Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  
TRANSCRIPT SPONSOR
Wall Street Breakfast

Amylin Pharmaceuticals Inc. (AMLN)

Q2 2007 Earnings Call

July 23, 2007 5:00 pm ET

Executives

Alice Bahner - ED of IR

Daniel Bradbury - President and CEO

Mark Foletta - SVP Finance and CFO

Alain Baron - SVP Research

Analysts

Jim Birchenough - Lehman Brothers

Jim Reddoch - FBR

Meg Malloy - Goldman Sachs

Steve Harr - Morgan Stanley

Thomas Wie - Piper Jaffray

Yaron Werber - Citigroup

Mark Schoenebaum - Bear Stearns

William Ho - Banc of America

Ian Somaiya - Thomas Weisel Partners

Presentation

Operator

Good day ladies and gentleman and welcome to the Journal Communications Second Quarter 2007, Earnings Call. My name is Brandie and I will be your operator for today. At this time all participants are in listen-only mode, and we will conduct a question-and-answer session towards the end of this conference. (Operator Instructions). As a remainder this conference is being recorded for replay purposes. I'd now like to turn the call over to Ms. Alice Bahner, Executive Director of Investor Relations. You may proceed Ma'am.

Alice Bahner

Good Afternoon. Welcome to Amylin Pharmaceuticals quarterly update conference call. Today's discussion will contain forward-looking statements that involve risks and uncertainties. These risks and uncertainties are outlined in today's press release and in our recent filings with the Securities and Exchange Commission. Our actual results could differ materially from what is discussed on today's call.

Let me introduce the other members of the Amylin management team here today; Daniel Bradbury, President and Chief Executive Officer; Mark Foletta, Senior Vice President, Finance, and Chief Financial Officer; Alain Baron, Senior Vice President, Research. I will now turn things over to Dan Bradbury.

Daniel Bradbury

Thanks Alice. Good afternoon and thank you for joining us today. We got solid execution across all aspects of the Amylin Organization this quarter. We continue to advance innovative therapies that meet unmet medical needs in the treatment of diabetes and obesity. These two diseases are strongly associated with over 100 million Americans who are overweight or obese and approximately 75 million with pre-diabetes or diabetes.

In this expanding market we are especially placed with a sustained growth and adoption of our two first in class marketed products BYETTA and SYMLIN. And with ongoing progress on exenatide long-acting release our most important development program.

We also recently had a successful American Diabetes Association meeting in June where we presented compelling clinical and pre-clinical data, had many discussions with leading clinicians at our commercial exhibits and medical education programs and continued to build our positive relationships within the diabetes community.

In addition we are looking forward to an exciting second half of the year, when we expect data from key pipeline programs. Now before I get into more detailed discussion of recent activities will turn things over to Mark Foletta to review our financial results released earlier this afternoon.

Mark Foletta

Thank you, Dan, and good afternoon. Earlier this afternoon, we announced our financial results for the second quarter of 2007. We reported total revenue of $197 million, including net product sales of $167.3 million. That is made up of $152.1 million for BYETTA and $15.2 million for SYMLIN, resulting in second quarter growth in net product sales of over 50% compared to the second quarter of 2006.

Our revenue under collaborative agreements was $29.6 million compared to $9.4 million for the second quarter of 2006. The increase reflects $15 million in milestones primarily earned upon Lilly's launch of BYETTA in the European Union during the second quarter of 2007.

Cost of goods sold was $14.4 million reflecting a gross margin of approximately 91%. This compares to cost of goods sold of $14.7 million for the second quarter of 2006 and a gross margin of approximately 87%.

Selling, general and administrative expenses for the second quarter of 2007 increased to $93.1 million from $63.5 for the second quarter last year. This was driven by expenses associated with the expansion of our sales force, increased promotional activities for BYETTA and SYMLIN and increased business infrastructure to support our growth.

Research and development expenses increased to $71.7 million for the second quarter of 2007 compared to $50.4 million for the same period in 2006. The increase reflects expenses associated with our obesity programs including $10 million development milestone associated with the leptin program and increased development expenses for exenatide LAR.

Eli Lilly share of the gross margin for BYETTA, which we referred to in our income statement as collaborative profit sharing was $70.4 million for the second quarter of 2007 compared to $43.4 million for the second quarter 2006. We reported a net loss for the quarter of $45 million or $0.34 per share compared to a net loss of $46.4 million or $0.38 per share for the second quarter of last year.

In June we completed an offering of Convertible Senior Notes generating net proceeds of approximately $559 million strengthening our financial position to continue to support for our marketed products expand our manufacturing facility in Ohio and advance our many opportunities for future growth.

Through the second quarter we’ve spent $176 million on this facility and have hired approximately 100 employees in Ohio. At the end of the second quarter we held over $1.1 billion of cash, cash equivalents and short-term investments.

I will now quickly review top and bottom line results for the 6 months ended June 30 2007. Total revenue was $368.9 million included $329.3 million of net product sales and revenue under collaborative agreements of $39.6 million. This compares to total revenue of $200.5 million in 2006.

Our net product sales for 2007 consist of $298.6 million for BYETTA and $30.7 million for SYMLIN. Our net loss for the six months ended June 30, 2007 was $94.4 million or $0.72 per share, compared to $114.3 million or $0.97 per share in 2006.

I’ll now highlight some information regarding our view of the key trends and assumptions for the remainder of 2007. As a reminder, we have included these numbers, the estimates for non-cash stock based compensation in the expense categories.

We are reaffirming our previous guidance that total revenues will be in excess of $800 million in 2007, including collaborative revenue of $60 million to $70 million. The collaborative revenue guidance has increased by $10 million from last quarter.

With regard to expenses, we continue to expect that our selling, general and administrative expenses for 2007 will be $375 million to $400 million, which is slightly higher than our second quarter run rate. Increased spending in the second half of the year reflects the planned expansion of our manufacturing capabilities in support of our facility in Ohio and additional marketing activities. This guidance also includes approximately $35 million of stock-based compensation expense.

We continue to expect that our research and development expenses for 2007 will be $250 million to $275 million. Let me remind you that R&D expenses typically fluctuate quarter-to-quarter. This guidance includes approximately $25 million of stock-based compensation expenses and reflects the continued support of both BYETTA and SYMLIN, investments in exenatide LAR, our obesity pipeline and other research activities.

And finally, I would like to remind you that our 2007 plan in this guidance contemplates a continued improvement in our operating results compared to 2006. I'll now turn things back to Dan for further update on recent business activities.

Daniel Bradbury

Thanks, Mark. Let me start with BYETTA, our first-in-class diabetes medicine for patients with Type II diabetes. We continue to hear but its unique combination of sustained glucose control, a reduced concern of hypoglycemia and a secondary benefit of weight loss is enabling health care professionals to make a real difference in the in the management of their patients.

We continue to support BYETTA with new clinical data including intimation presented at the recent American Diabetes Association meeting. One powerful study showed that BYETTA's blood glucose lowering effects is comparable to that against human blood gene, and its offers weight loss instead of weight gain, as well as six, a six-fold decrease in the incidence of hypoglycemia.

The second study highlights results of longer term BYETTA use. Patients using BYETTA for three years have sustained glucose control, progressive weight loss and improved BETA cell function in an open label extension study.

Further, in a group of patients using BYETTA for three and an a half years, BYETTA use was associated with improvements in cardiovascular respect to such as improved triglyceride and cholesterol levels and lower blood pressure.

As many of you are aware there is a high-end awareness among clinicians to not only manage glucose and keep with diabetes but to also reduce cardiovascular complications. This new data was introduced by our sales force immediately after the ADA meeting. Our sales force is now delivering to our expanded capacity in the second quarter with our field force expansion and realignment efforts behind us, we increased the volume of our physician interactions by 30% compared to the fourth quarter of last year.

Additionally, we sustained our increased level of medical education activities that we initiated in the first quarter to continue building and understanding of the BYETTA profile. In the second quarter, we continue to optimize our sampling program based on market demand and it remains an important component of our promotional tool kit.

Moving on to reimbursement, a critical part of continued market success is patient access to our therapies. We have maintained our focus on discussing clinical data with Managed Care Organization and other payers to support the value of BYETTA and SYMLIN for patients and for the healthcare system. We continue to increase our favorable formulary placement and now have approximately 85% of managed care patients with access at either Tier 2 or Tier 3 with nearly 75% at Tier 2 access.

Additionally, we have recently improved the access to BYETTA for Medicare Part D and for Medicaid patients. Encouragingly, early signs indicate that our payer customers are impressed with the long-term data we now have on BYETTA both from a safety and efficacy respected. We believe these long-term data position us well in the phase of new competitive entrance and increasingly highly concern about drug safety in general.

The sum of these marketing efforts resulted in a high single-digit percentage growth and prescriptions for the 10-microgram pen and a return to double-digit growth in total prescriptions for the 10-microgram pen in the second quarter.

Additionally, prescriptions for the 5-microgram pen, which declined in the first quarter has stabilized and have shown growth in the second quarter. Now, unneeded demand for both BYETTA pen grew, what we have seen that the prescription growth rate accelerated in the second quarter in comparison to the first quarter. This resulted in market share growth for both new and total prescriptions in the second quarter, reaching at all-time high for the brand in total prescriptions. Indeed BYETTA enjoyed seven-consecutive weeks of market share growth at the end of the second quarter.

Now we believe that expanding access to BYETTA through contracting is a long-term investment in the brand adoption and growth, and offsets any short-term effects on revenue. So, while total prescriptions grew 7% quarter-over-quarter, net revenue grew approximately 4%. This discordance in growth was as a result of increased commercial discounting, as well as a reduction in wholesale inventory days on hand.

There is also continued expansion opportunities for BYETTA, both in the US and elsewhere. Our clinical study BYETTA monotherapy use in patients early in the continuum of care is expected to report results in the second half of the year. And we plan to file for an expanded indication in the first half of 2008.

Additionally, Lilly launched BYETTA in Europe in the second quarter, and they are targeting BYETTA launches in more than 30 countries this year. This presents a significant advantage to maximize the value of exenatide molecule and deliver value to patients and providers worldwide.

Through our global partner, Lilly, we have the opportunity to have a significant first-mover advantage in the incretin mimetic category worldwide. At Amylin, we are very excited to see the vision of challenging signs and changing lives, happening on a global scale.

Now let's move on to SYMLIN, our first-in-class diabetes medicine for patients with type I and type II diabetes who use mealtime insulin. The profile of SYMLIN, like BYETTA, meets an unmet medical need in the market, but for a different patient population. This unmet need is clear improving glucose control without increasing risk of hypoglycemia and with weight loss. The benefits of SYMLIN are particularly important for patients on insulin.

Historically, physicians and patients have been forced to trade-off the benefits of improved glycemic control with insulin therapy at the cost of complexity, hypoglycemia and weight gain.

In the second quarter, SYMLIN's steady growth continued with a prescription growth rate of approximately 5% quarter-over-quarter. As with BYETTA, SYMLIN's revenue for the quarter was affected by increased commercial discounting.

Moving to expansion opportunities for SYMLIN, we plan two important improvements in the second half of 2007. One is to make the product available in the disposable pen delivery system, which our market research indicates will be more user friendly than the current vial and syringe form. And the second is to expand the use of SYMLIN to include those individuals with type II diabetes whose only insulin therapy is basal, or once a day insulin, and who need better glucose control.

At the recent American Diabetes Association Scientific Sessions, we presented study results highlighting the benefits of SYMLIN use in these patients. The study was designed to demonstrate improvement in pre-defined diabetes treatment goals, including achieving a target A1C improvement, limiting post-meal glucose increases, and experiencing no weight gain or episodes of severe hypoglycemia.

One in four SYMLIN patients achieved the composite set of goals while less than one in ten patients on basal insulin without SYMLIN achieved the target results. With approvals we plan to introduce the pen and the new indication in the second half of 2007. And as a result, we believe that SYMLIN's market opportunity has the potential for future growth.

I will now turn things over to Alain for brief review of upcoming research and development milestones.

Alain Baron

Thanks Dan. I'd like to briefly remind you about the research and development milestones we anticipate in the second half of this year. Our most important development program exenatide LAR is a collaboration with our partners, Lilly and Alkermes, to bring to market an important new medication for the treatment of diabetes. We remain on track to report results from the ongoing long-term clinical study of exenatide LAR in the fourth quarter of this year. We also remain on track to finalize the commercial manufacturing process for exenatide LAR in the second half of 2008 in our manufacturing facility in Ohio.

I would also like to remind you about the ongoing clinical studies in our obesity program. As many of you know, we have a unique approach to the development of therapies for obesity INTO or Integrated Neurohormonal Therapies for Obesity. We are assessing three molecular franchisees in this context; amylin, PYY 3-36, and leptin, and are evaluating several combinations of these and existing obesity agents in clinical studies.

The largest one of these is a combination study of pramlintide, which is the amylin analog that is the active ingredient in SYMLIN, plus leptin. This proof of concept study will attempt to replicate the synergy of the pramlintide and leptin on weight loss observed in preclinical studies. We expect these results in the fourth quarter of this year. We are also continuing two Phase I programs, one focused on our second generation amylin mimetic optimized for weight loss and the second study looking at the safety and tolerability of the combination of pramlintide and PYY 3-36.

Lastly, we have a combination study ongoing with pramlintide and the approved oral obesity agents, phentermine and sibutramine. This Phase II-B study is designed to replicate preclinical data, showing the additive effects of these combinations on weight loss and we anticipate data from this study in the fourth quarter of this year.

And now, I would like to pass things back to Dan to conclude the call.

Daniel Bradbury

Thanks Alain. We are looking forward to sharing results of those important programs later this year. I'll just add a few more updates before we close. As I mentioned, we presented scientific data and sponsored educational events at the American Diabetes Association meeting and these activities were well received by leaders in the diabetes community.

We had over 20 abstracts including four oral presentations. These presentations and the interactions that many members of our medical and sales teams had with healthcare professionals are important in re-enforcing the clinical profile of BYETTA and SYMLIN, as well as enriching our strong relationships with the diabetes community.

In September, we'll attend the European Association for the Study of Diabetes Meeting in Amsterdam, where we'll also have several scientific presentations as well as other activities.

I would also like to mention an important management addition, we’ve recently made. [Onaizah Jilani Tederay] has joined us as Vice-President of Brand Management. Onaizah has nearly 20 years experience in the Healthcare industry, most recently serving in the pharmaceutical marketing leadership role at Pfizer. She will work closely with Joe Young our Senior Vice President of Marketing as we further our efforts to shape the treatment of diabetes and obesity, continuing our work to change lives with our noble products and product candidates.

So, to summarize, the second quarter of 2007 has been one of consistently strong executions here at Amylin. We have seen sustained growth and adoption of SYMLIN and BYETTA and remain confident in our opportunity for further growth throughout the year.

Our most important development program exenatide LAR remains on track and we’ve made significant progress towards our Ohio manufacturing facility. We have a strong pipeline program with several key milestones to look for in the second half of the year.

With that I will conclude the formal portion of today’s call and turn things back over to the operator for your questions.

Operator

Question-and-Answer Session

(Operator Instruction). And your first question comes from the line of Jim Birchenough with Lehman Brothers. Please proceed sir.

Jim Birchenough - Lehman Brothers

Hi, guys couple of quick questions. Just want to make sure I understand the agreement with FDA on BYETTA LAR regulatory status. In the event that you show superior efficacy, to regular BYETTA is. Is there are any risk that FDA could say that this is really a different compounds in terms of its efficacy profile and when that might require greater safety data?

Alain Baron

Hi, Jim thanks for your question. At this stage, we negotiated with the FDA this program, which we believe jointly could be the basis for approval. So both on safety and efficacy, I remind of the pharmacokinetics and pharmacodynamic profiling, which we were able to use for those finding for BYETTA BID. And we use the same kind of modeling to make the point to the agency and convince them that this product was in terms of exposure, similar if you will to the BID product. So in answer to your question, I think we’ve said repeatedly that this study would be the basis of approval for both safety for efficacy.

Jim Birchenough - Lehman Brothers

And just try understand to the extent that you’ve got comparable exposure, any enhanced efficacy would arise in house?

Alain Baron

It's because of the consistency of the exposure over 24 hours, rather than having an up and down profile as you know with BID before breakfast and supper, you basically have loss of exposure over the noon meal and overnight period, whereas with LAR you have consistent exposure over 24 hours all be it at a less, a lesser concentration than the peak concentration that you would have with the BID preparation.

Jim Birchenough - Lehman Brothers

Okay. And just so I understand the next steps once you've finalized commercial manufacturing in the second half of '08. Does that finalization of commercial manufacturing involve a bridging study or what do you think you need to do to bridge between the intermediate scale you've got right now and a final commercial scale?

Alain Baron

So we've previously indicated that the current study had two different scale manufacturing products that was included and as you know the current study has an extension and during which we intend to utilize the final scale commercial product to expose patients. And therefore within that study we will have the kinds of data that would reassure the agency that in fact that at this larger scale we are achieving the same kind of exposure and safety and efficacy that we had with the lesser scale.

Jim Birchenough - Lehman Brothers

Okay. Thanks, that's very helpful.

Operator

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

Jim Reddoch - FBR

Hi thanks. Yeah a couple of questions on the quarter so you mentioned that there are a couple of reasons why the numbers didn't match up with what we would have expected maybe from the audit. With respect to inventory you said that wholesale de-stocked, but can you tell us what the dollar amount was and also did you this at the retail level and with respect to discounts. How is discounting down again, is it incentive based and was it done in previous quarters but we just didn't noticed it? Thanks.

Daniel Bradbury

Hi Jim, yes Dan here. Thanks for your questions. We'd just say in terms of what I commented was there was a reduction in wholesale inventory days on hand, and just if I had to quantify that that's in the area of a couple of days of inventory. In terms, your question with regards to retail it's very difficult to say exactly what the impact was in terms of retail. We don't have much visibility into retail holding. But just to say that, what we are aware of on the wholesale side is that the total number of pens that were held in inventory, actually declined quarter-on-quarter and that's why I'll made my comment with regards to the reduction of number of days on hand.

Now, with regards to discounting, discounting is cumulative effect. It actually -- we negotiate contracts over the course of the year. So, I think what we've seen in this case, because we have seen prescription growth, you've seen a greater impact of discounting based on contract that we negotiated over the last three or four quarters, not just over the last quarter. However, also in the last quarter we have entered into a number of recent agreement which have also had an impact, but we believe it actually it give us very significant increase in access, importantly in the Medicare Part D as well as in the Medicaid area.

Jim Reddoch - FBR

Okay. In a day is somewhere between $2 million and $3 million?

Daniel Bradbury

Yes. So, you should I think of it, Jim on it, as a lower to mid single-digit million number in terms of wholesale reduction quarter-over-quarter.

Jim Reddoch - FBR

Okay. And on the -- it sounds like thresholds or math with respect to the contracts in terms of discounts, is there -- are you expecting another set of thresholds to be hit in the second half of '07? Thanks.

Daniel Bradbury

That's a great question, thanks for asking. I think, you are right in terms of us reaching thresholds in terms maximum discounts that would be given, at this point, I did mention that we have now 85% of patients who are now having access to -- through managed care. Therefore the number of additional new lives that could be have access is decreasing. So we don't expect to see any major increases in discounts over and above what we have seen, there will be some, but it won't be any major ones. I think what we’ve got in the case of this quarter is an exaggerated discordant in terms the script wrote that we saw versus the revenue growth because we seeing both in affect on inventory and also the effect on discounting.

Jim Reddoch - FBR

Okay. Fair enough. Thanks Dan.

Daniel Bradbury

Thank you.

Operator

Your next question comes from the line of Meg Malloy with Goldman Sachs. Please proceed.

Meg Malloy - Goldman Sachs

Thanks very much. Two quick questions. One is your inventory on your balance sheet was up quarter-to-quarter about 36%, It looks like how was that attracting in terms of your targets with respect to sales growth or a prescription growth. And I guess, I will come back to second question, thanks.

Daniel Bradbury

Thanks Meg, I will hand that over to Mark to answer that.

Mark Foletta

Yeah, thanks Meg, how are you?

Meg Malloy - Goldman Sachs

Good, how are you doing?

Mark Foletta

Good, yeah, it's primarily in the work-in-process area and the finished good area. So you’ve certainly seen a recovery from us -- from the supply constraint two quarters ago, three quarters ago I should say, and in combination with that a preparation in the SYMLIN side on a smaller scale for the launch of the pen product later in the year. So, certainly we are preparing and planning for success there, but I would say that from a BYETTA perspective which obviously is a bigger product. It is getting much closer to the safety stock levels that we are very happy to be to, frankly at this point, and so very good about that as we move forward.

Meg Malloy - Goldman Sachs

Great. Thanks very much. And if I may just follow-up on the sampling activity, and it will be 5 microgram, the 5 prescriptions look like they have sort of stabilize, can you talk about where you are in terms of your optimization process, and do you think now that you are at a level where you are facilitating growth or do you think that there are still some chances, some portion of patients are getting sampled rather than being come and paying customers?

Daniel Bradbury

We don’t think, its good observation to see the 5 microgram actually returning to growth, I'd say that we are continuing to look at the 5 microgram sample level subject to market demand. And I think it's fair to say that we are now into the point of fine tuning as opposed to making any gross adjustments in sampling, and, therefore whilst there may be changes, I don't expect them to make a major impact going forward.

Meg Malloy - Goldman Sachs

Okay. Thanks, very much.

Operator

Your next question comes from line of Steve Harr with Morgan Stanley. Please proceed, sir.

Steve Harr - Morgan Stanley

Hi. I got a couple of questions. First of with the issues surrounding Avandia, have you once seen any changes in your commercial demand, and then two has it in any way impacted the way you’re thinking about what you need to provide for regulators going for buy an LAR?

Daniel Bradbury

Hi, Steve, yes, perfect question. Just to say, well, first in terms of the impact of the Avandia controversy, I don’t believe that we've seen any significant impact in demand on BYETTA as a result of that at this point in time. I think that we will, longer term, it will have an impact because as I mentioned in my discussion earlier the focus on cardiovascular benefit within the diabetes community is very heightened at the moment. And clearly with the longer-term exposure data that we have with BYETTA, that's actually placed to our hand and that we have seen very significant improvements in cardiovascular markets.

The second part of your question, I think for all pharmaceutical companies at the moment it's very, very important to be very clear where you stand with regards to your knowledge in terms of drug safety. And in data, the scrutiny clearly is increasing on all companies across all therapeutic areas. And in that regard, we, of course, are remaining as we always do very diligent with regards to our tracking of any adverse events that may occur in patients taking our products.

At this point, I would say that we are not aware of any increased concerns within the FDA that we feel not already disclosed; however, just to say that because always we will continue to monitor the situation in a very diligent manner.

Steve Harr - Morgan Stanley

What's your European regulatory strategy for LAR?

Daniel Bradbury

For LAR, well clearly be as you know under our collaboration, the responsibility for submission of the exenatide LAR would be the responsibility of our partner Eli Lilly and Company. And at this time, they have not announced what their strategy is going be.

Steve Harr - Morgan Stanley

Okay. And then the last question I have just around the leptin payment to Amylin, can you disclose what that was for?

Daniel Bradbury

The payment you mean to Amgen, yes.

Steve Harr - Morgan Stanley

I am sorry, Amgen.

Daniel Bradbury

So the payment which related to technology transfer aspect of our acquisition of the leptin program from Amgen related to manufacturing and we completed that technology transfer during this quarter and we now have the ability within Amylin alone to manufacture leptin ourselves and have completed that technology transfer process and it was a predefined if you like development milestone.

Steve Harr - Morgan Stanley

Great, thank you.

Daniel Bradbury

Thank you.

Operator

Your next question comes from the line of Thomas Wie with Piper Jaffray. Please proceed.

Thomas Wie - Piper Jaffray

Hi, thanks very much. Just a question back on the actual quarter numbers. I take it from your comments, should we assume that the 7% growth in prescription demand for BYETTA on a quarter-over-quarter basis that you think that that was reflective as the underlying demand for the drug?

Daniel Bradbury

Well, clearly, I think it's fair to say we do think that because not only did we see the 7% increase overall but of course we saw double digit in that. It was 10% increase in the 10 mcg pen and a lower level of growth in the 5 mcg pen. So, yeah, absolutely I believe that that does represent increase demand overall for the product.

Thomas Wie - Piper Jaffray

And the inventory level with a couple of day's differences, is that what you would consider to be normal levels now and have you seen anything that's happened in the early part of the third quarter as far as activity at the wholesale level?

Daniel Bradbury

I think Thomas going back actually the first question that you had about growth and market demand. I think one would think we are seeing is actually increased predictability in growth and that's what led to a slight reduction in our days on hand in inventory. You know to make a comment that is what we have expected to be, I would say yes within a range. And there are always going to be fluctuation and we have seen this before actually quarter-on-quarter and other companies of course do say this as well. But we'd say that we are there or there about from an inventory standpoint.

Mark Foletta

At the lower end of that range.

Daniel Bradbury

Yes, probably at this point at the lower end of the range. Thanks Mark, yeah.

Thomas Wie - Piper Jaffray

And then just lastly on, I was a little bit confused on the comments about the government payers, is part of the discounting there is to get better traction with patients you have government payers. Wouldn't we see a further effect of this discounting in subsequent quarters if more of those patients come onto therapy?

Daniel Bradbury

You would of course, but you would also see an increase in prescriptions overall. So I guess what I was commenting there was the difference from a percentage standpoint, I suppose to an absolute standpoint. And so as you see growth in total volume, the data that would expect from a percentage standpoint, I don't think would change or not change significantly.

Mark Foletta

May be I can provide more clarity, Thomas. It's Mark here. I think when you think of the discounting, the commercial contracting is clearly the more significant factor when you look at the mix of our business across the various payers. So certainly the Medicaid is important and we'll see growth there. But when you look at the mix of patients, we believe it's more dominated by the commercial side.

Thomas Wie - Piper Jaffray

Thank you.

Operator

Your next question comes from the line of Yaron Werber with Citigroup. Please proceed.

Yaron Werber - Citigroup

Hi, good afternoon. Thanks for taking my question. Dan, I wanted to just follow-up on Jim's earlier question on in terms of LAR, in terms of the manufacturing timeline. So what exactly do you mean by you have your commercial manufacturing class has scaled up by the end of next year. Does that mean that at that point you have stability batches on the shelf order or do you kind of accruing time in the shelf or is the plan to evaluate at that point and at that point have the stability batches afterwards or just walk us through maybe a little bit of the understanding what else you have to do once that done or should we assume that, at that points it by the second half of next year you are ready to file if you have the data or do you have more work to do on the manufacturing side?

Daniel Bradbury

Yes. Thanks for asking the question Yaron good to hear from you. Yes what we mean by we having the commercial process completed in the second half of the year is that what we are really referring to is that having the manufacturing facility completed and having run batches now having completed the scale up work that would be necessary to finalize the process by which we would make product at commercial scale under GMP conditions. So that's really what we mean by that. Additional work will be necessary post submission, which would be the running of our validation batches and those would be run during the review time. So once we have completed the commercial process we will have all the necessary data ready to compile a file and then submit an application. The subject to, completing of stability studies being completed to a lesser time necessary for the submission itself.

Yaron Werber - Citigroup

So you can essentially file if I'm saying it correctly without having started the stability batches?

Daniel Bradbury

No. We will need to do stability, but we of course we will be doing stability in this year and as well as at the intermediate scale and then of course we'll be doing stability with commercial manufacturing process as well during 2008. So we can use material that we are doing, we are running batches in 2008 at commercial scale to complete our commercial to be submitted in our application.

Yaron Werber - Citigroup

Okay, that's useful. So the --

Daniel Bradbury

I guess where your going is. Once you complete the process you then have to run batches and then do stability is that where you are going?

Yaron Werber - Citigroup

Yeah that's what I am trying to figure out. What if you've completed by end of that point then what's the gaining factor for you to file and what else you have to do during the process?

Daniel Bradbury

Yeah, the most important thing at that point would be the whole compilation of the file itself. So getting I mean, we will be developing a lot of data, which includes finalization of the analytical methods. The clinical data of course will have completed earlier as well as further work in terms of characterization of stability data, which we will have been running during 2008. So at that point it's mainly a technical issue with regards to the total putting together the whole file.

Yaron Werber - Citigroup

Okay, and can you also, I don’t know for the extent if you can share with us what's the powering of the current Phase III study, both in terms of non-inferiority and also for superiority and what are you looking for in terms of margin?

Alain Baron

Yes, so hi Yaron. This is Alain Baron, so we are looking, so it' s a non-inferiority study and the margins this is for the confidence intervals as 0.4 basis points of a HbA1c. So essentially the confidence intervals need to be less than 0.4 difference, okay. So when you do that you actually are powering in such a way that the end that you are studying is actually greater than you would need for superiority, because obviously if you look at the profile of LAR efficacy versus BID it's around 2% versus 1%. So essentially that delta is much greater so in fact this non-inferiority study is overpowered to the tech superiority and in fact we actually fully expect to the tech superiority.

Yaron Werber - Citigroup

Okay and can you share with us what the powering is and also the difference that you talk about --?

Alain Baron

I just told you everything about the power and the study involves 150 patients on BID and 150 patients on LAR. It's a non-inferiority study. The margins being 0.4%, and the level of power of is 90% power. I am sorry, is that what you are asking for.

Yaron Werber - Citigroup

Yeah thank you. And what about in terms of weight loss can you share with us the band down?

Alain Baron

So the primary outcome of the study is HbA1c, it is not powered for differences in weight loss.

Yaron Werber - Citigroup

Okay, great thank you Alain I want to appreciate.

Alain Baron

Yeah, you are welcome.

Operator

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

Mark Schoenebaum - Bear Stearns

Okay, hey thanks a lot for taking my question. I appreciate it. I had just one LAR question if you don't mind is in that business. Question on the LAR, in response to your (inaudible) full expected tax purity, how can you be so confident based on what is obviously a fairly small Phase II experience that really I'll just be interested in where the early confidence comes from, because I would love to share that then I had a one and half business question?

Alain Baron

Sir, thanks Mark I look forward to answering your questions. So if you think about BYETTA BID, its BID not because we thought BID was best but that's what we thought would be commercial viable. So if you look at the exposure that people have well on BID if they experience over breakfast and into the midmorning coverage with concentrations of drug that are relevant for glucose lowering. So we are talking about may be five hours, six hours at the most of relevant drug concentrations that would cause Beta cells to respond to glucose in a glucose dependant fashion, repeat that at suppers. So you have essentially, may be, 12 hours of relevant drug concentrations.

Now let’s move on to LAR, you now have 24 hours of relevant drug concentrations. So now you have glucose control over the mid portion of the day, which was uncovered by BID and also overnight. So this translates in two things, if you look at the profile of glucose control with LAR versus BID we saw two remarkable things. One is the fasting plasma glucose was reduced by nearly 15 milligram per deciliter with LAR whereas with BID it war roughly 10 milligram per deciliter; depends on whether you compare to baseline or to placebo.

So we had a very modest effect with BID on fasting for overnight blood sugar. So with LAR we had a very robust overnight glucose control reflected in a 15 milligram per deciliter, decrement in the morning before breakfast.

Moreover, if you look at the postprandial glucose levels that the dose of LAR that we were currently using in our Phase III program, it was very good glucose control, normally at breakfast and suppers which you would expect with BID, but also at noon. So we get everything that BID did, plus control over noon and control overnight. And if you look at the expected results that one would see in HbA1c with 15 milligrams per deciliter reduction of fasting blood sugar or overnight blood sugar. It is clearly in the range of 0.8 to 1.02 HbA1c points.

So the confidence level is based on the data, and then if you look at the variability in the response to LAR even in those 15 patients, it was remarkably low. In other words, and that was really reflected in the fact that 86% of the patients achieved seven percent or below over 15 weeks I remind you that the study state concentrations a drug were only achieved after five weeks. So there are a host of reasons to be quite confident, that in fact the profile that we saw in phase II will be maintained in phase III, and if that’s the case then superiority is a given.

Yaron Werber - Citigroup

If you hit ten points of A12 reduction from baseline are you aware any other drug does that preference one?

Alain Baron

No I am unaware of that, in fact I would further add to that saying that no other drug in the history of drug development has done that with weight loss and with reduce risk of hypoglycemia

Yaron Werber - Citigroup

Okay. And then I had a may be a question for Dan and Mark, if you don’t mind, and then I will hop back in the queue. I am just struggling with, and I realized LAR is most really the important thing to share, but I am actually struggling with your guidance of $800 million in that total revenue of the share, Mark. I mean it looks to me, I could be doing this wrong, because I don’t really how to Excel very well, but it looks to me you would have to grow reported sales around 13% sequentially in both third and the fourth quarter in order to hit the lower end of your guidance. If you go the high end of your guidance for collaborative revenues and just make some basic assumptions around SYMLIN. So you are suggesting that reported sales, sequential growth is going to almost double from what you claimed demand growth was this quarter. Can you help me get comfortable with that?

Mark Foletta

Yeah, well Mark I haven’t run the numbers like you just described, but I think if you look at the prescription growth that we have particularly in the ten microgram pen, which is now increasing to 71%, 72% of the brand at been 10% and the five microgram pen which was negative in Q1 restored during the quarter to a growth of about 2% in the quarter, and obviously our belief and hope is that with the various promotional tactics we’ve put in place sampling, reimbursement, sales force reach and frequency with messaging all the things that, Dan, I guess, I should also add medical education. All the things that Dan talked about and all those things should continue the trend that we believe we are seeing in the data literally, that clearly you need to see.

So the key messages is you need to see accelerated growth in the second half, but we think, within the second quarter all the things that we are seeing, starting to happen, the other staff that Dan drew out was the seven consecutive weeks actually in the quarter with market share growth in the product focusing certainly on the damage in the script as well, so certainly focusing on the pre-insulin patients, and there are a lot of them, and certainly those are the things that we need to continue to execute on, but it's going to take execution and I just think the message should be that the organization is keenly focused on that and will be throughout the remainder of the year.

Yaron Werber - Citigroup

Okay, great. And then just quickly in a hop off, can you give us the option expenses embedded in R&D and G&A in this quarter, and then I’ll hop off. Thanks a lot?

Mark Foletta

Absolutely. So, within the quarter we recorded option expense of $15.7 million, $9.5 million that was in SG&A line, and $6.2 million was in the R&D line.

Yaron Werber - Citigroup

Okay. Thanks a lot. I appreciate it.

Mark Foletta

Sure.

Operator

Your next question comes from the line of William Ho with Banc of America. Please proceed.

William Ho - Banc of America

Hi, there. Thanks for taking my question. I have a few questions for you. First of all, with respect to LAR and your comments about I guess the longer exposure to the dose over 24 hours instead of over 12 hours. What's the potential that that exposure over 24 hours could potentially result in either adverse events or higher rates of nausea that would result in dropout?

Daniel Bradbury

Bill, thanks for your question. So let me just first address the nausea because that's the easiest one to address. The nausea that we've seen in the Phase II trial, again that'll be in this very small sample size, is actually less than what we saw with the BID program and that would have been expected and we would expect the same in this Phase III trial as well.

And the reason for that is that the nausea is related to the peak concentrations of the drug, because the BID administration results in peak concentrations that are higher than the current dose of LAR that we are utilizing. We would expect actually nausea to be less with the LAR formulation than with the BID formulation.

So, the LAR formulation if you will is not merely a convenience of once a week. It's really a different product profile in the sense of having a completely different pharmacokinetic. And it's not unusual in drug delivery that one can actually achieve better efficacy, less side effects with this kind of flat profile as oppose to an up and down profile like in BID.

With respect to safety occurring with repeat exposure only is the clinical data can answer that. We cannot at this point speculate about that any further.

William Ho - Banc of America

Okay. And I know Mark asked the question, but I'm still struggling as well to answer the question as to. I know your scripts are going up, but your sales figures aren't going up because of your discounting or sampling. So, how do you convert those patients, or how do you get them to start paying for it, paying the full price?

Daniel Bradbury

Yeah, I would say well I think go back to comments that I made earlier in the Q&A session here about the fact that I believe in the second quarter there was really an exaggerated discordance between the growth and prescriptions, and the growth and revenue. And remember it wasn't just down to commercial discounting, but it was also due to reduction in days on hand with regards to inventory which as Mark commented later, earlier I should say that we've seen this before and we believe that the inventory at this point is at the lower level. But it would be held that going forward.

And so I think the one thing while it's true that we do need to continue to focus on continuing the acceleration and growth in prescriptions, we also will I think benefit from the efforts that we've been making over the last two quarters with regards to the range of marketing efforts on BYETTA. I would also reiterate the fact towards the end of the year we will be launching the SYMLIN pen which will be also an important component with regards to our revenue reporting this year.

William Ho - Banc of America

Great. And one final question, I know there is still lot of concerns about a bridging study with LAR. Do you know any discussions with Alkermes when they have used their technologies in the past, have they been required to run such studies?

Daniel Bradbury

It's a great question. Actually in the previous programs, they didn't run such studies. What they did do is they provided and in vitro and in vivo comparative data. But they were able to demonstrate the association between in vivo effects and in vitro studies that they conducted and we are of course are also conducting work of a similar nature, as part of the LAR program.

William Ho - Banc of America

Perfect. Thank you.

Operator

Your next question is the final question and it comes from the line of Ian Somaiya with Thomas Weisel Partners. Please proceed.

Ian Somaiya - Thomas Weisel Partners

Thanks for taking my question. Two of them, one on the LAR trial design. Alain, are the baseline characteristics going to be the same as the Phase II, or any notable changes in the type of patients you are enrolling in the Phase III trial?

Alain Baron

Yeah. Actually, Ian, just to mention that, so in the Phase II study the patients were either on metformin or drug naïve with regards to diabetes therapy. In the ongoing study, patients are on any oral therapy or combination, so they either on metformin, sulfonylurea or thiazolidinediones, or the combination of two of those agents or a drug naïve. So, there is some difference. We would expect however that in terms of the entry A1C that it would be very similar to what we saw in the Phase II program. It's remarkably consistent, is actually when you look across studies, unless there is some kind of event that is undertaken at the beginning of the study to change the patients profile in terms of taking patients off medication or something like that. It's remarkably consistent what type II patients in the United States turn up in clinical studies.

Ian Somaiya - Thomas Weisel Partners

So, what would you expect to be the baseline HbA1c and fasting glucose?

Alain Baron

Between 8 and 8.3, that's pretty much these days, Ian. If you look at studies Alkermes, it's pretty much in that ballpark range.

Ian Somaiya - Thomas Weisel Partners

Right, and just a last question on the manufacturing process and the timelines there. Just to be absolutely clear when do you expect to be able to file for approval of that plant?

Alain Baron

Well, Ian, actually we haven't given any guidance with regards to filing at this point. So, just to say the guidance that we have given is that we can expect to complete the commercial manufacturing process in the second half of 2008.

Ian Somaiya - Thomas Weisel Partners

Okay. Thank you very much.

Daniel Bradbury

Thanks Ian. Well, that was the final question maybe I'd just like to conclude with a few final remarks and just say thanks for everybody's questions today. This quarter was a remarkable quarter in terms of the consistency of execution here at Amylin across the organization. The sustained growth and adoption of SYMLIN and BYETTA and we remain confident in that in terms of the opportunity to future growth this year.

I think, it's fair to say that our most important development program exenatide LAR, I would like to emphasize remains on track. And we are pleased with the significant progress that we have made in our Ohio manufacturing facility. Second half of the year is also going to be punctuated with some very important pipeline program data and we have several key milestones to look forward to in the second half of the year.

Thank you everybody for your time today and we continue to appreciate as always the interest of the investment community in the activities here at Amylin. Thank you.

Operator

Ladies and gentlemen thank you for your participation in today's conference. This concludes the presentation, you may now disconnect.

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

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

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

Source: Amylin Pharmaceuticals Q2 2007 Earnings Call Transcript
This Transcript
All Transcripts