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Executives

Thomas Watkins - President & Chief Executive Officer

David Southwell - Executive Vice President & Chief Financial Officer

Barry Labinger - Executive Vice President & Chief Commercial Officer

Analysts

Joseph Schwartz - Leerink

Cory Kasimov - JPMorgan

Christopher Raymond - Robert Baird & Co.

Mark Schoenebaum - ISI

Vishaal Turakhia - Goldman Sachs

Jim Birchenough - BMO Capital

Marko Kozul - ThinkEquity

Geoff Porges - Bernstein

Michael Yee - RBC Capital Markets

Rachel McMinn - BOA Merrill Lynch

Ying Huang - Barclays Capital

Yaron Werber - Citi

Brian Skorney - Brean Murray

Do Kim - Piper Jaffray

Human Genome Sciences, Inc. (HGSI) Q4 2011 Earnings Call February 27, 2012 4:30 PM ET

Operator

Good day everyone and welcome to Human Genome Sciences’ fourth quarter 2011 and full year financial results webcast. Today’s webcast is being recorded. At this time I will turn things over to Mr. Tom Watkins. Please go ahead Mr. Watkins.

Thomas Watkins

Thank you operator and good afternoon everyone. 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 take a look at our SEC filings for additional detail. So the press release that we issued just a few minutes ago is posted on our website at www.hgsi.com.

Following my opening remarks, David Southwell, Executive Vice President and Chief Financial Officer will review some highlights of our fourth quarter and full year 2011 financial results and then Barry Labinger, Executive Vice President and Chief Commercial Officer will review a few aspects of our progress to-date with the commercialization of BENLYSTA. Following those remarks we will open the call to any questions that you may have.

2011 was an important year for Human Genome Sciences’. In March the FDA approved BENLYSTA in the United States for the treatment of systemic lupus. Two weeks later we had BENLYSTA available in distribution channels and in late March the first US patients received treatment.

In July, we and our partner GlaxoSmithKline received approval for BENLYSTA in Europe and as we moved through the second half of the year, we launched BENLYSTA first in Canada, then in Germany, Spain and a number of other European Countries. Here in the United States BENLYSTA was on the market for three full quarters of last year and we saw steady quarter-to-quarter progress with BENLYSTA sales throughout those quarters.

We believe that BENLYSTA is on it’s way to playing a major role in improving the standard of care for SLE patients. Unquestionably the approval and launch of BENLYSTA brings us closer to our longstanding goal of achieving profitability and sustained growth into the future and HGS remains committed to achieving profitability in 2014.

At this point I will turn the call over to David Southwell, for a view of some of financial highlights. David.

David Southwell

Thanks Tom. I don’t plan to go through the 2011 numbers in detail since you have them in the press release, but I would like to draw your attention to a few specific highlights.

First, revenues for the full year totaled $131 million and that included $52 million in net sales of BENLYSTA, as well as $53 million in sales of raxibacumab. We launched BENLYSTA right at the end of the first quarter of 2011 and since then BENLYSTA net sales grew from $8 million in the second quarter to $18 million in the third quarter, to $26 million in the fourth quarter. So as Tom said earlier, we saw steady quarter-to-quarter growth in BENLYSTA sales throughout the year.

Overall revenues for 2011 were lower than for 2010, since results for the first three quarters of 2010 reflected recognition of $83 million from the ZALBIN agreement with Novartis, which was concluded in 2010. We ended 2011 with $881 million in cash and investments, which includes $429 million in net cash from our public offering of convertible senior notes, which we completed in November. We continue to have a strong financial position and will continue to invest in the successful worldwide commercialization of BENLYSTA.

So now I’ll turn the call over to Barry Labinger for an update on our progress with BENLYSTA. Barry.

Barry Labinger

Thanks David and good afternoon everyone. As Tom and David have indicated, BENLYSTA sales grew steadily from quarter-to-quarter in 2011. The majority of rheumatologists who’ve initiated the use of BENLYSTA are in the trial mode, prescribing it to a few appropriate patients to gain real world experience before expanding adoption.

The new news that I’m happy to report today is that there is a growing body of evidence from market research that BENLYSTA is performing well in the real world. These market research data suggest that patients on BENLYSTA are experiencing significant improvement and the rheumatologists with the most BENLYSTA experience are the most impressed with BENLYSTA’s efficacy.

As an example, we just completed a new market research study, involving short reviews of SLE patients treated with BENLYSTA. We captured the clinical experience for 270 patients treated by 80 rheumatologists. Here are few of the key findings and please remember that these findings come from a market research study, not from the clinical data underlying our label.

First, three quarters of the patients receiving BENLYSTA showed improvement in at least one aspect of the disease. About 20% of the patients were unchanged and very few who worsened. Some of these patients have only been treated with BENLYSTA for a very short period of time and those treated longer showed more improvement.

An interesting feature of this data is that the percentage improvement was consistent across the various organ domains and manifestations of SLE. This supports the wall of BENLYSTA as a treatment that targets the underlying disease, improving the various manifestations of SLE and with broad potential for us in a wide range of patients.

It’s very encouraging that these market research findings suggest that BENLYSTA is making a difference for patients and this positive clinical experience is just the beginning. The positive clinical experience we see in this market research study, along with other information we’ve seen recently, increases our confidence in the long-term potential of BENLYSTA.

One thing we’ve learned though is that it takes a while for a positive impression to translate into practical behavior change in the rheumatology community. SLE patients typically only see their doctors every few months and due to the waxing and waning nature of the disease, they are not always in need of a treatment change, plus rheumatologists do take a while to change habits.

Our commercialization efforts are expressly designed to accelerate this process. It’s clear that scientific engagement will play a significant role. Lupus treating physicians need to hear from their colleagues, to help increase their understanding of the clinical data and figure out how to incorporate BENLYSTA into their treatment decisions.

We are responding to this need in a number of ways. As an example, in the fourth quarter of 2011 we conducted three times as many speaker programs as we did in our first two quarters on the market combined. We are continuing to conduct a large number of programs in the first quarter and beyond.

It’s also important that we mobilize SLE patients to speak up, which will drive a higher sense of urgency for rheumatologists to initiate trial of BENLYSTA and then progress to adoption. This is a new opportunity in lupus, to elevate the dialogue between patients and their doctors about better control of the disease, after all these patients are becoming aware of the first new treatment option for their disease in decades. With nothing new for so long, there hasn’t been much for lupus patients to rally around.

We launched initial elements of our consumer campaign in the fourth quarter, with online and print advertising and with materials and programs for patients. The campaign features real patients sharing their experiences and offers tools to help identify and articulate the impact of their disease and manage their own dialogue with their physicians.

The goal of our consumer campaign is to empower the community of lupus patients to expect better management of their disease. Both scientific engagement and patient engagement are critically important levers to create the lupus market and drive BENLYSTA growth. The impact will take some time to kick in, but we’ve dialed up our program significantly.

In summary, the majority of rheumatologists who have initiated use of BENLYSTA are still in trial mode, prescribing it to a few appropriate patients to gain experience before expanding adoption. So far they like what they see. BENLYSTA is providing clinical improvement in their patients and that bodes well for the future.

At this point, I’ll turn the call back to Tom Watkins. Tom.

Thomas Watkins

Thank you Barry. So to sum up, we have seen good progress with a number of physicians initiating use of BENLYSTA. We are hearing consistently that the drug is having a positive impact on patients and we saw steady quarter-to-quarter growth in BENLYSTA sales throughout 2011.

We expect 2012 to continue the theme of trial and adoption and as we have just said, most physicians at this point are still in a trail mode. Finally, what we have experienced so far in the market, reinforces our conviction that BENLYSTA will ultimately play a major role in proving the standard of care for SLE patients.

So on that note, we will now open the call to your questions. Operator, if you would please review the procedures. Thank you.

Question-and-Answer Session

Operator

Certainly Mr. Watkins. You're welcome. (Operator Instructions) We’ll go first to Joseph Schwartz with Leerink.

Tom Watkins

Joe? Joe, your there? Hi Joe.

Joseph Schwartz – Leerink

Can you hear me now?

Tom Watkins

Your there?

Joseph Schwartz – Leerink

I am here, can you hear me?

Tom Watkins

Yes sir.

Joseph Schwartz – Leerink

Okay great, thanks. I was wondering if you could talk about what you’ve noticed since the J-code has taken effect? It’s raised the visibility for the drug amongst the payers, so I’m wondering, have you experienced any push back, requests for increased documentation or justification for therapy in any patients.

Tom Watkins

So, I’ll have Barry take that one Joe.

Barry Labinger

Yes, hi Joe. So for anyone who doesn’t know, our product specific J-code was assigned by CMS late last year and went into effect January 1; that’s for government payers and private payers have been uploading the J-code in the weeks since. So this is really helpful for us and that the product specific J-code removes a certain amount of manual operation and uncertainty on the back end of the process, so that physicians can be more certain about how quickly they’ll be reimbursed when they do infusions in their office. So we are pleased to have that take place.

Your question about raising the visibility and whether that’s triggering any increased requirements for documentation, I don’t think so. As we get further into the launch, more payers have more experience with BENLYSTA and coincidently start to think about how they want to implement reimbursement for BENLYSTA.

Generally the environment is positive for us. Most plans are reimbursing for BENLYSTA fairly freely, consistent with our label, but on a one-off basis with individual physicians or individual patients, you’re always going to get some request for documentation and information. So I think we hear about that a little bit more as time goes on. I don’t think it’s associated with the J-code and overall, the reimbursement environment’s pretty positive.

Operator

Moving onto Cory Kasimov with JPMorgan.

Cory Kasimov - JPMorgan

Hey, good afternoon guys. Thanks for taking the questions. You talked a lot about the trial, this period of trial and error for BENLYSTA. Do you have evidence regarding, I guess maybe the rough proportion of early adopters that started using BENLYSTA upon the launch that got through this trial mode and really started to accelerate use.

Barry Labinger

Yes Cory, I’ll take that question. So we certainly haven’t seen widespread progression from trail to adoption. I think most accounts are still in the trail mode gaining their experience and then as we know, once rheumatologists come to a certain conclusion, it still takes some time for that trend to translate into a new patient selection and appear in our sales numbers. So we are still in that mode for the majority of accounts.

That said, there are certain segments that we’ve identified and examples of accounts who have done just that. They started with two or three patients. They waited some number of months to see what the experience was, they liked what they saw and they started looking more broadly for new patients to put on therapy.

I’m sure your next question is exactly how many months is that and there just are not enough accounts that have gone through the process for us to be able to give any robust analytics on that, but we certainly have seen the process take effect. It just hasn’t been widespread enough to drive the overall growth trajectory we have.

Operator

Your next is from Christopher Raymond with Robert Baird & Co.

Christopher Raymond - Robert Baird & Co.

Thanks. Yes, just a couple of questions. Can you maybe share with us whatever information your willing and able to share in terms of patient retention? Any metrics you can provide as to percent that started on therapy, that remain on therapy and maybe the biggest reasons for discontinuation?

David Southwell

Yes Chris, the market research information we have, which is all we have to go on, because we don’t have visibility directly to patients out in the community. But the market research information we’ve gotten is consistent with what we saw in our clinical trials.

So far where we are based on relatively short duration is around 90% of patients or a little more than that, are still on therapy from those that started. The reasons for discontinuation are all kinds and there aren’t very many of them, so there’s no major trends there. You have some patients who had a reimbursement issue, some patients had a side effect issue, a few patients had been on therapy long enough and the physician hasn’t seen enough benefit to conclude that they should stay on, but the high majority are still on therapy so far and what we saw in our clinical trials is we’d expect about a 20% discontinuation rate after a year.

The reason that we have such a lower discontinuation rate is because most patients haven’t been on that long yet. Once they make it through a year, likely they are responding and their discontinuation rate goes down to more like 5% per year they are after. That’s what we’ve seen in our long-term extensions from our Phase II trials. So, so far everything we’ve seen in market research is consistent with what we saw in the clinical trails.

Christopher Raymond - Robert Baird & Co.

And if I can ask a follow-up, you guys have been very gracious by giving monthly, the average weekly sales numbers by month. Any way we could get you to give us some sense of what’s happened in January?

Tom Watkins

So Chris, this is Tom. I think it’s best if we save our commentary on how first quarter sales are proceeding until we complete the first quarter and those comments we’ll be able to make to you in a complete fashion in early second quarter, probably sometime in late April when we disclose the sales. The reason for that I think is fairly obvious that bits of quarters maybe misleading, so in order to be fair here, we’ll give a complete picture when we have the whole quarter to talk about.

Operator

Thank you. And ladies and gentlemen, we do again ask that you please limit yourself to one question. We’ll now move onto Mark Schoenebaum with ISI.

Mark Schoenebaum - ISI

I have 11 questions please.

Tom Watkins

11 parts Mark, right?

Mark Schoenebaum - ISI

Yes, exactly. Hey, I just want to ask, I was actually looking for my notes, so I wouldn’t get my math wrong here, but I believe if you just look at the, Walter, January sales data, which is tracked historically that’s very close with what you guys have reported. So I think many of us are looking at that pretty carefully.

The growth over December was brisk and it was good, but I think in order to hit what – I know you haven’t given guidance on the year, but in order to hit the consensus street number, which I realize you haven't endorsed or commented on, but I think is around 210 to 220, somewhere in that range, you need to continue to grow roughly at that month-over-month clip. So I know you haven’t provide guidance, but maybe if you can just help us as we’re all sinking through this tonight in our models, whether or not we can extrapolate from that number. Thanks a lot.

David Southwell

So without providing guidance Mark, you’d like us to provide some guidance. No, I’m kidding. You know it’s really hard to comment on month-to-month data, especially from these third party reports, because there’s always a little bit of variability in whether they pick up all the sales or if there’s certain under reporting. There’s also configurations of months in terms of how many shipping days and which days they actually are and all that makes it really hard to interpret, and so I wish I could, but I don’t think we can give you any real helpful information on projecting that future…

Tom Watkins

I'll just repeat Mark what I said a moment ago. It's best if we focus this call on 2011 and questions of the fourth quarter. When the first quarter’s concluded, we'll be able to comment more intelligently on the full quarter and we'll do that in April.

Operator

We’ll now hear from Terence Flynn with Goldman Sachs.

Vishaal Turakhia - Goldman Sachs

Hey, thanks guys for taking the question. This is actually Vish stepping in for Terence. Just a quick question on the launch; among the physicians who are prescribing BENLYSTA in the early phase of the launch, how has the number of average patients per prescriber changed, especially over the course of 2011?

Barry Labinger

Yes, I don't have specific numbers to share with you on that, but generally speaking, the majority of accounts are still in this trial mode where they started with two or three patients and they stayed there. As I mentioned earlier, there are examples of accounts who have been through that experience, liked what they've seen and grown from there.

There are also a small number of accounts who were early adopters and started picking up much more than that from the beginning and continue to grow. But overall, I think it's fair to say that our growth has come from the expansion and the number of accounts ordering, so new store openings so to speak and not as much from increases in same store sales.

Operator

Our next question will come from Eric Schmidt with Cowen & Co.

Eric Schmidt - Cowen & Co.

Good afternoon and thanks for taking my call. Just wondering if you can say anything about the ex-U.S. sales trajectory, how it might compare to the U.S.? Whether you’re pleased with the efforts that GSK is making with you in those territories, maybe even size up what do you think the peak opportunity is relative to the U.S.?

Tom Watkins

Yes, so we are just in the very early stages of getting started in Europe. Keep in mind the opportunity in Europe you get at in a very gated fashion, because once you get approval, you still have to get reimbursement approved and pricing in every individual country, so we are still only available in countries that account for the minority of the European opportunity.

Then within in each of the countries where you have pricing and reimbursement, you have the same gradual ramp up that we are seeing in the U.S., where physicians need to get to know the data and figure out how to translate it and select patients and get them started, so we are pleased with the process of our launches.

In the second half of last year we launched in a number of important countries. Germany is the biggest, the Scandinavian countries as well, Spain came on later in the year and we are mostly still in the regional reimbursement process there. So we are pleased with the launch process.

Our partnership with GSK is going very well there. There are a few countries where we are working side-by-side. Of the launch countries so far it’s Germany and Spain. We’ll also be in France, but haven’t launched there yet. As far as sales results, it’s just too early and it’s really not material, so we are not reporting European sales at this point.

Operator

Moving on to Jim Birchenough with BMO Capital.

Jim Birchenough - BMO Capital

Yes, hi guys. So just as we look at the trends correctly, if you just sort of straight line it (inaudible) it’s hard for us to see profitability, so at some point you need an inflection. I guess (a) do you agree with that, that you need an inflection from the current trajectory to get to 2014 profitability. When does that need to occur and what do you do strategically if we don’t see that there?

Tom Watkins

Jim, I’ll comment on your question. You have seen us and you will see us continue to assess the sales trajectory and progress and our spending rates together and we will take actions from time-to-time. We are very confident as we stated in this call that the steady growth of BENLYSTA that we’ve seen, that we should expect a continuation of that at least for a while, and the spending of the company, which we adjusted as you saw at the beginning of the first quarter in a couple of areas of the company we’ll continue to look at.

Our spending is in three areas; it’s in promotion of BENLYSTA, which is partly GSK and partly HGS and we can continue to review that. We are very happy with the level of spend now. It’s in R&D, where the majority of our projects are BENLYSTA related and it’s in operations, manufacturing and process development and obviously, we adjust that from time-to-time as we look forward and see what our manufacturing needs are.

So I’m confident we are going to get to profitability in 2014. I think the past that takes us from where we are now to where it should not be, it can occur at a number of different ways and our spend will occur in a number of different ways, but I’m confident that regardless of the sales trajectory, we will be profitable in 2014.

Operator

Salveen Richter with Collins Stewart has the next question.

Laura Ekas - Collins Stewart

Hi. It’s Laurie Ekas on behalf of Salveen. Just had a question -- you mentioned in your previous press release that exiting the fourth quarter, about 40% of the key accounts have prescribed the drug and I was just wondering if you had an updated number for that as of today or the end of January and then also, what is the reason that those other 60% have yet to prescribe, now that we’re almost a year into the launch.

David Southwell

Well, that’s a $64,000 question. So I can’t say anything more about what has happened to the number, which we call account penetration. How many accounts have ordered? We’ll report that as a metric along with sales results when we get to the first quarter earnings call.

I will say that in our market research when we ask physicians and we’ve done this a number of times very recently as have outside people. We ask physicians how many have prescribed BENLYSTA; it’s a higher number. It’s anywhere from the high 50s to a little bit higher than that. And this isn’t a physician projecting what they plan to do. This is a physician reporting what they have done.

It takes a while for that prescription so to speak to translate into the sales data that we see, because usually the way a physician thinks about it, when I’ve selected a patient and I told my staff to get them on BENLYSTA. They still have to go through the education of the patient, the reimbursement, the scheduling of the infusion and only when that happens is when the sale comes through.

So it can take a month or even more, maybe two months for a patient selection to translate into infusion, but we see the market research numbers, the higher penetration rates as leading indicators for the account penetration according to sales data, which was around 40% at the end of last year. So it’s moving along and it’s moving along steadily and consistently, so we are happy about that.

The reasons it takes a while is about as different as the number of physicians that are out there. Some are struggling with understanding the data, others are trying to select appropriate patients, others were afraid to start infusing under a miscellaneous J-code. There’s all kinds of reasons and when we knock down all of those reasons, then people get started and we’re starting to turn the corner there and soon we’re going to have the majority of accounts having purchased and that’s why we’re starting to turn our focus much more to driving increased depth, meaning capitalize on the experience that people are having with initial patients and moving forward to a broader adoption.

Tom Watkins

I think an additional comment that could be offered here as well and might be helpful is we’ve learned a lot since we launched these products, roughly nine months early in 2011, we are reporting today through the end of the year. So we’ve got roughly nine months of experience, a little bit more if we come up to today. We’ve learned a lot.

And one of the things we’ve learned which is I think affecting a number of answers to your questions in a very pronounced way is the data that was very important for us to generate for regulatory approval, which was excellent data; it was 52, plus 76 and all the other surrounding analysis, has proven to be far more challenging for prescribing physicians to interpret and for those same physicians to translate it in terms of the impact they believe it will have on their patient base.

Doesn’t mean it’s not excellent data, but it means that the travel adoption model that Barry has been describing and that we’re facing, means that there’s a translation that has to go on here in their mind and often times it’s not just the representative, sales representative repeating the interpretation of that clinical data. It’s going to a speaker program. It’s talking to ones peer or an expert KOL, perhaps another prescriber new region.

So the trial adoption model that we’ve learned is taking effect. While very promising in terms of its trend, it’s occurring at different rates as you move from physician to physician. So that’s why we are so confident in the potential of product and we are not discouraged at all by the pace.

Operator

Moving on to Marko Kozul with ThinkEquity.

Marko Kozul - ThinkEquity

Hey, good afternoon. Thanks for taking the question, which is about duration of therapy. I was wondering, your market research, what does it tell you about evolving thought on how on-patients might stay on most of the things?

Tom Watkins

Yes, most patients have only been on therapy for a few months so far, so we don’t really have hard data for that, but what we can say is that when physicians start BENLYSTA, the vast majority of them intend to keep them on chronically and that’s consistent with how they use most drugs. There are a couple of exceptions, but most drugs in lupus and other autoimmune diseases require chronic therapy.

BENLYSTA is a disease modifying maintenance treatment, that’s where it fits. So they will stay on as long as they are tolerating it and as long as physicians believe that they are getting a benefit from it and so far a very high percentage are still on therapy and we are very encouraged by the data that we have got from our clinical trials, including trials where patients have been treated for six or seven years now and obviously are tolerating it well and feeling that they are benefiting from it. So that’s what will happen in the commercial world, unless there is some specific reason for an individual patient to stop.

Operator

Our next question will come from Geoff Porges with Bernstein.

Geoff Porges - Bernstein

Thanks so much for taking the question. I’m just trying to (inaudible) a little bit and just ask you about R&D. David, could you give us a little bit more color on the proportion of your R&D spends, that is for regulatory obligations for BENLYSTA, the proportion of new indications for BENLYSTA and then the proportion, that is for other programs. And it appears as though you are guiding towards a significant step up from what was a pretty low level of R&D spend in Q4, is there something driving at it as the new trials are getting started?

David Southwell

Well Geoff, on your first question, we don’t break R&D out and part of the reason for that is that we have headcount, we have allocations and things and so we don’t sort of break it out. But the majority of our R&D going into this year is going to be associated with BENLYSTA, a significant majority with our Phase IV commitments and with the programs that we’re doing for vasculitis and the subcu program, which is enrolling, so most of it is with that.

Last year we did $196 million in R&D expense, but you have to remember that $50 million of that was an upfront payment that was charged to R&D that went to FivePrime, so sort of the ongoing number is less than that. And if you look back over the quarters we did $84 million in the first quarter and $33 million in the second, $39 million in the third and $40 million the fourth. So you can see that that came in in the first quarter.

This year we see the number, it appears to be going down, because we did $196 million and we are guiding to $150 million to $180 million, but if you take out the FivePrime payment, it’s actually pretty consistent with what it was last year. Obviously we have some trials that are ramping up, notably the subcu trial that are ramping up this year that we didn’t really have last year, but there isn’t a significant increase in R&D and there certainly isn’t a decrease and you have to sort of understand how it was reported last year.

Geoff Porges - Bernstein

Well, thanks very much. That’s helpful.

Operator

Moving onto Michael Yee with RBC Capital Markets.

Michael Yee - RBC Capital Markets

Hi, thanks. Previously you gave quarterly gross patient ads, 1,400 and 1,800 in Q2 and Q3 respectively. I was wondering if you could comment directionally where you were for Q4. And then as I think about modeling for 2012, should I be modeling similar or wouldn’t you expect a numeric pickup given you’ve got – you’d assume people are treating more per month or more per quarter.

David Southwell

Yes Michael, as you’ll recall, when we reported the four-week averages of sales in the fourth quarter, it wasn’t consistently increasing throughout the whole quarter. November was fairly flat against October and then there was a modest increase in December over November, loosely those months, the weeks that align with those months. So because of that one out of the three months they really didn’t go up.

The increase is driven by new patient starts and so we saw fewer new patient starts in the fourth quarter than we did in the third, probably on the order of 1,000. Now we don’t have specific – actually, I should say about 1,000 increase in net number of patients; so from 3,000 at the end of the third quarter to about 4,000 at the end of the year. That’s really an estimate that just flows from the sales numbers honestly and so we make assumptions about how many vials it is and what the discontinuation rates are and what the new patient starts are. So you can make your own estimates like we can. We don’t have direct visibility into patients.

But I think it’s fair to say that when sales growth stalls like we saw in part of the fourth quarter, then that’s accounted for by new patient starts stalling. As far as what it means going forward, again answering that would be the same thing as answering what do we think sales are going to be going forward, so I should leave it at that.

Operator

Rachel McMinn with Bank of America Merrill Lynch has the next question.

Rachel McMinn - BOA Merrill Lynch

Yes, thanks very much. I wanted to go back to your comment, I think Tom you made a little bit earlier in the Q&A session, where you said that you had high conviction you’re going to get to your profitability in 2014, regardless of the sales trajectory. I guess I’m a little bit confused by that comment, because you’ve talked about having these fixed R&D expenses.

You obviously have promotional expenses related to BENLYSTA and then of course you need to manufacture BENLYSTA. So what is it that without going into maybe specific line items, I guess how much variable costs are left in the business that you can feel confident or is it really just the confidences that you feel like BENLYSTA is picking up, is going to pick up and so that’s not really an issue?

Tom Watkins

Well, Rachel I’d say that first of all, we’re not giving guidance for the future. I continue to believe that at least for the next couple of quarters we are going to continue to see good steady growth, but I think what we are looking at over the next few years and we are increasingly optimistic when we see evidence of the drug working such as Barry was describing, we are increasingly confident that the shape of the adoption curve and the drug’s potential may lead one to different conclusions.

It doesn’t lead us to different conclusions. We are confident this drug is going to be a very important part, ultimately of the treatment (inaudible) for physicians that treat lupus patients. I’m confident that when you take 2012, 2013 and 2014, the number of promotional and educational programs that Barry has described, that he’s implementing in different areas for success that I’m confident we are going to achieve, our ability to flex our spending over time in different areas that will allow us both to achieve profitability and make sure that growth is high in BENLYSTA, even after we have profitability. I am confident we will have the three full years. I am confident we will be able to do what is necessary to grow the products, to sustain the growth of the product and achieve profitability and that’s where we are going to go.

Operator

We’ll now hear from Ying Huang with Barclays Capital.

Ying Huang - Barclays Capital

Hey guys, thanks for the question as well. You guys just mentioned that still a lot of physicians have trouble interpreting the data from BLISS-52 and BLISS-76 trials. What exactly are you trying to do in order to address that issue in the practices? Thank you.

Barry Labinger

Yes, so the main issue behind that is that the end points that are used in our trials are unfamiliar to physicians and some aspects of the trial design can confound the results. For instance, in the control group, there is quite a lot of freedom for our physicians to add drugs or increase doses of drugs, which can increase the placebo response rate and narrow the gap between the active group and the controlled group.

The more people understand these nuances, what does it mean to have a 4-point improvement in SELENA-SLEDAI and what does it mean to compare these two different groups in a novel trial design, which is specifically targeted to show the benefit of the drug in a population in lupus, this has never been done before. So there’s a lot of education going on and Tom mentioned earlier that peer-to-peer helps a lot when experts in the field are educating their colleagues or just peers are talking to one another about what they make of this data, they move along and they get more comfortable.

I think the bigger thing is, we just have to get to the point where they try it and they try it and they share their experiences in their own practice, as well as those of their colleagues and that’s when people really start to form their perceptions of what BENLYSTA can do for their patients in the real world and that’s what we were reporting earlier, we’re excited about, because those that have done that are feeling pretty positive about what they are seeing and intending to treat more patients from there.

So part of it is just having to work through this trial and adoption process. Let people get their own experience and share it with colleagues and move on from there. That takes a little bit longer than just educating somebody and off they go and that’s one if the things that we’ve learned in the process.

Operator

(Operator Instructions) We’ll move onto Yaron Werber with Citi.

Yaron Werber – Citi

Great, thanks for taking my question. I appreciate it. Maybe a question for you, just so I understand, so is the growth going to be sort of essentially new practices coming on board or is it all for the increase…?

Tom Watkins

We are having a difficult time hearing your complete question. You are cutting in and out a bit. Could you just repeat what you said, maybe get a little closer to the phone?

Operator

Mr. Werber are you still with us? Mr. Werber, if you’re on a speakerphone, please do press your mute function or pick up your handset.

Tom Watkins

We think he may be able to sell time. Maybe we’ll take another question and we’ll come back to him if we can.

Operator

We’ll move onto Brian Skorney with Brean Murray.

Brian Skorney - Brean Murray

Good afternoon guys. Thanks for letting me in. I guess a lot of us are kind of curious on what timeline for when we might actually see BENLYSTA guidance. Understood it’s early in the launch and you don’t want to make an estimate that can’t be backed up. But I wonder if maybe Barry you can talk a little bit in your historical experience, if there is some precedent for seeing new patient adds accelerate this late into a launch period and if there is anything about the dynamic in kind of the U.S. healthcare system right now that might help to see that with BENLYSTA in the future.

Barry Labinger

Yes Brian, as you mentioned I’ve had experience with a number of drugs that have gotten very, very big and I would say that they’ve all had a very different trajectory and experience. So drawing any particular conclusions about what will the timing be for BENLYSTA is just too hard to do, because I could tell you about three or four others that were all different from one another as well.

So I think things are a little tougher right now in our healthcare environment. I think physicians in buy and build model are a little more skittish early on. But I don’t think that’s the major driver. I think the major driver is people figuring out who are the right patients to treat, getting started, liking their experience and we’ve got most people now in that process and we are really encouraged that the experience that they are getting seems to be very positive.

Now there is still work to be done to get that translated into new prescribing behavior and that’s what we’ll work through with everything that we are doing going forward and it’s really, everyone’s going to move at their own pace. So I can’t tell you what the timing is going to be exactly, but we are moving in the right direction and fundamentally, if this drug delivers for patients, then physicians will figure it out and they’ll use it much more broadly. It just takes a while.

Operator

We’ll now hear from Ian Somaiya with Piper Jaffray.

Do Kim - Piper Jaffray

Hi. This is actually Do Kim for Ian. I just have a question about the subcu trail for BENLYSTA. I was hoping if you could tell us why a 4-point improvement in the SELENA-SLEDAI was actually chosen for the study, especially when BENLYSTA showed a more dramatic benefit with a 5 to 7 point improvement?

David Stump

This is Dave Stump. I’ll take a stab at that. It’s a pretty straightforward win. We had a good regulatory prescient for the 4-point response. We had an endpoint that we hit with positive trials, got an approval based on it. We felt like that was worth a lot to us. We tracked other levels of response, so we’ll have that information, but as a primary end point up on which we would seek regulatory approval, basically in the single trial we felt like we should stick with past success. There’s nothing more than that.

Operator

Jim Birchenough with BMO has the next question.

Jim Birchenough - BMO

Well guys, I just want to follow-up on the peer-to-peer selling. So as these physicians are trying to describe their own real world experience to their colleagues, what’s the patient types that they are describing? If there is a typical patient that they are describing with benefit and are you seeing any yields yet from these peer-to-peer interactions in terms of doctor does a speaker program and you get a certain number of new trials works coming out of that? Thanks.

Barry Labinger

So, let me start with the second question. I don’t have numbers for you on the yield, because you have to give a few months, several months after for physicians to get started. If you are pushed towards more use out of a program, again, it’s going to take them a while to get patients actually on therapy and then you got measure that going forward for some months to compare it to before the program.

So, it’s just too soon. Most of these programs were done in October, November timeframe and we are only a couple of months out, but we are tacking that closely. We will be tracking that closely as data gets more robust.

As far as how they describe the patients? It’s interesting, because different descriptions resonate differently with physicians. So some are very focused on organ domain manifestations. So they will look at our trial data and they will say, ‘okay, I’m going to treat patients with primarily skin disease or rash, along with positive double strain of DNA or low complement, who are not responding sufficiently to standard of care.’ So that’s one way that people describe it. Another way is by treatment.

If anyone who has been on plaquenil at all and steroids and I need to reach for a higher dose of steroids. Here is my alternative, because I don’t want to reach for a higher dose of steroids. So there’s different descriptions. I think they all point to pretty much the same patients and they are the sweet spot of our label, which is auto antibody positive patients, who still have persistent disease activity, despite standard of care and standard of care could be a lot of different things.

Operator

We’ll take a follow-up from Yaron Werber.

Yaron Werber - Citi

Can you hear me now?

Tom Watkins

Much better, yes.

Yaron Werber - Citi

Okay. (Inaudible). Can you hear me now?

Tom Watkins

We can hear those words. Whatever you just did, try and ask your question. (Inaudible) What are you thoughts on timing and ultimately what they are going to use as a comparative for BENLYSTA when they assess pricing? Thank you.

Tom Watkins

Thank you. We think we got enough pieces of that to answer it Barry. We expect preliminary report from IQWiG in the second quarter and based on what they find as far as what the additional clinical benefit is of the product, it will help determine what BENLYSTA gets compared to and what the added benefit is compared to whatever it’s compared to.

So we haven’t heard anything yet and when we do in the second quarter, we’ll know a lot more about how the negotiations will proceed. It’s going to be some months after the second quarter before we have any kind of conclusion to the pricing negotiations and we expect they’ll take effect in the middle of the third quarter, although we may actually not reach agreement on the price until significantly later than that and then it would just be effective a year after we launched, which was I think end of August.

Operator

Well, ladies and gentlemen we have no further questions. Mr. Watkins, I’ll turn the conference back to you for closing or additional remarks.

Tom Watkins

So, thank you very much operator. I want to thank everybody for joining us today and for your interest in Human Genome Sciences. Have a pleasant afternoon.

Operator

Thank you ladies and gentlemen; that concludes our conference for today. We thank you all for your participation.

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