, we achieved total revenues in 2006 of $1.3 billion, up 3% from $1.2 billion in 2005. For the 2006 fourth quarter, total revenues increased 7% to $529 million from $492 million in the 2005 fourth quarter.

As we expected, worldwide sales of Synagis for 2006 were about flat with 2005 at $1.1 billion. Specifically, U.S. sales were $906 million in 2006 and $905 million in 2005. Internationally, our sales of Synagis to Abbott were approximately $159 million in 2006 and $158 million in 2005.

If we look just at the fourth quarter of 2006, worldwide sales of Synagis grew 4% to $457 million from $439 in the 2005 quarter. In the U.S., our reported sales percentages increased 6% from $379 million in 2005 quarter to $403 million in the 2006 quarter. One item of note for the 2006 fourth quarter relates to some work that we recently completed with respect to Medicaid rebates. When we gave you guidance in December, we were about half way through a thorough assessment of the impact of certain legislative changes that were enacted earlier in 2006 requiring Medicaid programs to improve their reporting capabilities for rebates over the course of the year. Based on where we were at the midpoint of our assessment, we thought that the liability recorded over the last few years would be reduced and net sales would be favorably impacted. The final result of our review was that net sales in the 2006 fourth quarter were increased by about $20 million.

International sales to Abbott in the 2006 fourth quarter decreased to $54 million from $60 million in the 2005 quarter, primarily due to timing of orders from year-to-year and to some downward pressure exerted by the stronger U.S. dollar.

Moving on to our influenza vaccines business, our reported sales of FluMist increased 71% in 2006 to $36 million from $21 million in 2005. In the 2006 fourth quarter, FluMist sales increased 128% to $18 million. We believe that the relatively mild flu season in the U.S. did result in a drop off in sales late in December.

Ethyol sales for 2006 came in at $87 million as compared to $95 million in 2005. For the fourth quarter of 2006 sales totaled $20 million as compared to $25 million in the comparable 2005 period.

We're starting to see significant contributions in the other revenues line. First, royalties together with sales and improvable milestones related to HPV vaccines totaled approximately $26 million in 2006, including approximately $14 million of royalties and milestones reported in the 2006 fourth quarter. Second, the portion of revenue from Abbott International related to our RSV franchise distribution rights totaled $18 million in 2006 compared to $17 million in 2005.

Finally, in 2006 we reported $11 million of government contract revenue related to our development of the cell-culture produced influenza vaccine. All of these items contributed to our 2006 total other revenues of $56 million, which was 143% increase from 2005. And our 2006 fourth quarter totaled other revenues of $24 million more than double the previous fourth quarter.

Before talking about expenses, let me comment on the bottom line results. For 2006, we reported net earnings on a GAAP basis of $49 million or $0.20 per diluted share. This is a significant improvement over our reported GAAP net loss in 2005 of $17 million or $0.07 per share.

As expected, our share-based compensation expense was approximately $34 million or $0.10 per diluted share. Excluding share-based compensation expense, our 2006 net earnings were $75 million or $0.30 per diluted share. We reported GAAP net earnings of $0.50 per diluted share in the fourth quarter 2006, and a GAAP net loss of $0.09 per diluted share in the fourth quarter of 2005. Excluding share-based compensation expense for the 2006 fourth quarter, our net earnings per diluted share were $0.64.

Now, as I move through the P&L and talk about expenses, please keep in mind that my comments on gross margin, R&D expense, and SG&A expense, as well as taxes exclude the impact of share-based compensation expense for 2006 and also in-process acquired research and development in 2005, primarily from our October 2005 acquisition of Cellective Therapeutics.

Our overall gross margins on product sales came in at 73% in 2006, as we expected that they would, compared to 72% in 2005. Our sales volumes of FluMist is increasing, the product still exerted some downward pressure of about 4 percentage point to the margins for each year.

In the 2006 fourth quarter, our overall gross margins on product sales were 73% compared to 71% in the 2005 fourth quarter. Both quarters were negatively impacted by the write-off of unsold doses of FluMist. However, the 2006 fourth quarter gross margins were listed by the adjustments for Medicaid rebate, and declining royalty rates for Ethyol.

R&D expenses in 2006 were $438 million or 36% of product sales, which was slightly better than we expected. This compared to $383 million of R&D expense in 2005, or 31% of product sales. The growth in R&D expenses is due to higher cost associated with collaborations and licensing deal and includes the $70 million upfront charge for the Infinity collaboration in the third quarter. Fourth quarter R&D expense in 2006, decreased to a $102 million from a $117 million in 2005 due to lower clinical trial expense associated with pivotal Phase III trials for Numax and refrigerated FluMist.

For the full year 2006, selling, general and administrative expenses were $519 million, or 43% of product sales, which was slightly higher than we expected. This compared to $498 million or 41% of product sales in 2005.

The increase was due to the full year non-cash amortization of $85 million associated with the reacquiring the full promotion rights to Synagis in the US versus partial year amortization of $41 million in 2005. Additionally, we had cost associated with the expansion of our commercial organization and higher legal and other professional services fees. These increases were partially offset by the reduction in co-promotion expense to Abbott that totaled $95 million in 2006 and a $192 million in 2005. For the fourth quarter 2006, SG&A expenses decreased to $163 million from a $199 million in 2005 quarter. The decrease was due to the absence or co-promotion expense to Abbott, which had been $81 million in the 2005 quarter, and was partially offset by increased marketing activities, higher personnel cost, and increased legal and other professional services fees.

During the fourth quarter of 2006, we extended the schedule for amortization associated with reacquiring the full US promotion rights for Synagis. Although we anticipate a Numax launch during the 2008-2009 RSV season, we expect we will continue to actively market Synagis for children with congenital heart disease through the 2009-2010 season. As a result, we expect the rate of amortization to decrease from approximately $0.10 per dollar of domestic Synagis net sales to approximately $0.07 over this longer transition period.

As Dave mentioned, we've recognized $49 million gain on the sale of CytoGam, which closed on December 14th. There was a significant amount of MedImmune investment activity in 2006, mostly concentrated in the fourth quarter. For the full-year, we had a total of $48 million of gains on sales of MedImmune Ventures' investments including a $31 million gain on sale of the investment in Avidia, which was acquired by Amgen in the fourth quarter.

During the year, we also had some impairment charges totaling about $15 million, resulting in a net overall gain from investment activities for the year of $34 million, better than we had expected.

Moving on to income taxes. With a few late-breaking items in the fourth quarter that reduced our overall tax rate to 31% in 2006, compared to 41% in 2005. The better than expected effective tax rate resulted primarily from three different factors. First, we benefited from federal R&D tax credits that were generated by the legislation passed on December 20, 2006. Second, our higher level of taxable earnings, much of which was generated from the investment gains late in the fourth quarter, allowed us to begin using R&D credit that had valuation allowances because we actually thought that they would expire before using. Finally, we were able benefit from certain R&D tax credits available in several states.

Turning to our balance sheet, cash and marketable securities totaled $1.5 billion at both year-end 2006 and year-end 2005. Increasing our cash flows for the year were net proceeds of about $840 million from the June 2006 issuance of convertible senior notes and related hedging and stock repurchase transactions. These net proceeds were used in part to retire $490 million of the older convertible debt during July. The remaining net proceeds as well as operating cash flow were used to repurchase additional common stock to pay largely all of the remaining amounts owed to Abbott for the Synagis U.S. co-promotion rights, and to fund capital expenditures.

During all of 2006, we repurchased approximately 11 million shares of common stock for about $328 million. We paid Abbott about $230 million for U.S. co-promotion rights and funded capital expenditures of $142 million.

As mentioned in the press release today, we are confirming the 2007 annual guidance issued on December 6, 2006 in conjunction with our Analyst and Investor Day, including our expectation that total revenues in 2007 will grow to approximately $1.5 billion and earnings per diluted share before stock compensation expense would range from $0.90 to $0.95.

Specifically with respect to Synagis, we expect that the results from the first half for the season now in that, worldwide revenues for the 2006-2007 season will grow by roughly 9% over the 2005-2006 season.

Just as a reminder, our financial guidance for 2007 assumes that as a percentage of product sales, gross margins will be about 74%, R&D will be in the range of 28% to 30%, SG&A will be about 35%, and net other income will be approximately 3% to 4%. In addition, the effective tax rate will be approximately 36% of pre-tax income. The diluted share count at the end of the year will be approximately $245 million and in the aggregate, the impact of share-based compensation expense before taxes for 2007 will be approximately $31 million to $33 million or approximately $0.09 to $0.10 in diluted EPS.

At this point, I would like to turn the call over to the New Papa, Peter Greenleaf, for a discussion on his views of the progress we've made in our commercial organization. Peter.

Peter Greenleaf

Thanks Lota and good morning everyone. I would like to update you all today on our fourth quarter progress on our Synagis business, as well as our performance during this year's flu season, and then finally take you through where we are in preparations for the launch of our new refrigerated formulation for FluMist in 2007.

So let's start with Synagis. As we entered into this year's RSV season in the United States, we ramped up our resources in several critical areas, with the goal of increasing our operational effectiveness and efficiency within the sales and marketing organization. Since I walked you through many of these initiatives in our last conference call, I'd now like to update you on the impact it had on our business thus far.

First, the timely expansion of our sales organization with a 125 new sales professionals in 2006, has allowed us to increase our coverage of pediatricians' offices this season. We have targeted additional 6000 pediatricians this season, over the 41,000 pediatricians at MEDI and raw sales-forces focused on together in previous seasons.

Through this effort, we have expanded the number of offices identifying premature infants and referring those infants for prophylaxis to the distributors in comparison to last season. This increase in reach and overall impact is going to be critical to our success, as we progress further into the second half of this year's RSV season and into next year. We also restructured our approach to specialty pharmacy providers and distributors over the summer.

Just to take you back, we expanded our network to better align with our payor partners and we improved our contracting approach to focus on the elements that we believe to be important to this product, including faster triage, providing broader access to product, and enhancing patient compliance. As a result of this change, we have seen significant improvements in many of these critical elements.

Another key area we focused on is the payor community. We see payors in managed cares among our greatest challenges and potential opportunities in this business over the long term, as it is for many and I'd probably add all drug manufacturers today.

For this season, we first improved our payor alignment within our field sales organization and second, made significant progress on our value proposition messaging for Synagis. But we still had improvements in it we made in this area over time. As we stated in our third quarter conference call, in many geographies we experienced some push-back by payors on dosing early in the season, which factored into our results in the fourth quarter.

One area that's difficult to predict is the impact to the backend of the season of any altered interpretations by payors. Given these difficulties in the long-term need for increasing our expertise and building lacking partnerships with payors, we recently announced a new Vice President of the Managed Care Organization who will come in and bring a greater depth to this group and help us continue to evolve our partnering strategies for the 2007-2008 season and beyond to help build broader access to Synagis and hopefully Numax in the future.

One of the critical areas we have continued to improve upon is our ability to deliver meaningful data to physicians regarding important issues related to our RSV prophylaxis, which we believe could help combat the increasingly restrictive patterns of many payors. As such, working alongside with several key opinion leaders, we've launched number of Phase IV studies. First, we are studying variations in timing of the RSV season in different geographic regions in U.S. And we are also assessing the burden of RSV disease in premature infants between 32 to 35 weeks gestational age who do not receive prophylaxis.

We believe this information will be relevant for policy makers and payors. These studies represent only a portion of the work we plan to implement to support providers over time. Obviously this data will not be available for this season or will be critical for meeting our long-term objectives in growing this business. While it will take the full 2006-2007 season as well as the next couple of seasons to truly determine the effect of these initiatives on our business. We currently believe that we have traction and are stabilizing our fundamental RSV business from the struggles we've been facing in the marketplace ever since 2003, when payors first began imposing increasingly restrictive interpretations of the AAP guidelines. The basis for our belief is that we ended up 2006 where we expect it to be. On a unit pull-through basis we were about flat season-over-season and year-end channel inventory was down $15 million to $20 million from the same point in the prior season, mostly due to the impact introducing liquid Synagis had to last year's inventory on 12/31/2005.

As Lota mentioned, we currently expect roughly 9% growth in worldwide Synagis sales for the 2006-2007 RSV season. In longer term we are gaining more clarity and confidence regarding the ability of our initiatives to make a positive impact on subsequent seasons.

Turning to the influenza side of our commercial business, I am pleased with the progress we are making this year as reflected in the fact that we were first to market with our vaccine. We produced substantially higher sales in 2006 versus 2005 and that we continue to make solid steps towards launching the refrigerated formulation of FluMist next season.

In the second half of 2006, we sold about 2.4 million doses of FluMist, a substantial increase over the 1.3 million doses we sold in the second half of 2005. We believe we had a strong showing this season bodes well for next season when we expect to launch the refrigerated formulation of FluMist with an expanded label to include children one through five without a history of wheezing and asthma. We've been busy at work to prepare the markets for the impending launch and you will continue to hear more about our plans as we progress towards the 2007-2008 season. So, with that, I would like to turn things over to Ed Connor for his update on our pipeline activities. Ed?

Ed Connor

Thanks, Peter, and good morning. MedImmune has made substantial progress during the 2006 fourth quarter managing the development of its product pipeline. First, since Peter just finished talking about refrigerated FluMist, let me provide an update on our development plans for the vaccine.

Last month, we received FDA approvals to use this formulation in helping to prevent influenza in healthy people 5 to 49 years of age. The next step in our plan is to expand the label to include children one to five years of age who do not have a history of wheezing or asthma. In this population, we have a very good risk benefit profile for FluMist compared to the injectable vaccine.

Our supplemental BLA for approval in this population is currently under review by the FDA with a PDUFA date of May 28.

As was mentioned before, MedImmune is the first manufacturer to deliver vaccine to the market this season. Initial lots were released in July and the FDA released all of our FluMist lots for distribution by mid September. Our goal is to consistently deliver FluMist to the market early to provide for back-to-school immunizations. Given the results of our Phase III study in children under five, showing that FluMist was 55% more effective than the inactivated shot at preventing influenza caused by all strains, both matched and mismatched, bringing the new FluMist to the market next year is not only important for MedImmune, but its also an important contribution to the public health initiatives in flu prevention.

In the mean time, we continue to publish data in the peer-reviewed literature. The results of our school-based vaccination study with FluMist were published in December 2006 in the New England Journal of Medicine.

This study involving more than 15,000 school children, found that households with children who attended schools with vaccination programs reported significantly fewer influenza like symptoms than households with children who attended schools without such programs. We hope to have acceptance of more such papers and prestigious journals in the very near future.

Moving over to our work on pandemic vaccines, you might remember that under a CRADA with the NIH, we have a Phase I study underway with the vaccine candidate against an H5N1 influenza virus, using our proprietary live attenuated intranasal vaccine technology. At this point, we are analyzing the data and hope to complete the analysis during the first half of 2007. We are also planning studies in 2007 with additional candidate H5 and H7 pandemic vaccines.

Our work with the NIH is a critical part of the nation's overall pandemic preparedness. As such, the Department of Health and Human Services announced last week that both our H5N1 vaccine candidate being developed under CRADA, and our cell-culture contract with HHS are covered under the Federal government’s Public Readiness and Emergency Preparedness Act. With this action, MedImmune can proceed with its work under its cooperative research and development agreement with NIAID with the confidence of knowing that its Federal government partner recognizes the importance of this effort as part of the nations' response to a potential influenza pandemic.

The next program we are working on to bring through the pipeline into the market is of course Numax. Last November, we released preliminary results from our Phase III pivotal study showing that Numax met its primary endpoint of non-inferiority by reducing the incidence of hospitalizations caused by RSV in infants at high risk for serious RSV disease by 26% when compared to Synagis.

The data also show that Numax was statistically superior to Synagis in a secondary endpoint by reducing the incidence of RSV-specific medically-attended outpatient lower respiratory tract infections by 50%.

With these data now in hand, we have moved ahead and started to have our pre-submission meetings with the FDA. Last week, we had a very productive meeting with the FDA to discuss next steps and we are schedule to have another meeting with them later this week to discuss our Chemistry, Manufacturing & Control sections.

Currently, our plan forward is to include additional data from our placebo-controlled Phase III study involving native American children in our BLA package. Those data should be available sometime in late summer and our plan is to submit our filing to the FDA thereafter. We currently anticipate an FDA action in the second half of 2008.

We continue to believe that Numax will further strengthen our RSV franchise. It offers greater clinical benefits to high risk children, a better pharmacoeconomic story to payors, extends the patent coverage to about 20/21 and it raises the bar for potential future competition. We expect to present data from our Phase III Numax trial at the Pediatric Academic Society's annual meeting in May and possibly at other scientific conferences during 2007.

Two new trials with Numax are RSV treatment feasibility studies in which we hope to evaluate the effectiveness of giving Numax to infants, who already have an RSV infection and then to measure clinical outcomes.

A trial with children hospitalized with RSV started enrolling patients last month and will include infants up to 12 months of age. And we expect to begin enrollments this season in a trial assessing outpatient treatments of RSV infection.

As we extend our thinking beyond Numax, we plan to file an IND this year for a third generation RSV monoclonal antibody that is four times the half life of Numax in preclinical testing. Also, in our RSV franchise is our combination vaccine candidate against RSV and parainfluenza virus type 3. We are scheduled to begin enrolling seronegative children and infants in the second quarter of 2007. This is the population who most needs the vaccine.

We recently also strengthened our inflammatory disease pipeline through a collaboration with BioWa, which add the Phase I program with the monoclonal antibody targeting the IL-5 receptor in asthma patients.

After reviewing the 18-month survival data from our Phase II study Abegrin in prostate cancer patients, we have decided to cease our developments of the drug in this indication as well as in others. We will, however, continue to support the development of the molecule under a cooperative research and development agreement with NIH, primarily a Phase II renal cell cancer study.

And finally, we continue to make excellent progress on a number of clinical programs that we look forward to reporting on in the near future. These programs include our anti-interferon alpha program in lupus patients, Anti-IL-9 program to help treat asthma, Hsp90 program in GIST, as well as potential trial in non-small-cell lung cancer patients, anti-CD2 program in T-Cell lymphoma patients and our Anti-CD19 program using BiTE technology.

I will now turn the call over to Dave for his final comments. Dave?

David Mott

Thanks Ed. Let me just wrap things up with a brief legal update on two items. First, we are very pleased that last month the U.S. Supreme Court ruled in MedImmune's favor in two cases regarding the patent litigation process. The Court's decisions mean that MedImmune is free to pursue its complaints regarding non-infringement, invalidity and unenforceability of two patents, one being the Cabilly II patent and the other being the Morrison patent. We intend to do so vigorously and we continue to believe that our position will prevail.

Also last month, the U.S. District Court for the District of Maryland rejected Sun Pharmaceutical Industries Ltd.'s motion to end the patent infringement action regarding Sun's proposed generic amifostine product. In the decision, the Court has specifically denied a motion for summary judgment of non-infringement regarding one of MedImmune's patents covering the file. And at the same time, granted Sun's motion for summary judgment in part on another.

With that, I thank you all for your continued support of our business and let's open up the lines to answer your questions. Please, again, as we talk about every quarter, please limit yourselves to one question each out of courtesy to those who in the queue behind you. Thank you very much. Operator?

Question-and-Answer Session

Operator

(Operator Instructions). Your first question comes from the line of Craig Parker from Lehman Brothers. Please proceed.

Craig Parker - Lehman Brothers

Good morning. Dave, I'm just trying to understand the assumption of 9% growth next year when you effectively had no unit growth this year and may be you can comment on this year's RSV season, it looks like it was similar to or perhaps a little bit lighter than last season, but what are your underlying assumptions for that 9% growth in terms of unit volume, price and the RSV season?

David Mott

Sure, thanks Craig. First of all, let's make sure we don't confuse season and years. These are complicated when you're in the cold and flu business like we are. But the 9% number that both Lota and Peter referenced on the call refers to our expectations for season-over-season growth for the 2006-2007 RSV season compared to the 2005-2006 RSV season. And that is anticipated growth rate in our reported product sales for the product on a worldwide basis. In fact, we expect the growth rate in the US and ex-US to be very similar this season. As you all know the shipping patterns to Abbott International vary a little bit, it can be lumpy from year-to-year, but this year they happen to line up pretty well with the US growth rates. So, I think, the two are quite close, and that 9% represents a combination of volume and pricing.

So as you think about that -- the US side of the business, we are probably looking at something in the range of 6 percentage impact from price and very modest unit growth in that for this season, and very modest low single-digit unit growth for this season.

And then ex-US at the end-user level, we are continuing to see very strong end-user demand growth. I think through the 12 months ended, the most recent period, I have data for, 12-month ended 9/30/2006, we saw about 25% end-user growth in the ex-US market. But again, our shipping patterns of products to Abbott International aren't directly linearly linked to the end-user demand growth. So we are expecting our growth over this year season to be in that 9% range to Abbott International as those bounce around a little bit.

So that gives you a sense of the combination of volume and price in US and international altogether, driving about 9% of worldwide product sales growth for MedImmune. And as you might note in there, we've nudged that down about 1 point from 10%, which we had targeted. I guess when we talked at our Analyst Day in December, recognizing Peter's comments on the call about pushback beginning in the season from payors and the impact that that’s had on getting us off to a little slower than expected start, but obviously still pretty close at that 9% level. Hopefully that helps you on that Craig.

Craig Parker - Lehman Brothers

It does. I am going to go back to my tradition of asking more than one question to follow-up on that though. It looks like most payors, at least the ones that we've surveyed, had a hard stop of 5 doses, and is that -- where we've been able to get data from states and hospitals and counties, it looks like the RSV season, at least through the end of December, was a bit below last year is that -- do you think it's accurate?

David Mott

Craig, frankly it's very hard to get complete data on that. We have different windows into it. Our expectation is that much like we saw some constriction at the beginning of this year season, we may well see a modest increase in restriction at the back-end of the season and we've planned for that in the way we build our business model for this year. We don’t see wholesale changes in that. And remember again that -- frankly for the vast majority of kids and in the vast majority of parts of the country, 5 doses is just fine. It represents very good compliance with care and, in fact, exceeds our average number of doses per kid, so that’s doing pretty well.

There are some pockets of the country though, and these are the some of the things that we're really trying to work on as we hopefully can refine the way guidelines are interpreted and implemented, but there are pockets of the country where clearly the season starts earlier than November and other pockets where it maybe runs later than March, and in some places where it runs substantially longer than five months. If you go down and you look in Florida, the season is typically in the range of 10 months. If you go all the way down to Southeast Florida, it’s frankly more like 12 months. I have seen data recently in South Texas in the Corpus Christi area, going back 10 years consistent virology data showing the season is typically 5-8 months there and starts up in October. So there are some relatively narrow pockets in the country where patients can benefit from additional access to product beyond five doses, but that really is the exception and not the rule. So hopefully that gives you a sense of how we see that playing out, and I think you are right that there could be some additional modest constriction on dosing at the backend of the season.

Okay, now that he has violated our one-question rule, as usual we are off to a typical call, next question please, operator.

Operator

Your next question comes from the line of May-Kin Ho from Goldman Sachs. Please proceed.

May-Kin Ho - Goldman Sachs

Hi. My question concerns the filing of Numax that I hear that it’s no longer in the first half of the year?

Ed Connor

Yeah, I think -- May-Kin, this Ed. I -- what we are planning on doing currently is we have been spending the last year or so, as you know, looking at the completion of the trial, the analysis and the review of the data, and now we’ve kind of turned to thinking about how we can optimize the BLA submission by providing as much data as possible to the agency. Frankly, CP110 was designed as the pivotal trial and sort of stands as a pivotal trial for the approval. But we do have additional data, both data that’s in the Native American trial and the some data that’s in -- some data in the cardiac study, which we consider to be valuable in allowing the BLA submission to be optimal and so our current plan is to look at the availability of the data in 117, which is the native American trial, that we expect to be available over the summer, and then to anticipate that with those data, supported data to include in the BLA, anticipated submission by the end of the year.

Operator

Your next question comes from the line of Mark Schoenebaum from Bear Stearns. Please proceed.

Mark Schoenebaum - Bear Stearns

Hi, thanks for taking my question. I only have one question, so it's difficult. There has been a lot of speculation in the marketplace, obviously that MedImmune might become part of a larger company at some point. Can you talk about poison pills, you might have in place. My understanding is that the current poison pill expires in July. Is that something that you can comment on to confirm and if it's true, what are your plans, do you expect to ask the Board to reinstate that? Thanks.

Ed Connor

Sure, thanks for the question Mark. MedImmune does intend to become a bigger company, primarily through execution on our business plan overtime. That is our core plan. There is always the alternative of doing that through a business combination as well, which clearly we evaluate as a Board from time-to-time. With respect to the poison pills, you are right there. Very typical poison pill was put in place by [us back] in 1997 and expires sometime during the course of 2007. Those things are typically 10 year pills. What those really do is simply provide, in most cases, a little additional negotiating leverage to a Board in the situation of a change or control and try to maintain a control over the process and there will be ongoing evaluation of what to do as that expires, whether we implement new one, whether we don't implement a new one. Trends have changed some in the industry overtime on that. I think there are a little less universal than they used to be. Pretty much everyone had one, a decade ago. But now, many companies let them expire, some companies renew them and others have other strategies. So, I can't really speak to what we will choose to do when that time comes here.

Mark Schoenebaum - Bear Stearns

Okay. Thanks, David.

Operator

Your next question comes from the line of Geoff Meacham from J.P. Morgan. Please proceed.

Geoff Meacham - J.P. Morgan

Hi guys. Can you give us a sense for where you are with the percent of payors still requiring prior auths versus last season? Just wanted to get a sense for -- of your progress there?

Ed Connor

Yeah, I will take that one. I don’t think we’ve seen an increase in the overall prior auths relative to what we've been able to negotiate with payors on inappropriate prior authorizations. I think season-on-season, we've stayed flat but relative to and I will just back up and say that these are our internal estimates and how we quantify that, is by talking with the payors and getting their input, finding out exactly what the process is for getting kids on to the product. But we continue to work with payors on modifying areas that are inappropriate for prior auths. This is an industry trend on biologics and it's something that we don't expect that we're going to able to totally stop, but we want to make sure that the appropriate kids for products do not have prior authorization in place. So, net year-on-year, I think we've stayed flat, but it's an increasing pressure on the market.

Geoff Meacham - J.P. Morgan

Okay, thanks.

Operator

And your next question comes from the line of Steve Harr from Morgan Stanley. Please proceed.

Steve Harr - Morgan Stanley

With the Numax filing on the second half of this year, how are you guys thinking about manufacturing for the '08-'09 season? Are you willing to risk, scaling back Synagis with the thought that you would have Numax approved for the 2008 season. Or do we write that off for the '08-'09 season? I assume that you won't be able say that Numax won't be launched until 2009 or 2010?

Ed Connor

That’s a great question Steve. I will tell you that our Head of Operations, Ben Machielse keeps circling around our offices asking exact questions. Good news is one of the new processes that we have implemented is a freezing process for both products. It has the potential to give us an awful lot of flexibility in our supply planning. So one of the things that we are doing is we are freezing away bulk inventories of Numax, so we can make it whenever we have an open slot and start to build some inventory and then bring it out and do the finishing later. We have always anticipated a transition period between Synagis and Numax and given the tremendous record we have now over almost a decade of use of Synagis in the marketplace, regardless of the timing of approval of Numax. We don't expect there to be an abrupt switchover, we view it as kind of plus or minus two season switchover. So the question is, how much Numax supply do we need to mix in, in year one and we are still working through our modeling of that. But our expectation is that we will have commercial supply of both products available and we will try to fine-tune the balance of those as we get closer and closer to it. But we do have some forgiveness in the system because of our freezing process. So, since both products are expected to be available in the market side by side for some period of time. We can inventory bulk above and then bleed them in as we need them in the marketplace. Thanks Steve, Ben Machielse, will appreciate the fact that you are sharing his pain.

Operator

Your next question comes from the line of Ian Somaiya from Thomas Weisel. Please proceed.

Ian Somaiya - Thomas Weisel

Thank you for taking my question. Dave, you and Peter have outlined with numerous steps to reinvigorate the Synagis franchise this season. I don't if there is scorecard you can provide us in sort of mix seasonal of what's worked, what hasn't worked, what adjustments you need to make going forward?

Ed Connor

Let me hit that first and Peter can chime in with any additional comments he wants to make. I'd tell at this point frankly we are very, very pleased with the crispness of execution in our commercial organization. We are in a very different place than we were a year ago. And I think that our expansion was implemented flawlessly. The transition from Ross to MedImmune has been done in an extraordinarily profession fashion and I tip my hat to the Ross team as well as the MedImmune team for that. It was a good partnership all the way through and frankly in many parts of the country it continues to be, because they are friends out there and we continue to collaborate and work together. So, that transition was really about as closed to flawless as you can ever have. Our modifications to our distributor network and our contracting strategy with specialty pharmacy partners has been done very, very well this year and that system and network is working better than it probably ever has in our distribution of Synagis, which isn't to say that we don't have issues in little areas and from time-to-time in that, but we are in a dramatically better position than we have been historically.

We have significantly stepped up the capabilities that we are bringing to trainings, sales training and when we deployed our new representatives this year they were ready, much more ready than we've ever put a team in the field in the past. I think that's been outstanding. We brought in a lot of our real veterans, our clinical marketing managers in December for a training program as well. So, I think we are continuing to upgrade the skills and capabilities that we are supporting our sales organization with. We have built up our sales operation's team over the last three to six months with some new leadership and some new ideas and resources and that's off to a great start. The IT support of our field organization is improving rapidly. So, across the board, as I look at the execution on the commercial side of the business, we have taken it from a level at which we obviously were not satisfied last year, to a level which we are proud of this year. The areas where we still need to make progress are ones, they frankly take a little longer to influence, and they have to do with some of the mega-trends going on in our industry, partnering with payors to understand better how to work with those customers to expand access to our product, to eliminate unnecessary tension in the system, where perhaps some inappropriate patients are being put into the funnel and some appropriate patients are being left out.

We need to work better with them to partner on that. We need to make sure that we narrow the losses that we have in the hand-off from hospitals to pediatric offices and that we get first doses given in hospitals, and we can do that by focusing on compliance with our payors. So, partnering with payors is going to take longer to implement that is probably a two or three year gradual improvement, not a one season turnaround. And then the other thing that we need to do better is we need to work more collaboratively and as partners with recommending bodies and thought leaders, like the folks at the Committee on Infectious Diseases, at the American Academy of Pediatrics to make sure that we are providing appropriate data to support appropriate guidelines for use of the product. And we are trying to really engage with them in a new science-driven, high-level way to reach the right conclusions to maximize the benefit for patients and to eliminate any unnecessary tension in the system. But that again is going to take a couple of seasons to make progress on. So, from nuts and bolts on the ground execution point of view, we've gone from substandard to outstanding. And from a strategic point of view, there are few of these bigger items that are going to take a couple of seasons to move. Peter, do you want to add anything to that?

Peter Greenleaf

I think Dave summed it up in the short and long-term. The only thing that I would add is that partnership between my team directly and Ed Connor's team on the medical clinical side of the house is better than it's ever been here at MedImmune. We know that in the longer term, we are going to have to put data behind changing some of these payor policies and starting to move some of our current position on the guideline front. And we've actually put into place quite a bit of work there, some of which I have summed up, but not all of which we've actually communicated, as we continue to build out our plans there.

David Mott

Okay, next question?

Operator

Your next question comes from the line of Phil Nadeau from Cowen And Company. Please proceed.

Phil Nadeau - Cowen and Company

Good morning and thanks for taking my question. Dave, you’ve mentioned that FluMist sold about 2.5 million doses this season. If I remember correctly, your guidance was 3 million doses. So, to what do you attribute that shortfall? Was it just a light flu season or do you think there was any impact of the [gem on paper]?

David Mott

Sure. Thanks for the question, Phil. Actually -- hopefully, we are not quite finished yet with this year's flu season and that was really a comparison of the second half of this year to the second half of last year that we made in the earlier part of the call. There will be some continued trickle out, primarily to some of our government customers like the DoD that does immunize on an annual basis and you’ll remember we saw some modest sales in first quarter of last year. So, we are really not finished yet.

But we feel like we made really good progress this year. When we look at the number of the pediatric offices that we got the product into, we achieved our objective of getting the breadth that we think we need for the base for the launch for next year. We made some dramatic progress with the ACIP in getting them to expand their recommendations and inclusion of FluMist this past year that we think will bode well for launch next year with refrigerator stable. But at the end of the day, we were still hampered by the frozen formulation of the product, the narrow label. And thus far very modest flu season we've had this year, it's still early frankly, that flu typically peaks in the January-February timeframe, but because we really saw across the country very little flu activity in the first part of the season, it has been quite this year. And I think you probably heard that from some of the other manufacturers as well. I don't think that the paper that you referenced had any impact of any kind.

Phil Nadeau - Cowen and Company

Great, thank you.

Operator

Your next question comes from the line of Eric Ende from Merrill Lynch. Please proceed.

Eric Ende - Merrill Lynch

Thanks. I actually have a two-part accounting question, if I could? First of all, you mentioned that you are taking down your '07 amortization expense due to longer Synagis amortization schedule. It sounds like that raises EPS by about $0.75. First of all, is that correct? Second of all, was that on your prior guidance? And then the second part of the question has to do with the $20 million of additional Medicaid rebate. I was just not clear on what you were saying there. You are saying Synagis sales would have been $20 million higher in the fourth quarter if that didn’t happen?

Lota Zoth

Okay. I’ll take the amortization. Actually, the (inaudible) is actually just to give you the metric on as we go forward, we would anticipate over the remaining amount of Synagis sales during the period that we actively expect to market Synagis. We would on average be recording about $0.07 of amortization, that’s not $0.07 impact to EPS in any one period. It's $0.07 over the -- for each dollar of Synagis sales. So essentially how that works is, the bucket of amortization -- the bucket of intangible assets, it's remaining on our balance sheet, which is roughly about $220 million. It just has to be spread out over the remaining time. Before when we were taking in at the rate of $0.10 on a dollar, we actually anticipated a slightly quicker transition between Numax and Synagis. But because we are likely to keep Synagis on the market a bit longer and actively market specifically for kids with CHD, then the denominator actually is a little bit bigger and therefore the rate of amortization is a little bit lower.

David Mott

And to translate that, Eric, into EPS, that’s less than a penny, not $0.07, less than a penny year of impact.

Eric Ende - Merrill Lynch

And then, the second part of the question the $20 million?

Lota Zoth

Yes, so -- yes, if we have not had the adjustment for Medicaid rebate, our Synagis sales for the quarter and for the year would have been $20 million lower. I would just point out that we had actually about 3 years ago been watching the legislation and the sort of what was anticipated to happen with respect to Medicaid programs that the Medicaid area was going to become one where states were going to be encouraged to build these recording capabilities. So, we actively began recording what we thought our probable liability was. As it turns out while states were very active in looking as a go forward impact, they have suggested to us that it’s less likely that they’ll go back and mine the data for earlier years. So, therefore we adjusted our liability.

Eric Ende - Merrill Lynch

So, it actually benefited you by $20 million.

Lota Zoth

That's correct.

Eric Ende - Merrill Lynch

Okay. Thank you.

David Mott

And again, as Lota mentioned in her comments, we knew that was coming at the time we all talked about guidance for '06 and beyond on the December 6th Analyst Day. And we were about halfway through our analysis at that point because of the changes in legislation over the course of years, so not really surprised. We didn't know the final number, but we knew that was coming as we built our guidance.

Operator

Your next question comes from the line of Jim Reddoch from FBR. Please proceed.

Jim Reddoch - FBR

A question on HPV-related revenues, the $14 million, I think was little higher than expected, can you tell us how much of that was a milestone or is non-recurring and how much was royalty? Thanks.

Lota Zoth

Yes. Actually, it is a little bit confusing about that because the way that the HPV agreement works, at least where we are right now with Merck, is that they are still in the process of paying both milestones and royalties. And some of the milestones are actually sales based. So as they hit a certain level of sales, we get a milestone. So, it is difficult to dissect that and they actually have -- as such we not dissect between royalty and milestone. I will tell you that in 2007 that we only have -- we believe about one milestone less, so it will become much more clear in 2007, as we begin reporting our numbers, how to look at that royalty strength.

Jim Reddoch - FBR

When should we expect that milestone in '07?

Lota Zoth

Well I think that we only have the data that is available publicly as well and we probably will see that sometime in the first half of 2007.

Jim Reddoch - FBR

Okay. Thanks.

David Mott

Well terrific. I see its now about 9o'clock, although I have different times on my Blackberry and my watch, but I wanted to thank you all very much for spending an hour with us this morning, and talking through the quarter and through your continued support of the business. We think we are making excellent progress and are looking forward some substantial growth as we enter this '07-'09 timeframe. Thank you and we will look forward to talking on our next earnings call. Have a good day.

Operator

Thank you for your participation in today's conference. This concludes the presentation, you may now disconnect. Good day.

TRANSCRIPT SPONSOR

Better Than AdSense

What if there was a way to promote your company to a perfectly targeted group of potential customers, partners, acquirers and investors? What if you could tailor your pitch to them at the moment of maximum interest? And what if you could do this for a no-brainer price?

This is exactly what Seeking Alpha is offering with transcript sponsorships.

Six types of companies are sponsoring earnings transcripts on Seeking Alpha:

1. Company sponsors its own earnings call transcript (example).

2. Company sponsors partner's transcript (example).

3. Company sponsors competitor's transcript (example).

4. Issuer-sponsored research firm sponsors client's transcript (example).

5. Investment newsletter sponsors transcripts of successful stock picks (example).

6. IR firm sponsors transcript of micro-cap company (example).

7. Consulting company sponsors company's transcript in sector of interest (example).

Your company's name and promotion could have been on this transcript! Learn more, or email Zack Miller for details.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: MedImmune Q4 2006 Earnings Call Transcript
This Transcript
All Transcripts