Savient Pharmaceuticals Q3 2007 Earnings Call Transcript

Savient Pharmaceuticals, Inc. (SVNT) Q3 2007 Earnings Call October 31, 2007 10:00 AM ET

Executives

Brian Hayden - Chief Financial Officer

Philip Yachmetz - Chief Business Officer

Paul Hamelin - Head of Commercial Operations

Dr. Zeb Horowitz - Chief Medical Officer

Dr. Robert Lamm - Head of Quality & Regulatory Affairs

Analysts

Leland Gershell - Cowen & Company

Katherine Xu - Credit Suisse

Kimberly Lee - Pacific Growth Equities

Stephen Dunn - Dawson James

Leah Hartman - CRT

Michelle Ha - Ferris, Baker Watts

Carol Werther - Summer Street Research

Peter McDonald - Wall Street Access

Leland Gershell - Cowen & Company

Kevin Cheng - Cheng Capitals

Operator

Good morning ladies and gentleman. My name is Tina and Iwill be your conference operator today. At this time, I would like to welcomeeveryone to the Savient Pharmaceuticals 2007 Third Quarter Financial ResultsConference Call. All lines have been placed on mute to prevent any backgroundnoise. After the speakers’ remarks, there will be a question-and-answer session(Operator Instructions).

I'll now turn the call over to Brian Hayden, Chief FinancialOfficer. Please go ahead, sir.

Brian Hayden

Thank you, Tina. Good morning and thank you forparticipating in today’s third quarter conference call. We issued a pressrelease late yesterday providing results for the third quarter and for the ninemonths ended September 30th, 2007, describing the company’s financial resultsand highlights. This press release is available on our website atwww.savient.com.

Before we begin, I would like to read our Safe Harborstatement. Comments made by management during this conference call will containforward-looking statements that involve risks and uncertainties regarding theoperations and future results of Savient Pharmaceuticals.

We encourage you to review the company’s past and futurefilings with the Securities and Exchange Commission including withoutlimitation the company’s quarterly report on Form 10-Q and our annual report onForm 10-K, which identifies specific factors that may cause actual results orevents to differ materially from those described in the forward-lookingstatements.

Particularly, we need to stress that when we discussinformation regarding the development program for Puricase or the possibilityof a pending regulatory approval for our products in the United States andoutside of the United States, (inaudible) of the overall success of thedevelopment programs and guarantee of approval can be applied as these mattersare subject to a number of risks and uncertainties.

Furthermore, the content of this conference call containstime sensitive information that is accurate only as of the date of the livebroadcast, October 31st, 2007. We undertake no obligation to revise or updateany statements to reflect events or circumstances after the date of thisconference call.

Joining us on the call this morning are other members of oursenior management team including Philip Yachmetz, our Chief Business Officer;Paul Hamelin, our Head of Commercial Operations; Dr. Zeb Horowitz, our ChiefMedical Officer; and Dr. Robert Lamm, our Head of Quality & RegulatoryAffairs.

With that said, I would like to turn the call over toChristopher Clement our President and Chief Executive Officer.

Christopher Clement

Thank you Brian. Good morning and thank you for joining ustoday. As we have now completed the third quarter of the year, I will providean overview of the key highlights for this period. Following the keyhighlights, Brian will discuss our third quarter and year-to-date financialresults. I will then finish with an overview of upcoming activities for thefourth quarter before our Q&A session.

On October 16th, we announced completion of the in-lifeportion of our two pivotal Phase III clinical trail for Puricase. These studieswere designed to access the safety and efficacy of Puricase therapy to controlhyperuricemia and its clinical consequences in patients for whom conventionaltherapy is contra indicated or has been ineffective.

First, I would like to thank our clinical investigators,patients and contract research organization for their participation anddedication to this important study. In addition, I’d like to thank all theemployees of Savient for their efforts in achieving this milestone.

Now I would like to provide some further details around thelevel of patient participation in the Phase III program and the open labelextension study. Please keep in mind that while the patient portion of thestudy has been completed, we are still behind the treatment of science.

So for the Phase III study, a total of 225 patients wererandomized in the two Phase III clinical trials. 212 patients received at leastone dose of study drug, Puricase or placebo, which we believe will define theintent-to-treat population.

Across the three arms of the trail, 165 patients completedall Phase III visits, which approximates our overall power assumptions for theprimary endpoint. Proxy studies have not yet been unblinded, we cannot commenton the treatment assignment of completed patients.

The patients who completed participation in the Phase IIIstudies they were invited to enroll in a 12-month open label expansion study,where they could elect to receive either 8 milligrams of Puricase once everytwo weeks, 8 milligrams of Puricase once every four weeks or to be followed forobservations only with no further treatment with Puricase.

As of last week, there were 143 patients enrolled into theopen label expansion program with an additional 10 patient pending enrollment.This represents a 93% participation rate in the open label expansion program.12 patients are not participating in the open label expansion study. The vastmajority of these patients wanted to participate, but were not eligible for avariety of reasons.

It’s important to know that 51 patients have participated inthe open label expansion or greater than six months, meaning some of thesepatients have been on Puricase treatment for at least a year. We have alreadycut data from the open label expansion program for safety, efficacy andlaboratory assessments of immunoreactivity for submission in the BLA and wewill do so again later for inclusion in the 120-day update to FDA postsubmission.

We are pleased by the level of patient participation so farand we plan to amend the protocol to allow for a second 12-month of treatmentor observation. We encourage patients to remain in the study for observation ifthey elect not to repeat Puricase so that we may begin to observe how patientsrespond when Puricase treatment is withdrawn.

The completion of the Phase III clinical trials is obviouslya critical milestone for Savient. As previously stated, we remain on track torelease top-line clinical results by year-end. It must be fully understood thatwe will be able to provide only Savient’s view of the preliminary top-lineclinical Phase III results.

This may not be identical to have the FDA or otherregulatory parties ultimately view the study results, as there is always anelement of judgment in the evaluation of study data including quantitativestudy data.

When we report top-line clinical results, we plan to providean overall review of Phase III study metrics, such as randomization anddiscontinue rate by treatment assignment as well as details on efficacy andsafety. We believe we will be able to report on primary efficacy endpoint bytreatment arm and whether or not the pre-specified level of significance wasachieved in each study, the secondary efficacy endpoint by treatment arm andwhether these obtain the pre-specified level of significance in each study andin the pool's analysis.

Do not anticipate that the analysis of SF-36 and the HAQ-DI,assessing quality-of-life will be completed at the time top-line clinicalefficacy results are released. Our perspective on safety will be discussed aspart of the top-line clinical results including any important findings such asdeaths and serious adverse events or important clinical laboratory findings.

However, we believe that the analysis of the complex andextensive immunoassays were respecified in our FTA will not be ready to reportat the same time.

We do expect that we will be able to report by treatmentassignments for each study, in terms of infusion related adverse events, safetyrelated patient discontinuation, hypersensitivity related adverse effects andbeyond analyzing our Phase III clinical results, parallel work has beenunderway throughout the year with respect to the CMC activity or ChemistryManufacturing and Control, which will be a significant component of our plannedBLA filings.

The CMC section of the BLA will provide FDA withdocumentation on the security, prosperity and stability of the commercialsupply security. Significant progress has been made in all areas of thistechnical section although considerable characterization analytical work isstill underway.

Prior to year-end we've planned to make a request to the FDAfor a pre BLA meeting to discuss specifics of the CMC section and otherrelevant components of the planned BLA submission. The FDA may have comments,suggestions or additional requests coming out of that meeting, which couldimpact the filings date. Our plan is to file with BLA has been as practicableafter the pre BLA meeting.

In parallel, we continue to make significant progress in themanufacturing and supply chain areas as we finalize the completion of thevalidation activities related to the manufacturing and filling finishedprocesses of our bulk drug for API.

As you know, we have successfully completed the validationof Puricase manufacturing processes at our primary supplier for our bulk drugearlier this year. I’m now pleased to announced that we have entered intoagreement with Diosynth Biotechnology to serve as our secondary manufacturingstores for bulk drug for worldwide distribution.

Diosynth have extensive experience in the manufacturing ofclinical and commercial biopharmaceutical products and as a division ofOrganon, which supplies contract-manufacturing services for the global Biotechnologyindustry. Company has an eight-year heritage in biologics manufacturing and isa global leader in technology-driven process development and cGMP manufacturingof recombinant proteins, monoclonal antibodies and peptides.

Technology transfer and process development activities inPuricase are well underway at Diosynth North Carolina facility and weanticipate that supply from this facility will be available by mid-2010. Alsoin support of key manufacturing activities, we announced earlier this week theaddition of Dr. Peter Clarke as Vice President of Manufacturing.

Peter has over 25 years of biotechnology experience, workingin both manufacturing and research and join Savient from Introgen Therapeutics,Inc. where he served as Vice President Production and Technical Processes.Peter will work closely with our quality and regulatory affairs and clinicalteam in preparing for the BLA filings.

His considerable experience with manufacturing and technicalprocesses make him a strong addition to our ongoing effort. We would like totake this opportunity to welcome Peter to our team.

So in summary, we are currently on track with our clinicaland CMC activity. We will be entering into a critical phase of analyzing dataand completing all outstanding activities that will allow us to assemble of theBLA package.

The pre-BLA meeting with the FDA will provide us withadditional insight and guidance as we work towards the critical goal of filingand quality submission. Additionally, we announce that pegloticase became theofficial generic name for Puricase, assigned by the USAN Council replacing thepreviously used name of PEG-uricase.

So at this point, let me turn the call over to Brian to takeyou through our financial performance for the third quarter in detail.

Brian Hayden

Thanks, Chris. I am going to focus on the results for thethird quarter of 2007. And then, we’ll briefly touch on some of the highlightsof the first nine months of 2007, which results and explanations are fairlyconsistent with those of the third quarter.

Total revenues for the third quarter were $2.6 million,reduction of $13.3 million from the same period in 2006. As we reported in ourtwo prior quarterly earnings conference calls in late 2006 and early 2007, weexperienced generic competition for our branded product, Oxandrin.

We previously indicated that we expected our revenues todecline significantly in 2007 from 2006 levels due to the generic competition.The third quarter Oxandrin sales were $1.3 million, down $14.7 million fromthird quarter of 2006. The rate of decline in revenue is less than we haveforecasted but still is been significant in relation to the 2006 level.

We did take steps to try to retain a portion of the marketby launching our authorized generic called oxandrolone for our marketingpartner, Watson Pharmaceuticals. The revenues from the sale of oxandrolone inthe third quarter were $1.2 million.

Cost of goods sold for the quarter was zero due to aone-time adjustment relating to a previously reserved purchase commitmentliability for raw material inventory, which is now determined to be usefulbased on demand rates. Excluding this one-time adjustment our cost of goodssold would have been 12% of sales as compared to 9% in 2006. This is due to lowmargins on revenues from our Oxandrin products.

As anticipated, we continue to increase our research anddevelopment expenses at the third quarter 2007. This was due to the clinicaland manufacturing activities for Puricase along with a greater than expectedpatient enrolment in the open label extension study.

R&D expenses were $12.1 million in the third quarter of2007 up from $5.5 million in third quarter of 2006. Additionally, R&Dexpenses increased quarter-over-quarter by $941,000. We expect R&D expensesto continue to increase as our efforts turn to the analysis of the clinicaldata completion of the CMC activities in preparation for the filing of our BLAin 2008. Additionally, we continue to support the open label extension study.

Selling, general and administrative expenses were $6.8million, a reduction of $682,000 as compared to third quarter of 2006. Thelower SG&A expenses were the result of planned reductions of promotionsales and marketing activities for Oxandrin including the elimination of oursales force at the beginning of 2007, this is a generic competition as well asa reduction in legal expenses and financial compliance consulting activities in2007.

Some of these reductions in expenses were partially offsetby an increase in market research and planning activities related to Puricaseas we planned for success from our clinical trials. For 2007,quarter-over-quarter SG&A expenses declined $326,000.

The net loss from continuing operations in the third quarterwas $14.6 million or $0.28 per basic and diluted share on 52,603,000 sharescompared with income from continuing operations in the third quarter of 2006 of$3.4 million or $0.06 per basic or $0.05 for diluted share and approximately 61million shares.

That loss was anticipated due to the impact of genericcompetition on our revenue. But more importantly, it is primary due to theimpact of the significant development work on Puricase as we have completed ourPhase III clinical trial.

Let me now touch on some of the year-to-date highlights,which explanations are fairly consistent with the activities to the thirdquarter. Revenues were $12.1 million down $27.2 million in the 2006 due to thegeneric competition for Oxandrin as previously discussed.

R&D expenses were $36.2 million higher by $23.3 milliondue to the significant clinical manufacturing work on Puricase in 2007.SG&A expenses were $21.3 million lower by $5.5 million due to the reductionin Oxandrin marketing cost and the elimination of the Oxandrin sales force anda reduction in financial consulting activity.

Year-to-date net loss was $32 million or $0.61 per basic anddiluted share on 52,342,000 shares versus income from continuing operations of2006 up $7.9 million. You’ll also recall in the third quarter of 2006, we soldour UK subsidiary, which yielded $61.2 million of net income after taxes anddiscontinued operations.

Our balance sheet remained very strong with cash andinvestments of a $153.3 million and no debt. Cash and investments were down$10.4 million for the quarter and lower by $26.1 million from yearend 2006balances.

We continue to believe that we have adequate cash balancesfor at least the next 24 months, which would take us through commercializationof Puricase based on our current estimates. Cash burn in the current quarterwas primarily due to our loss from operating activities that resulted from oursignificant development work on Puricase. We will continue to use our cashreserves in 2007 as we begin analyzing results for our clinical trials and beginwork on the BLA plan in 2008.

You’ll notice there is a $4.6 million income tax receivableon our balance sheet as of September 30th, 2007. In September, we filed our2006 federal income tax return, in which we were able to utilize research taxcredits identified from a special study conducted in 2007.

As a result, we are able to utilize the research tax creditsagainst our 2006 tax liability, resulting in an earlier-than-planned tax refundof $4.6 million, which was received in October of this year.

Going forward, we will utilize any net operating lossesgenerated in 2007 against our 2006 income tax liability when we file our 2007federal income tax returns in order to recover an additional portion ofpreviously paid taxes from 2006.

With that, I’ll now turn the call back over to Chris.

Christopher Clement

Thanks, Brian. While much of our focus in resources atpresent are allocated to the successful completion of our BLA submission. Wehave also made considerable progress with our commercial planning activity. Wenow on the end of the year, we will have a presence at two key medicalconferences, two of the premier meetings for physicians and health careprofessionals in the fields of rheumatology and nephrology.

Our presence this year at both the upcoming American Societyof Nephrology meeting and the American College of Rheumatology meeting willfocus on providing educational activities to raise awareness of gout.

Raising awareness and providing education about gout willcontinue to be a primary goal of our commercial group although planningactivities are well underway with there for U.S. launch. We will provide moredefinitive insight on our U.S. commercial plans as we complete on going salesforce, reimbursement, pricing and other market research study.

Our plan still remains to seek a partner and apply the U.S.and we are currently engaged in discussions with a number of potential partnersalthough a final decision will not be made until sometime in 2008. As I statedbefore, there is no need to partner prematurely as we believe the U.S.registrations program would be accessible for the EU and other countries thatare partnered would not be required to participate and manage such studies.

Our goal remains to file in the EU approximately six monthsafter the BLA filing in the U.S. We are going to take the time necessary inseeking and finalizing a partnership to ensure we maximize the value ofsecurity outside the U.S. In summary, we are pleased with our overallaccomplishments to date and look forward to sharing our top line clinicalresults with you before the end of the year.

Now I would like to turn the call over to the operator forquestions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question will come fromthe line of Leland Gershell with Cowen & Company.

Leland Gershell - Cowen & Company

Hi, thanks for taking the question. First question is ontrial dropouts and powering, you had mentioned a 155 patients completed thePhase III versus 225 will enter, that seems to suggest a somewhat higher ratein the 20% or so you had assumed, the trial could tolerate without an impact onpowering, how should we view that dropout rate in and power?

Zeb Horowitz

Hi, good morning. This is Zeb, I think what you need to dois think about dropouts in terms of the ITT or the intent-to-treat population,which was 212 patients.

Leland Gershell - Cowen & Company

Okay.

Zeb Horowitz

Denominator is important. So it is a 165 patients visits inthe ITT population with the denominator of 212, not 225. The patients who didnot get dosed but were randomized, didn’t get dosed for a variety of reasons,they may be administrative of patient’s decides, the study was too burdensomeand through things like that, so I think that the dropout rate is actually aswe said in the light of our expectation.

Leland Gershell - Cowen & Company

Okay. And then one more question before I jump back in thequeue. You had mentioned that some patient -- 12 patients did not likely toparticipate in the open label extension, any particular reasons fornon-eligibility there?

Christopher Clement

Well, I think you have to bear in mind and this will comeout when we report top line results. The baseline characteristics of thispopulation are that they carry a huge amount of visit. We’ve said before thatthree quarters of our patients are hypertensive, a fair number of them havemetabolic syndrome, 25% have Osteoarthritis, about third of them have measurabledegree of renal failures, 19% of approximately of diabetes, et cetera.

And most of those who did not continue into the open labelhad comorbidities, which would have interfered, but it’s continuing withinevery two week visit schedule or every four weeks schedule both the patientsand physicians just try to -- they had a deal with those other (inaudible).

Leland Gershell - Cowen & Company

Okay, great. Thanks for taking the question.

Operator

Your next question will come from the line of Katherine Xuwith Credit Suisse.

Katherine Xu - Credit Suisse

Hi, good morning. Just wondering what was, to the dropoutrate, I mean ITT base is about 22%, so is it sort of within your expectations,it’s that -- is little harder than 20, but it’s okay, you feel comfortableabout that?

Christopher Clement

Yeah, Katherine. And this is again remember that when wetalked about powering assumptions, we talked about it in terms of our expectedminimum effect size, which we did appeal of ‘05 with 80% power. And that said,we based on Phase II data, so we’re very comfortable with the dropout rate asit is.

Now we’re blinded to treatment assignment, so the caveathere of course is, if all the dropouts want treatment arm that would effectpowering much more than saying that they are spread out in line with theseskewed randomization that we had one to two to two.

So, our expectation is that they will be slaved out and notconcentrated with one treatment arm, that said is in line with our expectation,and we’re very pleased about that compared to other clinical trials or evenother clinical trials in general with much higher dropout rates.

Katherine Xu - Credit Suisse

Right. That was sort of my next question on the balancingkind of issue. If you cannot see distinguish between treatment arm dropoutbetween that one drop two, in terms of the dropout, are they kind of balanced?

Christopher Clement

Yeah, they are actually. One trial seem to have a moreseverely ill population than the other in terms of baseline characteristics,number of players before the studying number of gout tophi and that kind ofthing. But basically, yes, the two trials in terms of dropout seem to beheaved.

Katherine Xu - Credit Suisse

Okay. And the major reasons for these dropout?

Christopher Clement

I’m not prepared to discuss that today.

Katherine Xu - Credit Suisse

Okay. And…

Christopher Clement

We will discuss that in time as when we report top-lineresults and we understand what the treatment is like.

Katherine Xu - Credit Suisse

Okay. That’s fair enough. And last time, you actuallycommented and there have been no -- there had been at that time probably threemonths ago, no anaphylactic or anaphylactoid reactions arising from thosestudies. Can you…

Zeb Horowitz

We never said that, we’ve -- I’ve never said that. What Idid say I think, I hope I was clear and I’ll try to be clear now, we considerinfusion reactions or anaphylactoid by and large. We reported an overallinfusion reaction rate around 6.5% of all infusions given.

As with blinded treatment arm, I can’t say how many occurredin the placebo versus in the treatment, but we will discuss that when we dotop-line results and I have said nothing about patient level events, whichwould include anaphylactics or other SAEs and as Chris said, those will bereported when we give top line results.

Katherine Xu - Credit Suisse

Okay. And could you just remind us of the poweringassumptions for a secondary endpoint in particular the tophi and the flareendpoint?

Zeb Horowitz

Sure, sure. I mean basically what we did was we looked atour very scant anecdotal data from Phase II, we looked at the data that JohnSundy has reported, but is FDA supported study will play some indication ofclinical results that is ACR presentation last year. And we essentially poweredthe secondary in line with that, so for tophi we assumed a power of 80% througha P of .05 for a pooled analysis with the 35% responder rate versus 5% in theplacebo group -- now that’s a prospectively planned pooled analysis.

With gout flares, it was a comparison of the 4, 5, and 6total number of flares in each treatment arm versus placebo again 35%difference -- minimum 30 to 35% difference between treatment of placebo inthose months began in an pooled analysis and again for 80% power with P of .05to a tender and swollen joints of similar -- I think it was similar with theseHAQ-DI and the SF-36.

But you got to -- the way to think about it is we havediscussed with the agency, what would be the minimum meaningful goal and thatis if one out of three patients show the benefit the agencies set up will be --that would be (inaudible) would consider that meaningful, because power is somewhatartificial here because we didn’t previously assess tender and swollen jointsand knees and these sort of things, so it's a bit of a stress.

But keep in mind that it’s always a pooled analysis thatthere is no penalty for the multiple task and there is no pre-specified order.So, each one stands on its own at the 0.05 level. Is that what you were lookingfor?

Katherine Xu - Credit Suisse

Yes.

Zeb Horowitz

Okay.

Katherine Xu - Credit Suisse

Great, thank you. That’s very helpful.

Zeb Horowitz

Sure.

Operator

Your next question will come from Kim Lee with PacificGrowth Equities.

Kimberly Lee - Pacific Growth Equities

Great. Thanks for taking the question. Can you review withus what you do not to expect to have in top-line data? Was immunoreactivity oneof the points?

Zeb Horowitz

Sure, Kim. Zeb, again. Yeah, I may have it, I just don’twant to promise it because it’s complicated and it will start an extensiveanalysis. So, immunoreactivity data contains multiple measures when looking atanti-drug product antibody, anti-PEG antibody, anti-Puricase that is theprotein, purine which is subsidizing IGG, IGM.

We are looking at IGE in all patients those have eitherconfusion reaction or any question about sensitivity to the drug. We arelooking at -- we are trying to identify circulating immune complexes through abiomarker, CH50 assay, not a great assay, (inaudible) agency. And well, we havenew immunization assay.

And all of these assays are being run -- still being runnow, that’s part of the reason they don’t have (inaudible) and I just don’tthink I’ll have that analyzed in time to report along with the primary andsecondary efficacy Phase II data.

Similarly, Short Form 36 and HAQ-DI has multiple componentswithin them, each of which has to be analyzed according to pre-specified rulesand I don’t want to whole drop reporting of the top line efficacy and safetydata in order to provide the quality of life results.

The reason for that we consider the quality of life veryinteresting and important, but the agency has required two years data in orderfor that labeling, so it becomes a secondary importance to us, to report thatbecause we know its not -- hardly unlikely to get and believe them even if itsvery favorable, so does that help you with that?

Kimberly Lee - Pacific Growth Equities

Yes. Thank you. And one additional question, can you remindus of how many patients that were randomized had valuable gout flare?

Zeb Horowitz

Yeah, I think it turned out 71% and we -- this is the onlyfeature that we had a stratification for, so we ensured that patients inplacebo in the two treatment arms had appropriate numbers of both size acrossthose street of the results.

Kimberly Lee - Pacific Growth Equities

Great, and you think that’s tying us to powering to theeffect in the secondary end point?

Zeb Horowitz

Well, that’s the big question of course, we estimated whatthe minimum number would be that we needed it turns out that the 70% is similarto what we found at base line in Phase II and in the Phase I and in our growthnon-interventional observational study as a natural history study.

So it turns out this kind of patient population has aproblems on 70% and we believe is the drug effect is to -- at the minimum orbetter we will be able to have that successful and is significant in that wholeanalysis because all depends on the time to effect and the effect size and thatremains to be determined which we know that and we forced that to next month.

Kimberly Lee - Pacific Growth Equities

Great. Thanks a lot.

Operator

Your next question will come from the line of Stephen Dunnwith Dawson James.

Stephen Dunn - Dawson James

Good morning, everyone and congratulations on finishing thetrial.

Zeb Horowitz

Thank you.

Stephen Dunn - Dawson James

Most of my questions have been answered, I just want oneclarification here. The primary endpoint of the 35% improvement, that’s 35% improvementover and above the control arm or 35% improvement absolute?

Zeb Horowitz

Well, let me clarify this. The primary endpoint is onlyabout uric acid not about other critical outcomes, and there it’s quantitativeand purely quantitative. The primary endpoint is a 35% responder rate in eithertreatment on versus placebo, which we give a 5% responder rate to. And aresponder is a patient, which normalizes the uric acid during months three andmonths six.

So for that, we have 80% cover for a (ph) P of .05, but yougot to recognize it is very unlikely that a placebo patient will obtain thatresponder and to become a responder. So there maybe a little bit over coveringin the primary endpoint. The secondary endpoints are those that look at completeresponders, partial responders non-responders (inaudible).

Stephen Dunn - Dawson James

All right. And then I guess not to be the dead horse, but Iguess I would have to here. I guess Chris’s comments, on his prepared commentson the power assumptions, it was seeming to be a little bit more definitive andconfident that you are going to meet statistical significance for the primaryend point, at the 212 patients, and Zeb, your language was is you haveconfidence?

Zeb Horowitz

No, no. Expressing the fact that the drop out rate is inlinewith our expectations. We do not mean to provide guidance as to whether or notwe are hitting the primary endpoint. We will know that when we do the analysis,which is not yet has done because of databases have lots to pursue that(inaudible).

Stephen Dunn - Dawson James

I realized that -- I got more definitive from Chris that youhave enough there to calculate your statistical significance, now with theactual result would be...?

Zeb Horowitz

If the drug work is expected and it shows an effect, we havethe patient numbers to support that. That’s all the statement about drop out isreporting to be in terms of the effort.

Stephen Dunn - Dawson James

Okay. All right, guys. Again, congratulations and I lookforward to December.

Zeb Horowitz

Thanks Steve.

Christopher Clement

Thank you.

Operator

Your next question will come from the line of Leah Hartmanwith CRT.

Leah Hartman - CRT

Good morning. And Zeb, I just wanted to clarify, wasn’tclear when you said that you had powered the secondary endpoint looking at 70or 71% of randomized patient. Is that randomized entreated or just therandomized? Because you've previously mentioned there were certain patients whoare randomized but...?

Zeb Horowitz

Yes, that’s a good point. Well, the top of my head I can’tsay its 71% of the ITT, but I think it is 70%. I think that’s -- I think that’swhat we have, but it was the number that’s fixed in my head to baseline was 71%of randomized patients or I can go back and look at that, but I am prettyconfident its the same for the ITT.

Leah Hartman - CRT

Okay. And then separately you may have covered thispreviously, but I just don’t recall. Are you intending to have data submittedfor upcoming conference presentations and if so, what conferences?

Zeb Horowitz

All I can say is that, we are going to lock the database atthe earliest opportunity, we will analyze the result as quickly as we can and ascompletely as we can to announce top line results as early as we can. And rightnow, we -- our expectation is we will release this before the end of the year.Whether or not it will be available for any conferences, I can’t speculate,because we haven’t finished the database (ph) software

Christopher Clement

Yes, we don’t have any immediate plans. We will have to seewhen we release the top line results and we will go from there.

Leah Hartman - CRT

Okay. So, prospectively you could be telling us aboutpublication when we have our next call regarding that top line data?

Zeb Horowitz

I’m sorry, about, publication?

Leah Hartman - CRT

No, I mean, sorry about, presenting at conferences out in'08 if there were any (inaudible) conferences?

Zeb Horowitz

Yes, yes, I think -

Leah Hartman - CRT

When you know the strength of the top line you’ll have abetter sense?

Zeb Horowitz

We will be able to give some insight on that at that pointof time.

Leah Hartman - CRT

Great. Thank you and good luck this quarter.

Zeb Horowitz

Thank you.

Christopher Clement

Thank you Leah.

Operator

Your next question will come from the line of Michelle Hawith Ferris, Baker Watts.

Michelle Ha - Ferris, Baker Watts

Hi. Good morning. A lot of my questions have been answered,but just one more. How will you test the durability of potential effects? Isthere -- there is a seconds 12-month open label extension trial (inaudible)not?

Zeb Horowitz

Right, Michelle. The Phase III data themselves obviously,will not speak the durability and actually the first 12-months study told youpeople I think are stopping the drug in the first -- although there are plentyof patients who have more time to stop using the drug but, that’s not going tobe cut for the of the BLA in time to talk about durability.

We are implementing a second -- an amendment to extend thestudy for another 12 months, so our retention to try and keep a cohorts goingunder observation right through marketing of the drug and identity early yearto -- of the market that we hope, will tell us something about durability ofeffect. But it will depend on how many patients are going to keep coming backfor visits.

Michelle Ha - Ferris, Baker Watts

I guess that sort of gets me to my second question andthat’s like virtually everyone has elected the continued taking, not continued,but to take Puricase and no one elected to dawn observations, so how will youdeal with that going forward?

Zeb Horowitz

Yes. Well, there were I think three patients selected to goon observation out of the cohorts that went into the open label on a coupleoccasion and switch. We can’t force them and unethically we in the informedconsent we offered them the opportunity to go on drug if they -- if they’vebeen into the study, so that even if that were randomized with the people are,they still have the chance to try the drug. All I can tell you is that ifpatient selects to go on observation, we hope to keep them in the context ofcontrolled trial.

We may not get durability data from this for a long time, wemay have to under -- if this is something that we are interested in and want topursue or some regulators are interested in this and ask us to pursue it, wemay have to design a study where there is a treatment period followed by anobservation period off drug specifically after this data and inform patients ofthat upfront as part of the informed consents that they know there will be a periodwhere they are off drugs, still under observation. We just -- otherwise we'rejust dependant on patients' choosing to stop using the drug, and they may dothis or they may not do this.

Michelle Ha - Ferris, Baker Watts

Great. Thanks a lot.

Operator

Your next question will come from Carol Werther with SummerStreet Research.

Carol Werther - Summer Street Research

Oh, hi. Thank you for taking my question. Could you justtalk a little bit about what’s going to be included in the filing package andhow the label might read and whether or not any patient will be retreated inwhen you are filing?

Zeb Horowitz

Okay. Let me be brief and I'll be addressing only my part ofthe filing packages, all the clinical and top-line treatment of (ph)rheumatology data. We will include data from every patient that we have exposedto drug. We will not have retreatment’s data, because we don’t have a cohort ofpatients who have had a course of treatment to stop therapy with a long drug(inaudible) retreatment.

We will try and have a small cohort of what we callre-exposed patients, that is patients who may have possibly participated ineither the Phase I or Phase IIIb study. So we have a single dose exposure andtotal of three months exposure, who are interested and willing and able, andstill qualify to come back into a six-months treatment study.

We hope to start that up by the end of the year, so we cancut that data at least the first two doses through the agency for a 120-dayssafety update. So, I won’t have a, as I said, a cohort who get treated for atleast six months plus to a year or more and then retreated. That will have tocome in the future. I don’t have any other comments about other parts of theBLA.

Carol Werther - Summer Street Research

What -- at this point in time if you hit the primaryendpoint and let's say two of the secondary endpoint, how do you think thesecondary endpoint will be included in the label, would that be in the clinicaldata section?

Zeb Horowitz

I believe that this would be a duration for the agency to benegotiated. It's unprecedented to have this kind of data from twowell-controlled trials. We do have in the FDA, the specification that thesecondary endpoints all come from a tooled analysis. So how the agency wants toinclude that in the label verbally would be discussed at the end of Phase IImeeting, before obviously, Phase III and the FDA were agreed to.

We talked about it, as the agency talked about it as beingin the description of the clinical trial and the clinical results. So it wouldbe construed as a claim, not an indication, for an indication in these twowell-controlled trials, it shows us same endpoints, but my guess is itpotentially could be a claim which will probably be in the description, butthis is all subject to the FDA consideration of (inaudible). And I wouldn’tspeculate how you’ll exactly -- how it’s going to come out and I just don'tknow.

Carol Werther - Summer Street Research

And could you just describe how many flair’s people had tohave to get into the two trials?

Zeb Horowitz

Yeah. That’s an interesting point that I’ll take advantageof saying that the baseline characteristics population despite will do that hasminimum entry criteria, they are remarkably similar across the Phase I studies,Phase II, Phase III and this natural history study.

We already plan on -- for entry, we are not focused onsymptoms, we're just focused on the failure to normalize uric acid, becausethat is the definition of treatment fill. Today the symptoms we required wereeither three or more flares than the previous 18 months or one or more gouttophi or the presence of gout arthritis in one or more flares.

So, a patient would be eligible if they had a single gout tophus,no gout flares in the previous 18 months, no gout arthritis, but if they metthe eligibility for failure to normalize the uric acid, they would be eligiblefor the drug. It turns out to patients on quite this entity system, but thatwas not required.

Carol Werther - Summer Street Research

Okay. Thank you very much.

Operator

Your next question will come from Peter McDonald with WallStreet Access.

Peter McDonald - Wall Street Access

Thanks a lot. Most of my questions have been answered, but Idid have a question about the extension trial. Has there been a clearpreference for any of the dosing regimens either the average lead sort of oncea month?

Zeb Horowitz

In the open label, what we have said still holds. And rememberthere is still about ten patients has been sort of they obviously haven’t madethat decision yet. It’s about 60/40 roughly, between every four weeks and everytwo weeks.

Peter McDonald - Wall Street Access

Okay. And then, I mean that -- what type of data you arecollecting in that?

Zeb Horowitz

We are attempting to collect virtually all of the efficacydata that we collected in Phase III. So we are photographing patients fortophi, we are looking at flare rates, we are looking at tender and swollenjoints, we are continually collecting the (ph) qualities of license from SF-36and HAQ-DI, and of course we are measuring plasma uric acid and serum uricacid.

Peter McDonald - Wall Street Access

Okay. And then with -- any chance if the FDA would requirethat data to be included in the BLA?

Zeb Horowitz

As Chris mentioned today, we have already cut the data fromthe open label for submission in the BLA whatever data we have and we will cutthe data again probably in the first quarter for inclusion in the 170-daysafety update. That said, the agency can do anything in review, so I can’t saythey wouldn’t require more data, they always can. It’s not part of the -- Iwant to make clear the ultimate label study is not part of the FDA.

We think we are going to have very satisfactory level ofdata and providing data on a fair number of patients for a 12 months exposure,18 months exposure and all that. So my expectation is they will not ask foradditional data that we haven’t provided but one can never be certain aboutthat.

Peter McDonald - Wall Street Access

Thanks a lot.

Operator

Your next question will come from the line of LelandGershell with Cowen and Company.

Leland Gershell - Cowen & Company

Hi. Thanks for taking the follow ups. Just a question onsafety evaluation, since there is not a safety monitoring board in the trails,how is safety evaluated? Are there certain criteria, who make the decisions, isit the investigator versus the company? How should we think about how safety ischaracterized either being an SAE versus (inaudible) and so forth?

Zeb Horowitz

Yes, well, let me start from the end of that question, therules governing the definition of SAE versus AE versus serious adverse events,are not company rules. These are laid out by the FDA and are present inguidelines and we are simply following those rules. So having a DSMB or notmakes no difference what’s goes in SAE and AE or Serious Adverse Events, that’sFDA definition.

The presence or absence of the DSMB or Data SafetyMonitoring Board does not change the evaluation of safety that goes into a BLA.You report on changes from baseline and lab values, shifts, (inaudible) trends,you just report what the data is.

Similarly you report what AEs occurred, what SAEs recurred,what serious AEs occurred and the presence of the Data Monitoring Board justhelp you with that. What DSMB can do is help you during a study understand oradvise you while you are blinded treatment ARM whether you should stop dosingor drop a dose ARM or stop treating a particular patient because they canunblind and help make a determination if they think something is due to thedrug. After the study is over, the DSMB essentially doesn’t have that functionanymore.

You can always go to external consultants to advice you onhow to understand your data after database locks (ph) on unblinding. But that’sseparate from the DSMB, at least in the general sense, it’s separate from DSMB.Sometimes companies still need to use DSMB to hope understand data afterdatabase locks the specific functions.

Leland Gershell - Cowen & Company

Okay.

Zeb Horowitz

I am not in a position in my group analyze all the data onan ongoing basis with all the blinded safety data and we will be the ones mostresponsible for writing our interpretations with that data for the BLAsubmission. Of course, we may use external consultants to help us understandquestions or advise us on the best way to understand that in the context of thesize of the literature, but there is nothing magical about it.

Leland Gershell - Cowen & Company

Okay. And again since you have seen the blinded data andmaybe this question was asked earlier, since you have been reviewing theblinded data, is there any comment you can make on the overall rate in theinfusion reactions today or…

Christopher Clement

Infusion reactions, I will comment on what I have saidbefore, we are still and by the time the patients finish the last dose, westill had an overall infusion reaction rate of about 6.5, 7% of all infusionsgiven. Whether we unblind will be able to say what proportion of patients ineach treatment ARM have infusion reactions and that kind of thing. I can’t saythat now because obviously I don’t know.

Leland Gershell - Cowen & Company

Okay, fair enough. And then, again, on the blinded data, isthere any comment you can make now on the profile of patients as they progresswith the trial in terms of clinical benefits in general?

Christopher Clement

No, I can’t comment on that at this time.

Leland Gershell - Cowen & Company

Okay, great. Thanks very much for taking questions.

Christopher Clement

Okay.

Operator

Your final question will come from the line of (ph) KevinCheng with Cheng Capitals.

Kevin Cheng - Cheng Capitals

Hi. Thanks for taking my question. A couple of clinicalregulatory questions. First of all, the -- I understand that you have an SPA,can you review the clarity in which uric acid levels on its own would be anapprovable endpoint. In other words, if you have just achieve your primaryendpoint, but you did not achieve significance on any of the clinicalendpoints, which I guess are secondary endpoints, will that be an approvabledrug in your view?

Zeb Horowitz

Okay. Let me make absolutely clear what an SPA is, becausethis is critical that everyone understand that. An SPA or Special ProtocolAssessment is only an agreement between -- and a written agreement between sponsorand FDA on the design, the method, and the analysis of pivotal or a keyprotocol for a drug registration. It is not an agreement or a deal for approvalor for labeling language or anything.

It’s an agreement -- it’s how to conduct the critical studyand the language of the FDA guidelines is such that it says that the FDA thenis bound to that agreement and should not ask for the fact saying, you shouldhave done it differently, you should have picked a different endpoint, youshould have powered it differently, you should have had a different patientpopulation, or a method of data acquisition, unless there is new sciencedriving that change.

So since there is no new science here, we believe that theagency will accept a full registration of design, the method, analytic plan ofthe FDA. That said the FDA has focused on uric acid as the primary endpoint inour study and every other study for gout, because that’s what they have used asthe hurdle for (inaudible).

If you go back, if you go to the FDA website and go back toMay, I think 2004, June 2004, last time the FDA had an advisory panel on goutand gout drugs, and they were very clear and the advisory panel was very clearthat overall everyone is terribly interested in clinical outcomes such as tophi,flare, and gout arthritis, and other signs and symptoms with gout they mustrely on uric acid endpoints even though it’s not a validated surrogate marker,because no one has ever obtained a vigorous controlled trial any of these otherendpoint. So for the agencies this is unprecedented, it’s novel in the goutfield and we expect a very lively and interesting review period.

Kevin Cheng - Cheng Capitals

Okay. So -- but the question directly then, do you believe,if you only achieve your primary endpoint and do not achieve significant onyour secondary endpoint, that the drug will be approved?

Zeb Horowitz

As long as, yes with the caveat that its always a matters ofless benefit proposition, so as long as the safety profile is good enough thenI believe that we should be approvable on the basis of uric acid control onlyfor this working population.

Kevin Cheng - Cheng Capitals

Okay. And when was this advisory committee?

Zeb Horowitz

I believe the FDA advisory committee was in the May or Juneof 2004 that was the last time we had advisory committee that we are aware ofin the gout field.

Kevin Cheng - Cheng Capitals

And was it regarding the review of any drugs?

Zeb Horowitz

I believe (inaudible) discussed oxypurinol at that meeting,but it was a two day meeting I think, a one day was focused on a huge gout andthe other was on chronic gout, but its more inline with discussing newtherapeutics and the possibility of revisiting approval requirements for gouts.

Kevin Cheng - Cheng Capitals

Okay. And then related -- okay. I will look that out. Andthen related to that so obviously uric acid level that’s the pharmacologicendpoint it’s not a clinical endpoint, so is that being considered a surrogateendpoint?

Zeb Horowitz

You are asking a tough question.

Kevin Cheng - Cheng Capitals

I mean, what regulatory part -- what -- I simply go back tothe HIV days you measure viral load it was considered a surrogate endpoint,drugs were approved on an accelerated basis with the conditional approval to bea later conferred by full approval when later you confirm that lower end viralload led to better clinical outcome. So is this that framework or is this wouldbe a surrogate endpoint and you would be approved on an accelerated basis to belater confirmed by clinical data?

Zeb Horowitz

Yes, I don’t think this has anything to do with anaccelerated approval and things for commitment. What this is that in the fieldof gout, the only endpoint that could be measured reliably was uric acid. Sothe agency and the advisory panel agreed that for the foreseeable future, thatwas the only endpoint that could be held as a registration hurdle. Now theyrecognized the companies because I read a statement there describing ourprogram.

They need we and potentially others were very interested ingoing beyond the uric acid and trying to actually measure in a rigorous wayeffects on profile, effects on flares, etcetera. You got to remember uric aciditself has never been validated as a surrogate marker but the agency accepts itbecause that’s the only thing that could be met.

So, yes at this time, we think we can get approved andothers can get approved only by showing value and safety around the uric acidcontroller. If we go beyond that and are successful in our steady design andoutcome then or perhaps as they change in paradigm, but that is yet to beshown.

Kevin Cheng - Cheng Capitals

Okay. Last question, you’re stating that since yourintent-to-treat analysis is based on patients who received at least oneinfusion, as opposed to patients randomize, is that your understanding of whatthe FDA’s view of intent-to-treat is, because that sounds different in myopinion?

Zeb Horowitz

The FDA’s view can change with different protocols, that’swhat we have submitted to the FDA in our statistical analysis plan and that’sour expectation and to-date we have not heard otherwise from the agency. Ithink we are still in good shape that the agency wants to look at an ITT withall randomized patients, its hard to have them -- have one with a striveproblems to a drug if they never got the drug then, I think the agency can lookat it anyway they wish to.

Kevin Cheng - Cheng Capitals

I think they usually call that and modify thatintent-to-treat with a little m, but anyway, all right. And the difference -- Iunderstand, so the difference would be if you did the 250 randomized you wouldbasically have more dilution from dropouts if you will, right if you have that?

Zeb Horowitz

The 225 were randomized, yes.

Kevin Cheng - Cheng Capitals

I’m sorry, 225 so you have 165 over 225, so you have kind ofa less robust difference obviously because a lot of people didn’t get treatedat all. And your view is even if you did that you believe that 35% responderdelta is readily achievable?

Zeb Horowitz

Yeah, because some of those patients would have beenrandomized and I don’t know where they were randomized, but assuming that someof those patients would have been randomized for the treatment group, thenon-response if you will, because they never got drug would have been playedout its off just randomly.

Kevin Cheng - Cheng Capitals

All right. Then I would -- but it would shrink the differencebetween the two arms, okay I understood.

Zeb Horowitz

Potential, potentially.

Kevin Cheng - Cheng Capitals

Okay. All right. Well, thank you very much and good luckwith the underlining.

Zeb Horowitz

Sure.

Brian Hayden

Thank you.

Operator

And I would now like to turn the call back over to closingremarks.

Brian Hayden

All right, thank you operator. The fourth quarter is clearlygoing to be a very important period for the company if we analyze our Phase 3data compared to the four topline clinical results in December. All of us atSavient are dedicated to achieving this objective and we look forward tosharing our Phase 3 results with you at that point in time. Thank you forjoining us today. Happy Halloween.

Operator

Ladies and gentlemen, this does conclude today’steleconference. You may all disconnect.

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