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Executives

Thomas Watkins – President, Chief Executive Officer

David P. Southwel – Chief Financial Officer

Barry Labinger – Chief Commercial Officer

Analysts

Mark Schoenebaum – ISI Group

Michael Yee – RBC Capital Markets

Cory Kasimov – JPMorgan

Joseph Schwartz – Leerink Swann Llc

Chris Raymond – Robert W. Baird

Eric Schmidt – Cowen and Company

Terence Flynn – Goldman Sachs

Salveen Richter – Collins Stewart Llc

Yaron Werber – Citi

Ian Somaiya – Piper Jaffray

Avik Roy – Monness, Crespi, Hardt

Rachel Mcminn – Bank of America

Bill Tanner – Lazard Capital Markets

Ying Huang – Gleacher and Company

Human Genome Sciences (HGSI) Q2 2011 Earnings Call Transcript July 21, 2010 4:30 PM ET

Operator

Thank you so much for holding ladies and gentlemen and welcome to the Human Genome Sciences' Second Quarter 2011 Financial Results webcast. Just a quick reminder today’s call is being recorded. At this time I would like to turn things over to our host Mr. Tom Watkins, President and CEO of Human Genome Sciences. Mr. Watkins please go ahead.

Thomas Watkins

Thank you operator, and good afternoon everyone, and welcome to the Human Genome Science’s Conference Call. Before we begin I would like to point out that we will be making forward-looking statements which are based on our current intent, belief and expectations. These statements are subject to certain risks and uncertainties and I encourage everyone to look at our SEC filings for additional detail.

The press release that we issued just a few minutes ago is posted on our website at www.hgsi.com. Now, following my opening remarks David Southwell Executive Vice President and Chief Financial Officer will provide some comments on our second quarter financial results. And then Barry Labinger, Executive Vice President and Chief Commercial Officer will review our progress to-date with the commercialization of BENLYSTA.

With that point we will open the call for any questions you may have and we have the entire senior management team here.

On March 9th of this year as you know the FDA approved BENLYSTA in the United States for the treatment of systemic lupus, making it the first new drug approved for lupus in the US in 56 years.

Two weeks later we had BENLYSTA available in distribution channels here in the US and in late March the first US patients received treatment. As you will see and hear from Barry we are making good progress with the US launch of BENLYSTA. And HGS and GSK teams are working closely together to ensure that patients with systemic lupus who need BENLYSTA will have access to it.

I’m also pleased to report that we received our first regulatory approvals outside the US. From Health Canada on July 6th and from the European commission on July 13th. Now, in Canada we expect to have BENLYSTA available for patients beginning in September. The European approval is centrally important to making BENLYSTA available on a global basis and Barry will have more to say about our plans in Europe in a few months.

With that let me now ask David Southwell to review HGS financial results for the second quarter of 2011. David?

David Southwell

Thanks Tom, and thank you all for your participation in today’s call. You have the numbers for the second quarter in the press release. So I’m not going to go through in detail on the call but I would like to draw your attention to a few specific highlights. First, revenues totaled $24.9 million and included $7.8 million in net sales achieved by BENLYSTA in its first quarter on the market. It's worth noting that this figure doesn’t include $1.2 million in deferred revenue which reflects the additional factory sales of BENLYSTA that we shipped to distributors but have not yet been delivered to healthcare providers.

If you look at the last 12 shipping rates of average weekly net sales for BENLYSTA, so these are weekly numbers in the second quarter, average net sales grew from $270,000 per week for the first four week period and $630,000 per week for the second four week period to $1.05 million per week for week for the final four week period ending July 1st. So the BENLYSTA growth trajectory is encouraging.

Revenues for the second quarter also included $12.9 million recognized from sales and deliveries of Raxibacumab. Overall revenues for the quarter were down $14 million from the same period in 2007, which isn’t surprising since last year’s second quarter results reflected recognition of $19 million from development agreement with Novartis which has been concluded.

Moving to our net loss for the second quarter, we reported an increase in $24 million over the same quarter last year. This was primarily due to our recognizing $20 million less in revenue from the R&D collaboration agreements that we recognized in the second quarter 2010 that’s primarily of course resulting number, as well as a $4 million increase in the cost of product sales and a $15.7 million increase in selling, general and administrative expenses both of which are related to the commercialization of BENLYSTA.

These factors increasing on net loss were partially offset by a $7.5 million increase in product revenue, primarily BENLYSTA of course, and R&D expenses were $18 million lower than they were in the second quarter of 2010. We ended the second quarter with $703 million in cash and investments. We are very pleased to report our first foreclosure of BENLYSTA sales. The support of BENLYSTA’s global commercial launch and its further product development remain our top financial priority. So now I’m going to turn the call over to Barry Labinger for an update on the launch and commercial progress of BENLYSTA and I look forward to a questions and Q&A session. Barry?

Barry Labinger

Thanks David and good after noon every one. As David described we are seeing a nice growth trajectory in BENLYSTA sales, and we are especially pleased that the fundamentals are lining up nicely to drive accelerated growth in the future.

I would like to discuss these fundamentals in light of the various steps and process through which patients are selected and initiated on BENLYSTA. These fundamentals include is this physician awareness and intend to use BENLYSTA. Identification of appropriate patients, securing access through insurance coverage and/or formulary inclusion in hospitals, and finally the actual administration of infusions.

The HGS and GSK sales teams have been out in full force for more than three months now. They called on 90% of the key rheumatology accounts, an average of more than five times per account, overall. And they called on certain key accounts far more frequently.

Our market research tells us that awareness of BENLYSTA among rheumatologist is high, virtually a 100%, 85% to 90% of rheumatologists report that they intend to use BENLYSTA and the majority of these plan to start within the next few months if they haven’t already. There are challenges including pull through and identification of appropriate patient and you would expect this when you are building a new market with a novel therapy. Nevertheless, many physicians are identifying patients who they believe are appropriate candidates for BENLYSTA.

The best measure of this is the benefit verification request that come in through our BENLYSTA gateway. More than a third of our key rheumatology accounts that secured benefit verifications through the gateway for at least one patient. And keep in mind that some accounts pursue benefit verifications on their own, so our data do not capture all of them.

Payers are offering limited resistance to authorizing payment. Our managed care colleagues at GSK have done a terrific job of coordinating health reviews to enable implementation of coverage policies, and our HGS medical science liaisons have also played a key role providing the medical information these claims have requested. 98% of the benefit verifications are positive with an average turnaround of about two days.

This is less hassle factor than you see with many new products and better than we expected. Yet, less than 10% of the same key rheumatology accounts that ordered directly today, although some more have initiated treatment via specialty pharmacies or alternate sites of infusion.

The main reason for this is, while positive benefit authorizations are encouraging there continues to be some physician caution regarding reimbursement levels and timing. This remaining caution can affect the timing of uptake and can only be fully addressed by experience.

The growing experience of their colleagues with BENLYSTA will help as well the temporary product specific Q-code that became effective for BENLYSTA July 1st. Let me quickly review why the Q-code matters.

When a new drug is first launched a miscellaneous code is used for processing claims and the process is very manual and unpredictable in terms of the likelihood, timing, and amount of reimbursement. Drugs like BENLYSTA eventually are assigned a product specific J-Code which become the ongoing basis for claims with both government payers and private payers. Once the J-Code is in effect, the process for claims becomes much more automated, which means reimbursement is faster and more predictable. We expect a BENLYSTA J-Code in January of 2012.

Meanwhile, CMS has assigned a Q-code to BENLYSTA. The Q-code is a product specific code that offers the same benefits of automated predictable processes. It’s still a temporary code, but it is an improvement over the miscellaneous code until the product specific J-Code becomes available in January to make claims processing much easier.

Hospital formulary inclusion is another key driver for the hospital segment of our business. We now have more than 70 hospital decisions to include BENLYSTA on formularies and so far no formulary decision has been negative. These 70 hospitals represent about a third of all US hospitals with active rheumatology groups including many of the most prestigious.

In general, BENLYSTA has been reviewed more quickly and more successfully than many new products. Access to BENLYSTA with respect to payers and hospital formularies is a key driver of the timing of BENLYSTA uptake as we anticipated prior to launch. So far the fundamentals are better than expected, but there is more work to be done.

Another challenge that we also anticipated is the time it takes for some physicians to decide which patient to start with. Some physicians regard our label as so broad that they find it hard to narrow their focus to those patient is most likely to benefit. There are others who misinterpret the label exclusion of patients with severely active lupus nephritis or severely active CNS lupus and consider BENLYSTA unavailable for any patients with renal or CNS manifestation.

We are working to change this mindset trying to base decisions solely on organ manifestations to addressing an underlying cause of the disease access list which manifests in a variety of symptoms in organ symptoms in patients with persistent symptoms despite standard therapy.

It will take some time for this new way of thinking to fully sync in. The good news is that most rheumatologists can readily identify at least some patients in need of BENLYSTA under any criteria. Getting rheumatologists started with these patients will be enough to begin gaining the clinical experience to inform future decisions and it will be enough to achieve positive near term sales goals.

In summary, the fundamentals are positive. Essentially all rheumatologists are aware of BENLYSTA, 85% to 90% plan to prescribe to BENLYSTA soon, many patients are getting identified, payers are authorizing payments, hospitals are increasingly including BENLYSTA in their formularies. We just need to continue to make progress translating these fundamentals into more accounts taking action.

Our momentum is building towards an inflection point in growth of patient starts and resulting sales. We’re seeing a positive reception from our customers in the challenges we have accounted are entirely expected. We have a seasoned sales team with tremendous experience and successful track records launching other biologics into the rheumatology market. They remain excited about the promise of BENLYSTA both for patients and for HGS and GSK, and they are laser focus on all obstacles to accelerated uptake. We are looking forward to continue progress in the US during the coming months.

Now, a few minutes on Europe, and some of this will sound familiar to those of you who have participated in our May 20th conference call when we received the positive CHMP opinion.

Europe represents a very substantial market opportunity for BENLYSTA. Our data suggests that there are currently between 200,000 and 250,000 patients in Europe who are diagnosed and treated for systemic lupus. By comparison there are approximately 325,000 such patients in the US. Treatment patterns are similar and the therapies are similar and perceptions that BENLYSTA can improve outcomes for appropriate patients are strong. Awareness of BENLYSTA among lupus treating physicians is high and intend to use BENLYSTA in their practice is high.

We’re pleased with the label we received since it’s a fair representation of the data from our clinical trials. The European indication is for use of BENLYSTA as add on therapy in adult patients with active auto antibody positive systemic lupus with a high degree of disease activity. For example, positive anti-double stranded DNA and low complement despite standard therapy.

The European label is somewhat different from the US label in that the European indication statement introduces the idea of patients with high disease activity, and gives the example of patients with anti-double stranded DNA antibodies and low complement. With respect to in our phase three trials patients with anti-double stranded DNA antibodies and low compliment account for about 50% of the subjects.

Of course this is only one example and there are other ways of defining high disease activity such as high (inaudible) scores or steroid use. When you consider these other definitions of high disease activity you now account for about 70% of the subjects in the balanced (inaudible) trials. We believe that physicians will have some freedom to define high disease activity based upon clinical presentation of individual patients.

Most importantly, the European label will include the data from our phase thee studies in the example that’s referenced in the indication statement, that is for patients with positive double-stranded DNA and low compliment These data are very positive.

Just a few highlights. About a 20% improvement or a 20 point improvement in SRI at 52 Weeks. Statistically significant improvements in severe flares, a favorable trend in steroid dose reduction, statistically significant improvement in fatigue, and statistically significant improvement in SRI at 76 Weeks in week 76.

The ability to discuss these striking results for a large group of patients in our trials represents a significant opportunity for BENLYSTA commercialization in Europe. Just a quick note about pricing in Europe. As we said previously the price of BENLYSTA will be lower in Europe than in the United States. As in the US, the price per patient is weight based, when we provided the average price per patient in the US at the time of approval we stated the price based on an average patient weight of about 73 kilograms or 161 pounds. And you recall that the price of BENLYSTA for the average US patient is about $35,000 per year.

In Germany where BENLYSTA will be launched within the next week for a patient of the same weight, in other words 73 kilograms the annual list or public price will be about €23,000 or at the current exchange rate about $32,000 US.

Accounting for distribution margins and the 16% rebate that’s applicable to all pharmaceutical products in Germany, the net price of BENLYSTA will be about $21,000 per patient per year.

Also, we expect that the price in Germany is at the high end of the range among European countries. In most countries the price is subject to negotiation with the relevant reimbursement authorities and the price in other countries will be available once this process concludes and the product is available.

The HGS and GSK teams in Europe are well prepared and poised to launch BENLYSTA in Germany and continue launch preparations and pricing and reimbursement negotiation throughout Europe. We look forward to our first launch in Germany in about a week.

Now, I will turn the call over Tom Watkins for concluding remarks and a Q&A session. Tom?

Thomas Watkins

Thank you Barry. So, to sum up, we’re pleased to report the first full quarter of BENLYSTA sales. The list of growth trajectory in the United States is encouraging. The fundamentals are positive. Our HGS and GSK teams are performing well and our momentum in the US is building. Also we received our first approvals of BENLYSTA outside the US from the European Commission and from Health Canada and we at GSK look forward to making BENLYSTA available on a global basis.

So on that note, we’ll now open the call to your questions. Operator would you please review the procedures?

Question-and-Answer Session

Operator

Thank you Mr. Watkins. (Operator Instructions) Gentleman we will take our first question of the afternoon from Mark Schoenebaum at ISI Group.

Mark Schoenebaum – ISI Group

Hey guys, thanks for taking the question and congratulations. I just had a couple of quick questions. One house keeping question, Barry I kind of missed – I missed actually I am sorry what you said about German pricing, probably you said $32,000 at the current exchange rate, but then you said something about a different number after that. I just missed it. Would you mind clarifying that, number one, I apologize. Number two, I was just wondering if you would be willing to give us, and if I missed something I apologize, but if you would be willing to give us any color around trends in July. I know July was obviously a holiday week. So that may not be representative, but anything you could give us about July would be helpful.

Barry Labinger

Sure. Yeah, Mark, so the clarification on the price in Germany 32,000 is the US currency equivalent for the list price. But in Germany, there are distributor margins and there is this 16% rebate for the sick funds that goes across all pharmaceutical products. And so, the net price after those deductions is about $21,000 per patient per year.

Mark Schoenebaum – ISI Group

Okay. That is very helpful. And then any – are you guys willing to give us any hint on what is happening in July?

Barry Labinger

Yeah. There is not actually anything meaningful to add versus what we have been describing. As you mentioned, the first week was a holiday shortened week and then we only have one other weekly data point since then. So, nothing new other than what we described.

Mark Schoenebaum – ISI Group

And then just for David. Do you have any idea how long you will be recording revenue this way, where you won’t be able to include all ex-factory sales? Is this permanent or is this temporary? And if it's temporary any idea when you may be able to move to the way most other companies do it? Thanks a lot.

David Southwell

Well, the point at which we change is when we have a really good sense of our return rate, and so just to clarify the way we book revenues now is we do it on a sell-through basis. So the revenues that we recognized on that list are the revenues that’s going directly to the doctors or the hospitals. We don’t recognize revenues that are in the distributors and remain in inventory, although we told you what that number was for this quarter. But once we get a good sense of returns then we will make a switch, but it is hard to tell at this point when that is and actually the method that we are giving you now is in many ways the most accurate revenue method that you can use.

Mark Schoenebaum – ISI Group

Thanks for taking the questions, and congratulations again.

Operator

Thank you. We will take our next question now from Michael Yee at RBC Capital Markets.

Michael Yee – RBC Capital Markets

Hey great, thanks. Two questions. One is, how many patients that you see coming through are coming through via the benefit verification pathway or through your gateways. Is that like 80% to 90% of your patients, and then do you expect that going forward? I was just trying to think of how you actually are tracking patients and how you are thinking about your patient queue. And then second question is in regards to where the patients are coming from, are these patients coming vastly from lupus centers, big centers, are these from community rheumatologists, where do you think they are coming from and how do you think that will change going forward?

Barry Labinger

Yeah, Michael, your first question is a great one, how many of the patients come through our gateway. And, we actually don’t know that. We know how many come through the gateway and we don’t know what the denominator is. So, all we can talk about is trends, the patient data that we can observe. We are tracking based on physician’s perceptions what percent of their patients they put through the gateway, but there is just such small numbers now that it's really hard to predict. But, clearly, there are patients getting benefit verifications over and above those that we can track in the gateway, and preliminary data would say that it's a lot more than 80% to 90%, so a lot less than 80T to 90% of patients are coming through the gateway. So the number that are outside of their so far is higher but small numbers to start.

Michael Yee – RBC Capital Markets

Can I ask that just another way? Can you describe the number of patients that are coming through the gateway, in other words is 90% of the people that are getting drug coming through your gateway, so you are seeing them and you can track them through your gateway?

Barry Labinger

So, no, I can’t track that. I can track how many are coming through the gateway but I can’t track how many are not coming through the gateway. So, I don’t know the percentage other than by asking physicians in market research which is going to take a lot more time and more numbers to get a robust enough number to be able to estimate it.

And that’s just for benefit verification. But, even those that come through the gateway for benefit verifications, we don’t have a way to know exactly how many are getting in queues. So, in terms of tracking patients in total, one of the ways that we triangulate is just to look at the sales numbers and make estimates of how many infusions there are based on what the cost per infusion is and we talked about that, it's a little over $2700. So, for the second quarter for instance, we estimate there have been about 3000 infusions. To know how many patients there had been you have to make assumptions about how many patients got, one, two, three, four infusions and we’ll let each of you to make your assumptions on what that split is, because it could really change your inclusion as far as the number of any patients on treatment.

And then your other question I believe was how many of the patients are coming from the community versus lupus centers.

Michael Yee – RBC Capital Markets

Yeah.

Barry Labinger

And the percentage coming from the hospital segment is smaller now than it’s going to be because we are just in the process still of getting formulary approvals. So, so far the dynamics have been really good. We are 70 in all in terms of the reviews, but we still have two-thirds of the hospitals yet to complete their reviews. So, ultimately we think the hospital segment is going to represent on the order of 25 possibly 30% of the market, but it's considerably smaller than that so far, and a higher percentage is coming out of the community

Michael Yee – RBC Capital Markets

Okay, thank you.

Thomas Watkins

Thanks Mike.

Operator

And we’ll take our next question now from Cory Kasimov at JPMorgan.

Cory Kasimov – JPMorgan

Hey good afternoon guys, thanks for taking the questions and thanks for all the transparency on this call today. I want to start off on the reimbursement side and realizing it's been only three weeks, you discussed Q-code in your prepared remarks, but have you seen a direct impact from that yet since it took effect on July 1st and do you know how aware most physicians over the code at this point in time and I have a follow up.

Barry Labinger

Yeah, Cory, I can’t be quantitative about the second question. But we are doing everything we can to make sure that they are well aware. We have send mailings to physicians and was making them aware of the Q-code, our sales force has materials and directions to make them aware. It’s really too soon to see an impact from that in these couple of weeks in July. Remember there still a process for individual plans to vote the Q-code into their systems and in the project plans which is where most of our business is. So, we know that plans covering about 40% of the populations have now uploaded the Q-code into their system. So, the other 60% will be doing that over the next weeks. And, the 40% that are there has happened over time over the last few weeks.

So, it's going to help but it’s really early days at this point.

Cory Kasimov – JPMorgan

Okay. And then regarding the early use BENLYSTA, is it really congregated in any particular subtype of SLE, is it very – is the most severe patients right now or are you seeing kind of broader use among someone like the moderate disease patients as well?

Barry Labinger

Yeah again it’s early yet and relatively small numbers. So I think it’s a mix, it’s not the mildest and it’s not the most severe and based on how the drug works and what our labeling says. So it's in the moderate to sort of less severe of the severe patients. But, so far it's all perception data that we get from asking physicians about where they’re using it. So it’s probably a little thin to draw any major conclusion.

Cory Kasimov – JPMorgan

Okay. Thanks for taking the questions.

Operator

Question now from Joseph Schwartz at Leerink Swann.

Joseph Schwartz – Leerink Swann Llc

Hi, thanks and congratulations on a solid start to the launch. I was wondering if you could talk a little bit about the prescribing activity and how many physicians they’re actually prescribing it or prescribing it versus actually administering and if there is any notable referring patterns going on?

Thomas Watkins

Yeah one thing that is interesting is – so we now – just to give you some numbers. A little under 10% of the accounts are actually purchasing BENLYSTA. So that means it's fine bill model there purchasing it and using it in their office or in their hospital, and handling the reimbursement on their own. So, a larger percentage then that are generating patient initiations and they’re sending patients to either alternate size of infusion, be they infusion centers or hospitals or they’re using specialty pharmacies who are doing the purchasing and claims processing for them. And initially we’re seeing a higher percentage in that latter category of specialty pharmacy or alternate sites of infusion than we expect to see going forward, which really just reflects this concern that physicians have initially about reimbursement uncertainty based on previous experience.

Now, what we’ve seen so far with BENLYSTA is better than most previous launches in terms of benefit verifications getting processed quickly and having good outcomes. But there is really no substitute for getting through the entire process and seeing claims go all the way through to reimbursement. So, physicians can do either of two things when that’s their concern, they could just wait and many of them have waited and they are waiting to hear about good experiences and they are hearing more about them and hopefully getting ready to turn on. Or they can offload the financial risk by having the patient infused at a third party center or having a specialty pharmacy implement for them.

So it is interesting that those channels are a little different than what they will be at maturity, not a big surprise and it will change over time.

Joseph Schwartz – Leerink Swann Llc

Do you have any statistics you can share with us on the number of physicians that have administered the drug?

Thomas Watkins

We track the purchases on an account basis. So that’s just under 10% number. As far as how many have administered beyond buy and bill and has send patient elsewhere or used specialty pharmacy, I can’t tell you exactly. It puts the total number probably in the low teens. Low teens of percent of physicians.

Now, on the other hand when we go ask physicians, I have seen a lot of surveys on this, a higher percentage of physicians say that they have ordered BENLYSTA, and I think that reflects the idea that sometimes they have chosen a patient and they have yet to make it through the entire process to get their first infusion. So they are working through reimbursement and the doctor does not even always know. So that’s – they are going to get there.

Joseph Schwartz – Leerink Swann Llc

Right. Have you noticed whether the market is expanding at all in the sense that PCPs are referring their patients to a specialist for an SLE treatment since I think patients outside of rheumatology centers or those who are not diagnosed and treated there are already or not in your initial market expectations?

Thomas Watkins

Yeah. We really don’t have any good data on that. We have got some very loose data that says the awareness of BENLYSTA among primary care physicians is maybe higher than we would have thought since we are not calling them at all, and maybe that will drive over time greater referrals to rheumatologists when lupus is suspected. But, I don’t have any real hard data on that right now.

Joseph Schwartz – Leerink Swann Llc

Great. Thanks for the color.

Operator

We’ll take our next question now from Chris Raymond at Robert Baird.

Chris Raymond – Robert W. Baird

Hi, thanks for taking the question. I guess I was kind of surprised on your comment about the lack of mild patients. In some of the checks that we have come across have indicated that there is actually a fairly measurable amount of mild patients and maybe even also a bit of confusion about what constitutes a mild or moderate patient, so maybe the line might be a bit grey, I wonder if you could comment on that. And also may be one of the other checks that we found that there were a number of patients who were when they went on BENLYSTA went off all other therapies, like a third of those patients. Can you maybe comment – are you seeing that, are you seeing a lot monotherapy?

Thomas Watkins

Yeah. So, the mild patients I think you hit on the – probably the explanation for – you could get different information depending on how you ask it. Every physician defines disease severity differently. So, what’s mild to one physician isn’t necessary mild to another. The way we think about mild patients is those that can be on first line therapy in a persistent way without any ongoing disease activity. So if they are on Plaquenil or Plaquenil and low dose prednisone and they can go on for years and never have any problems. That’s what we consider a mild patient and I don’t think we are getting a lot of those patients, because there is no reason to change therapy for those patients.

There may well be patients that we consider moderate that an individual doctor might consider mild because there is something other than the people at imminent risk for kidney failure or that sort of thing. I can’t really reconcile the difference in small numbers of impressions on that other than that there is a lot of variability on mild versus moderate. And your second question Chris?

Chris Raymond – Robert W. Baird

Yeah. One of the other things we pitched up was that a sizable number of patients when put on BENLYSTA went off all other therapies. So sort of kind of going against what your label says, which is as add-on therapy. Are you seeing any of that or is there any validity to maybe what we picked up or it's too early to tell, and I also have a follow up.

Thomas Watkins

I think when we do market research, you get a verbatim that says just about everything. So, there is going to be – everything happens at least once. So I can’t say it's unprecedented that we’ve heard stories like that. I don’t think that so far the theme is that patients are going on BENLYSTA and coming off of everything else. Certainly heard anecdotes from our investigators in the extension studies that over years they seem to shed concomitant meds, but I don’t think it's after a month or two of therapy that typical patient is going to rid themselves off all other background therapy. But hey that happens once in a while. So I am not disputing that somebody that tells you that that’s what they are seeing in small numbers probably.

Chris Raymond – Robert W. Baird

Great. One quick follow up. As you had done your market landscape work, prelaunch, did you take up any indication that there is any seasonality with existing therapies, especially obviously in the summer months. And you kind of anticipate it could be a factor here.

Thomas Watkins

Yeah, we certainly have asked ourselves that question Chris and looked at it. We can only look at the RA biologics as the best analogy because there aren’t any drugs that track (inaudible). And we don’t actually see the obvious changes in use of infused biologics for rheumatoid arthritis. There is certainly the things that are apparent to all of us that people take more vacations in summer and both patients and physicians are out more days and unable to start a new treatment. So, we’ve – our caution flag is up on that but we don’t really have evidence yet that that’s to be expected.

Chris Raymond – Robert W. Baird

Great, thanks.

Operator

Thank you. (Operator Instruction). With that we’ll go next now to Eric Schmidt at Cowen and Company.

Eric Schmidt – Cowen and Company

Thanks for taking the question. I have yet another question for Barry. I think you mentioned that you are building momentum toward an inflection, and I wonder if you could speculate on when we might see the inflection or what further progress we need to make on the payer side it sounds like in order to get to that inflection.

Barry Labinger

Yeah, I wish I could tell you exactly when growth will happen at rates that we expect to see them. What I’m looking at is we’ve got less than 10% of accounts that are ordering right now, and over a third still have gone through the process of identifying specific patients and going through the trouble to get insurance verification, and 90% of patients that are saying they are going to order in a reasonably short time frame defined by three months or less. So, all I can say is there are certain kind of blocking and tackling obstacles that have to I guess overcome when you start a new drug like this and everybody has been working on the same obstacles for the same amount of time, and at some point you expect that chunks of them will come into play around similar times, and that’s when more of the patients who have been identified but not yet infused and the accounts who of stated they are going to use the drug but has not yet identified patients, that’s when they’ll start to do what they intend and we’ll see not only growth in new patients, but we’ll see the acceleration from existing patients carrying quarter to quarter.

So I can’t say, you know, it feels like it should happen really soon, but – and that’s what we’ve spend our time on is – is making it happen as quickly as we can.

Eric Schmidt – Cowen and Company

That’s helpful. One follow up, you also mentioned a misinterpretation on the part of some doctors with regard to the label which some perceived excludes CNS cerebral manifestations. Is there a problem with certain doctors not getting paid or certain insurers making this a murky issue beyond what the label says?

Thomas Watkins

No I do not think there is any coverage policies that are driving people this way. I think we just have to understand that all of us had been living this lupus clinical research well for the last few years, and especially since the BLyS (ph) studies were reported peeking into those data and understanding what their implications are. Most community physicians they were aware of BENLYSTA, but they didn’t understand much about how the trials were designed. They don’t use the instruments in clinical practice. They have got a lot of learning to do. So, though they learn in some cases by sound bytes initially and some people hear an exclusion for severely active lupus nephritis and internalize this is not a drug for renal manifestations. And if you think about those few statements they are very far apart. There is a single digit percentage of patients that have severely active lupus nephritis requiring something like IV Cifloxin (ph). And there is a much larger number of patients that have or have had at some point in the course of their disease some renal manifestations.

So latter is fair game. They were in our trial and they are included in our label. The former is excluded and – but that’s a distinction that is kind of a nuance for a physician who has got a lot of other things they are worrying about and it's just new to them to understand how these trials were done and what the conclusions are.

Eric Schmidt – Cowen and Company

Thank you.

Operator

We will go next now to Terence Flynn at Goldman Sachs.

Terence Flynn – Goldman Sachs

Hi thanks for taking the question. Just wondering if you can given us any sense of the number of patients or percent of patients that are taking advantage of the co-pay assistance program and if that’s tracking in line with your expectations, and then the second question I had was just, do you have any way to track, I know you can track the number of infusions you are given, but can you track the duration of therapy in patients, the average duration of therapy and is that a metric if you can track that you are going to provide going forward? Thanks a lot.

Thomas Watkins

Yeah. Persistence with therapy is something we cannot track directly. We can track it by surveying physicians and surveying patients, and we will do that. But this early in the game with as few patients have been treated as yet, they are very thin. So, people are just getting started now and most of them have been on for a month or two, and I think we believe that the vast majority of those are still on and will still be on for a some period of time before physicians can draw any conclusions safely about efficacy.

So, I wouldn’t expect that we will be able to on a quarterly basis tell you exactly what percentage of patients have been on X number of months or X number of infusions.

Remind me Terence what your first question was? The co-pay assistance?

Terence Flynn – Goldman Sachs

The co-pay assist.

Thomas Watkins

Yeah. That’s an interesting question. The use of the co-pay assistance program is as expected based on launch, but based on what we expected pre-launch, but it's lower than I would have thought or most people would think and that is consistent with all kinds of products that have these programs available. So for whatever reason a lot of patients who qualify for these programs don’t actually sign up for them. We have them available, so hopefully co-pays are not an obstacle to access for patients. But keep in mind in commercial pay a pretty significant percentage of patients don’t have any out of pocket cost, and a lot of those that do have a set amount that’s pretty manageable per infusion and they are just used to paying it themselves, where it's a concern for a patient we have the program available and it’s been used pretty much as expected.

Terence Flynn – Goldman Sachs

It’s great. Thanks. Can I just ask one additional question. Was wondering how close you guys are to finalizing the sign of phase two vasculitis trial that you talked about back at your analyst meeting.

Thomas Watkins

What can I say to Stumps (ph), see if he wants to make a cameo appearance.

Unidentified Company Representative

Actually I thought I might get through a call and say a word, which is exactly where we want to be. We are – from our global BENLYSTA involvement program as I outlined back in April, we are about where we projected we were, had a lot of parallel conversations between us and GSK with the clinical scientific community with a couple of big global regulatory agencies. You are trying to forge a consensus design on our program that most of everyone thinks makes sense, but we are trying to hammer out the details. And I would say we are about where we expected the timing on these programs is about as I outlined back then. Nothing really new to report. We are still targeting to have a subcu patient dose by the end of the year but we do have regulatory input still to obtain and the vasculitis program would be likely after the first of the year, I imagine given the nature of these conversations. It's where new territory of vasculitis, you know, the conduct of rating studies helped, I mean we do have some prior auth that informed us that, even so with BENLYSTA it's still a different drug that we have to match to the disease target population. That makes sense? Was there anything more specific that you needed?

Terence Flynn – Goldman Sachs

No, that was it. Thanks a lot.

Operator

We'll take the next question now from Jeff Boges (ph) at Bernstein.

Unidentified Analyst

Thanks very much and again congrats on first product sales well I guess quite it was. First of all, for Dave, I guess, just inventory. Surprisingly you only had roughly a week of your end of quarter demand in the channel and I'm wondering if that's what you expect of the ongoing inventory to be or whether you expect that to trend upwards and where you think that will get and then perhaps Barry, you could talk a little bit about reimbursement. What are the step edits or other hurdles that the payers are imposing on the physicians before patients are eligible for coverage for BENLYSTA? That would be helpful. Thanks.

David Southwell

First on the inventory thing, Jeff, clearly physicians really keep essentially no inventory. They order it a few days of that before they actually infuse it. So, the inventory is kept by the distributors and we’ve said that that was 1.2 million. Since, I guess there is two answers, firstly since we don't record that as revenue, it's really not a factor in revenues, in the GAAP revenues. Clearly, as the product grows one would expect that more inventory would be kept. So the inventories do vary over time, but that really isn't – it's not a factor from a revenue perspective and believe me we have plenty of BENLYSTA at HGS to send, so there isn't a constraint from our end on delivery to inventory.

Unidentified Analyst

Surely it will be added to your report of revenue in Q3 or Q4 once you understand what the return rate's going to be?

David Southwell

Well, we haven't said when we're going to switch it but assuming that we haven't switched it by Q3 or Q4, it won't. What will be added to the revenue is – the revenues will reflect the sales of revenues that goes to the hospitals, the physician and the physicians.

Unidentified Analyst

Okay, thanks.

Barry Labinger

For your second question, Jeff, almost all of the coverage policies look like a reformat of the indication statement in the PI. So they'll say, for coverage a patient has to have active SLE, autoantibody positive and they have to be on a standard of care which usually just lists Plaquenil, prednisone and some version of immunosuppressant. But I'm pleased that there's nobody saying if they haven't been on an immunosuppressant, they have to have one before they're eligible for BENLYSTA. I actually thought we'd be fighting that battle a lot more to say, you know, are we before or after 'X' number of immunosuppressant. Mostly, the plan, the policies look just like the indication statement on the label. I say almost all of them look that way because the hurdle that we are seeing in a very small, you know, handful of plans representing a small percentage of the covered lives, we're seeing people hang on to either the SRI or SLE (inaudible), greater than six as a requirement to get on therapy or improvement since (inaudible) as a requirement to stay on therapy over time.

And that's something that is difficult for us because (inaudible) is not something that's widely used in clinical practice. So, high 90s percent of covered lives disease activity is based on the physician's characterization of a patient with active disease and they'll require documentation with any of the disease activity indices. But we've seen a couple that are the other way and we'll work at the plan level to try to get that changed and we'll work at the physician level to try to avoid their opposition to being required to use instruments that they don't use clinically.

Unidentified Analyst

So Barry, can I just follow up on that? Does that mean that you're displacing the patients who already established on suppressants off the immunosuppressants or you're catching patients when they're coming from Plaquenil and stepping up to an immunosuppressant and you're the – you're a protocol ahead of an immunosuppressant. I'm just wondering what the dynamics for most of the patients are that you see going on the product are.

Barry Labinger

I think it's all of the above. So anyone who is on standard of care which could be just Plaquenil and a low-dose prednisone, anyone who is on that and still has persistent disease activity is eligible for BENLYSTA or if somebody has already been on CellCept or azathioprine or methotrexate and they're still having disease activity then they are eligible. So we may catch them at any stage of the treatment algorithm and I think the encouraging thing is plans aren’t dictating that if you haven’t yet been on an immunosuppressant you have to go on one before you are eligible. I think we are seeing them say, here is the list of the drugs that are included in standard of care. Anyone who is on any combination of those still has disease activity is eligible. And that is actually what our label says.

So they are not making it up. I think basically what people are what plans are concluding is there is a big unmet need for patients with lupus. It’s a relatively small number of patient’s. So it's not a high priority to manage this category very directly. And so we are basically going to write down what is in the label and we are going to let the physicians treat as they see fit. That is what our goal has been.

Unidentified Analyst

Okay. Thanks very much.

Operator

Gentlemen, we will go next now to Salveen Richter at Collins Stewart.

Salveen Richter – Collins Stewart Llc

Thanks for taking my question. I know you said earlier that less than 10% of the target accounts are ordering from distributors, but specifically of the total prescriptions. Can you tell us what proportion that from distributors versus specialty pharmacies?

Thomas Watkins

Yeah. So there is other categories too. So there is specialty distributors that serve the physician offices and then there is specialty pharmacies that buy direct and the drug is administered in the physician office, but the purchasing and the reimbursement is done by the pharmacy. So, I think we are seeing specialty pharmacy is on the order of 20% of the business. We are seeing specialty distributors are covering. I would have to look out the specific numbers. About 50% - about 50% from specialty distributors. And then you have hospitals buying through wholesaler, they order through wholesalers and they are shipped product directly. So, it doesn’t go through a specialty distributor and that’s about – that’s most of the remainder.

Salveen Richter – Collins Stewart Llc

Okay, great, thanks. And then just as follow up, how should we think about the timelines for approval in countries outside the EU and North America, so what you filed and then what’s the regulatory path for China?

Thomas Watkins

Yeah. First question was approvals outside of North America and Europe. Okay. So a lot of those regions are pegged to either EMA or FDA approval. So, sort of a companions of missions, supports approvals in a lot of parts of the world. The biggest discussion is Asia, China, Japan, and possibly Korea. Those require separate studies and we are in the process of doing those separate studies. So approval in those countries is going to be couple of years out from now. Approvals outside of Europe and Asia in smaller markets are going to come really spaced out over the next couple of years because we just don’t have as clear review timeline as you get with FDA and with the EMA. So we will see growth geographically coming gradually over some years even before we get to the big markets of Japan and China.

Salveen Richter – Collins Stewart Llc

Thank you.

Operator

We will go next now to Yaron Werber at Citi.

Yaron Werber – Citi

Barry, this is for you, you have done a great job and thanks so much for all these details about how the drug was used. And you mentioned that the label as you said is great, very broad, and it's almost as if physician is kind of trying to figure out a way to deal with patients, which is always kind of what we have been seeing through our checks too. You mentioned some of the docs are very much kind of organ based in the way they think about who might qualify. How do you go about helping them trying to really figure out who is the ideal candidate, and how much of a confusion or lack of strategies on how to use the drug really has to do with may be confusion about the extent of efficacy? And then I have a follow up also.

Barry Labinger

Yeah. I think the way that we try to help them understand which patients is by keeping it simple Yaron. We try to acknowledge that physicians like to choose a drug based on a specific symptom or organ manifestation of lupus that is how they think about it. I got a patient who has got hematologic manifestations or kidney manifestations or joint or skin or whatever, and that’s how they think about it. The fact is that isn’t really how they do it, because they don’t have drugs that are so specific for each manifestation. Steroids and Plaquenil are the main stages of therapy and those are used across all manifestations.

So there is a sort of a track record of success for rheumatologists in figuring it out. Ultimately, what we try to point to is really what our label says is, the appropriate patient for BENLYSTA is the patient who is on standard of therapy, whatever that is, it could be different for every patient, who has persistent symptoms and your alternative is to jack up their steroid dose which you have been trying to avoid for your entire career treating lupus, we have an alternative that’s a much more specifically acting approach targeting BLyS and leaving the rest of the immune system intact.

So it isn’t targeting a specific manifestation. Excess BLyS could manifest itself differently in every patient which is lupus and it would be great to target BLyS and not use a sledge hammer that just knocks down the entire immune system. So that’s our message. I think it resonates well when a physician thinks about it and internalizes it and hears it enough times. But, they are struggling initially when they ask a question what’s the appropriate patient, they want a list of the type of symptoms that this is going to treat and they want to know exactly when they are going to get better.

So it's a little bit of a change of mind set. With that said every physician has patients of whatever manifestation who are still sick and my only alternative is to do stuff I don’t want to do, and that’s what I am going to use BENLYSTA to start, and I’m going to generate my own experience and then I’m going to answer some of my own questions about what the effect of this drug.

Yaron Werber – Citi

And then with respect to Europe, the label essentially comes with, as you mentioned it was I think 53% patients in the pool data qualified under that label for active disease, and the SOI data, as you mentioned from the label it was about 20%. It was better than what we are seeing in the kind of broader population. When you look at the flier that show it was about 10%, and that was that big. The steroid reduction was about 6%. It was 18 versus 12 I believe and – as you said, that was a trend. Any sense of the discrepancy there between sort of the SRI versus the more modest sort of benefit on steroid.

Barry Labinger

Well, I think the goal of the study was to get responses not to reduce steroids. We didn’t impose any steroid taper or anything else. It just happened. I think clearly physicians see BENLYSTA’s mode of action as so distinct from steroids that it's an opportunity to rely less on steroids. Be that using it instead of increasing steroids or be it using it in a patient who is on steroids and has disease activity with the goal of improving the activities, but also may be reducing steroids.

So I think in clinical practice there will be more of an attempt to reduce steroids than in the trials where people were encouraged to do whatever you can do get a response in 52 weeks.

Yaron Werber – Citi

Okay, that’s great, makes sense. And just a final question, just in European pricing, you said Germany is $21,000, and that’s the upper end, can you give us a little bit of a sense, what’s the range that we should think about that may be relevant to current biologics in Europe or how should we think of the range for Europe for pricing. Thank you.

Thomas Watkins

Yeah, there's not a whole lot more we can say about where it is. I wouldn't expect pricing in Europe that’s any higher than what it is in Germany. I think you can look at other categories and the RA drugs are right around 20, low 20s. The MS drugs are in the low to mid teens. So we'll – we have a negotiation process to go through with the government authorities and we need to go through it and then we'll know where we land.

Yaron Werber – Citi

But should we think it's somewhere between the MS drugs and the anti-TNF drugs, is that sort of the range that we should think about or is it more hopefully pulled around where Germany is.

Thomas Watkins

Yeah, really don't know, really don't know. We'll have to wait and see.

Yaron Werber – Citi

Okay, great. Thanks so much.

Operator

And we'll take our next question now from Ian Somaiya at Piper Jaffray.

Ian Somaiya – Piper Jaffray

Thanks for taking my question. I have two. The first was just on the usage in the U.S. Barry, you mentioned the pricing you've outlined is based on an average rate of 73 kilograms. If I'm doing my math correctly, that equates to what 730 milligrams that an average patient would get. Just curious what vial sizes you are seeing being used in the typical patient. Is it two 400 milligram vials or are we looking at one 400 and three 120s? Just curious because these are single use of vials, how careful are doctors being in minimizing wastage? And again, are these truly single use vials or is there a potential for docs to use whatever's left over?

Barry Labinger

They really are single use vials and you know different physicians and offices based on different payer dynamics are going to try to varying degrees to minimize waste. So, the more you want to minimize waste, the more you use the smaller vials, the 120 and the more you want to increase convenience of having to prepare them, the more you use the 400. So far we've seen kind of somewhere in between the absolute waste minimization and we're saying the majority of the vials will be the smaller ones because it's easier to get closer to the target number of milligrams for an individual patient.

Ian Somaiya – Piper Jaffray

And how much convenience are you losing by using these smaller vials?

Thomas Watkins

Not a lot, it's just the reconstitution processes. A little easier with fewer vials but they can handle it. They've got staffs, you know, the nursing staffs can handle it.

Ian Somaiya – Piper Jaffray

Okay. And just the pricing on the – the pricing in Europe, I know you've answered this question several different ways. The price you mentioned, the list price being $32,000 and the net pricing $21,000, obviously implies a 35%discount, is that a typical discount that's going to be seen across Europe? And just to be perfectly clear when you give the example of Germany being on the high end and all the other countries being obviously lower, are you talking about the list price or are you talking about the net price?

David Southwell

I'm talking about the net price and I – and absolutely not, the difference between list and net price isn't typical for Germany versus elsewhere. The systems are totally different. The biggest piece of that German difference is a 15% rebate that's applied across products and you don't see that in most other countries. So, it's going to be – that's why we were careful to give you the net price because that's what you can compare across countries ultimately when you have countries worth pricing.

Ian Somaiya – Piper Jaffray

If I could just ask one last question. It seems like you've been able to target or get access to a third of the rheumatologists and a third of the hospitals, those are some of the metrics you mentioned. Curious, what portion of these physicians that you've been able to access were part of the BENLYSTA program, how many are new, actually new to the drug?

Barry Labinger

The vast majority of them are new. So we do have obviously investigators who are using the drug commercially but far more of them are new since it was commercialized.

Ian Somaiya – Piper Jaffray

Okay, thank you very much.

Thomas Watkins

Operator, why don't we take maybe two more questions?

Operator

Okay, sounds good, thank you Mr. Watkins. Ladies and gentlemen we’ll take our next question now from Avik Roy at Monness, Crespi, Hardt.

Avik Roy – Monness, Crespi, Hardt

Hi guys, it's very exciting to be on an actual quarterly results conference call for Human Genome, I feel like the sun is going to rise from the west tomorrow.

David Southwell

We hope it does.

Avik Roy – Monness, Crespi, Hardt

Two quick questions for you if I could. Barry you had mentioned that when you were benchmarking the benefit verifications that it was exceeding your expectations with this – with two-day turnaround. What is typical for a biologic launch in this context?

Barry Labinger

I think it depends on whether the plan wants to pay for the drugs or not. So, you can find examples of drugs that are late to market with a lot of competition where the plans may or may not be able to reduce coverage but at least they are able to drag their feet and increase the hassle factor to discourage use. And so it's not unusual to see benefit verifications take a couple of weeks for some drug and often take multiple phone calls to shake it loose. And that’s what we are pleased to not be seen with BENLYSTA so far.

Avik Roy – Monness, Crespi, Hardt

Okay, and then do you have any early sense of if you are seeing any off label use that I have to say outside of SLE.

Thomas Watkins

Yeah. No, nothing meaningful surely yet.

Avik Roy – Monness, Crespi, Hardt

Okay. That is great. Thanks a lot guys.

Operator

Gentlemen, we’ll take our last question now from Rachel Mcminn at Bank of America.

Thomas Watkins

Let me just, if we can limit each question to maybe one and a follow up, we will be happy to take a couple more if there are a couple of more folks waiting in line, we will take a couple of more questions beyond this person if we could.

Rachel Mcminn – Bank of America

Just a quick question. Thanks for squeezing me in. Is there any reason why – I know it's just a couple of days once you have given up. But, any reason why we shouldn’t use at least a minimum of a linear extrapolation from the average weekly sales rate to kind of think about the next couple of months going forward?

Thomas Watkins

You know, your call where it – it's really hard to project what the slope of the curve is going to be. So we will let everyone draw their own conclusions for now.

Rachel Mcminn – Bank of America

Just one quick follow up. Again, I know it is early, but do you have a sense of how physicians they are thinking about duration, what are the key metric that they kind of use to keep patients on or off drug, and when they would do that?

Barry Labinger

Yeah, there aren’t great objective measures and there aren’t with other drugs for lupus either. So, I think we will expect this to fit in like the others that when patients are put on BENLYSTA then the one thing that is specific is the expectation is I am going to give it some of the physicians say I am going to give it six months, some of them say I am going to give it 12 months to determine whether the patient is benefitting. Once they are benefitting then they stay on for as long as the physician proceeds that they are benefitting and I think when you ask physicians that right now looking at what are you going to do two years from now, once you started a patient when you haven’t actually treated anyone yet, it's really hard to get meaningful answers from them. I think it's more helpful to lookout their behaviors in other categories like RA, where when they get a partial response they do not want to give it up. So the tendency is to add on when you think there has been some benefit and keep people on drug and as long as they are tolerating it well and you are convinced that there has been some help. So that is what we would expect with BENLYSTA.

Rachel Mcminn – Bank of America

Thanks

Operator

We'll go next now to Bill Tanner at Lazard Capital Markets.

Bill Tanner – Lazard Capital Markets

Thanks for squeezing me in. Just a quick question, Barry, on the last topic. I'm curious, it's related to you said something earlier about patients would be on the drug for some time before efficacy could be safely assessed, and I wondered if you have a sense of how broadly physicians are going to be using the drug at the outset, and I guess maybe the proxy would be physicians who don't really have to worry about the reimbursement. Is it putting a handful of patients on it and waiting a period of time just to see how well they do? Any sense there?

Barry Labinger

It depends on what they see. You know, the more dramatic the results they see the fewer patients they're going to need to see before they broaden use. I also think word will travel within the community. So it's not just the individual patients that a particular physician puts on drug; it will be those patients plus those that they hear about from their colleagues. So, I don't – one of the things that stand encouraging even as we're sort of building towards physicians starting to treat, they are seeming to continue to identify more patients and get new benefit verifications even if they haven't gone through the whole pull-through process and treated everyone they identified earlier. So, I don't think that we're seeing as much of the dynamic of "I'm going to pick one, I'm going to put him on therapy, wait six months and then I'm going to pick the second one." I do think that based on the unmet need itself and the lack of good alternatives, in the absence of a lot of experience; they're going to select more patients as time goes on.

Bill Tanner – Lazard Capital Markets

And just one quick follow-up, you may not know the data or you may not really be willing to share it if you had to characterize, say the top (inaudible) in terms of an average number of patients that they might have on? Any comment there? Yeah, double digit, any ballpark.

Barry Labinger

Yeah I – not really, I mean the number that would – no, this is too soon right now to get to those details.

Bill Tanner – Lazard Capital Markets

Okay. Fair enough, thanks very much.

Thomas Watkins

I think maybe we have one, maybe two more questions in line, if we could – operator, take whoever is left.

Operator

Sure thing Mr. Watkins. It looks like we have one more question this afternoon. And we can take that now from Ying Huang at Gleacher and Company.

Ying Huang – Gleacher and Company

Hi you guys, thanks for taking my questions here. You mentioned that less than 10% doctors have ordered the drug, the number one reason is probably because the reimbursement issue but which should eventually go away. What are the other reasons why the counts of doctors are not ordering this. And also when do you expect the rest of the two-thirds of the hospitals to decide to put you on the formulary here? Thanks.

Barry Labinger

We would expect the rest of the hospitals will complete their reviews over the next three to six months, hopefully closer to three and they'll be coming in sort of steadily between now and then. The first part of your question?

Ying Huang – Gleacher and Company

Oh, you said that number one reason for the less than 10% doctors who have ordered the drug so far is probably because of the reimbursement issue, which I see will go away with the Q-code and education, but what are the other hurdles you are seeing from physicians that why they're not ordering the drug now?

Barry Labinger

Yeah, well first of all, some of them are ordering the drug but infusing it themselves. So that's why we talked about the specialty pharmacies or the alternate sites of infusion. So something more than the 10% have initiated a patient. But, you know, it's close to 10% so most haven't yet. And the main reason is concern over reimbursement, and the second reason is they haven't figured out where to start yet, which patient. So we talked about that earlier. You know, either it's too broad and they don't know where to start and we'll get there with education, because – and all of these physicians have patients that could benefit. And then there are some people who are still trying to figure out the label and the exclusions and who's in play. So, this is sort of a normal process of learning a new product, a new set of data and it's got the extra complication that lupus data are complicated and they're especially unfamiliar to community physicians.

Ying Huang – Gleacher and Company

And then if I may, what's the gross to net ratio here, when you booked revenue there?

David Southwell

The gross to net revenue ratio that we recorded was approximately 10% and we see that over time going up to closer to 15% because hospitals put us on the formulary and you have additional hospitals that operate at more of a discount.

Ying Huang – Gleacher and Company

Great, thank you.

Thank you. So thank you operator for your assistance with the questions. I want to thank everybody for joining us today, thank you for your interest in HGS and I look forward to talking to you soon. Thank you very much.

Operator

And again that does conclude today's conference call. Thank you all for joining us and again wish you all a great afternoon. Good-bye.

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