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Executives

Tom Watkins – President and CEO

Barry Labinger – Executive Vice President and Chief Commercial Officer

David Southwell – Executive Vice President and CFO

Dave Stump – Executive Vice President, Research and Development

Analysts

Joe Schwartz – Leerink Swann

Cory Kasimov – JPMorgan

Chris Raymond – Robert Baird

Matthew Harrison – UBS

Les – ISI Group

Terence Flynn – Goldman Sachs

Charmaine Chan – RBC Capital Market

Nicholas Bishop – Cowen and Company

Jim Birchenough – BMO Capital

Laura Ekas – Canaccord

Liisa Bayko – JMP Securities

Ying Huang – Barclays

Echo He – Maxim Group

Human Genome Sciences Inc. (HGSI) Q1 2012 Results Earnings Call April 24, 2012 4:30 PM ET

Operator

Please standby. Good day, everyone. And welcome to Human Genome Sciences’ First Quarter 2012 Financial Results Conference Call and Webcast. Please note, today’s call is being recorded.

At this time, I will turn things over to Mr. Tom Watkins, President and Chief Executive Officer of Human Genome Sciences. Please go ahead, sir.

Tom Watkins

Thank you, Operator, and good afternoon, everyone. Before we begin, I would like to point out that we will be making forward-looking statements, which are based on our current intent, belief and expectations. These statements are subject to certain risks and uncertainties, and I encourage everyone to consult our SEC filings for additional detail.

We reported our first quarter financial results earlier this afternoon and the press release that we issued, as well as several slides that we will be discussing in this call are both posted on our website and that’s www.hgsi.com.

Now we do not plan to take you through the financial results in today call. Although, we will take any questions that you may have on the first quarter later in this call.

So following my opening remarks, Barry Labinger, Executive Vice President and Chief Commercial Officer; David Southwell, our Executive Vice President and Chief Financial Officer, and other members of our senior management team will join me for the Q&A session.

So I’m going to refer a couple of points here to the slide number that is available and you can consult that. So slide three, in light of recent events, we plan to use this call today to refocus the conversation on the potential of BENLYSTA, the potential of darapladib and our other product candidates and other assets.

We are in a situation where our long-term partner GlaxoSmithKline has offered $13 per share for HGS. As you know, the HGS Board of Director in consultation with the independent financial and legal advisors has determined that this unsolicited offer does not reflect the value inherence in HGS.

However, based on this offer, it is clear that GSK shares are viewed that the market has been overly focused on the short-term sales results of our company. We also can conclude that GSK shares are viewed that there are significant value in BENLYSTA as it achieves it potential overtime.

We remain very confident in blockbuster potential of BENLYSTA or SLE. So on today’s call, we want to review our assessment of the SLE market. We want to discuss some new underlying trends we have seen since launch. It gave us confidence that BENLYSTA is gaining real traction in the marketplace.

We also want to address why we believe that HGS holds great potential to generate shareholder value beyond the BENLYSTA, including products in the GSK clinical pipeline to which we have substantial financial rights, as well as product candidates in our own internal product pipeline.

This is view we conclude GSK must also hear, since GSK controls the development of our several of our partnered pipeline programs, including darapladib for cardiovascular disease, albiglutide for type 2 diabetes, both of these in Phase 3 development and Rilapladib in Phase 2 development for Alzheimer’s disease.

Of the most notable of these assets is darapladib, which has the potential to be a future blockbuster and a significant value driver for our company. If successful approximately one-third of the value of darapladib will flow to HGS shareholders.

And I’ll point out, because there has been some confusion on this important point, I want to be clear. All of the rights and economics to these programs are fully transferrable should there be a change in control in ownership of our company.

As you know, our Board has authorized the exploration of strategic alternatives, including a potential sale of our company. We will not be commenting on the process that’s being undertaken in today’s call, and we’ll not be doing that unless and until a decision is being reached by our Board in that regard.

So I’m going to be referring now to items on slide number four. We remain very confident in the blockbuster potential of BENLYSTA for SLE, given its broad label and its benefit to patients. SLE is a unique and complex disease, and as we will explain shortly, we believe the unique complexity has impacted the more recent and slower rate of adoption by physicians.

We expect this to change going forward. Our conviction in BENLYSTA’s prospects is influenced by feedback we are receiving from physicians who are telling us how it is working in their patients.

All indicators from our market research point to increasing rates of adoption. 90% of rheumatologists we have surveyed intend to use BENLYSTA. Over 75% of physicians we surveyed have already prescribed the drug.

In addition, BENLYSTA has brought promise beyond its initial market entry in SLE and we continue to make significant investments in its full therapeutic and commercial potential. We have initiated Phase 3 study in another dosage form of BENLYSTA, the subcutaneous dosage form, which we believe will be advantageous to some patients. And as we have indicated before, we are on our track to start Phase 3 vasculitis and lupus nephritis studies in the second half of this year.

Slide five. Let’s take just a moment to review where BENLYSTA fits in the treatment of SLE. It often takes a few years for SLE patients to be diagnosed as the disease is complex, affecting multiple organ systems and having a broad set of symptoms. In addition, patient symptoms were often waxed and waned, which further complicates the treatment algorithm.

Given the uniqueness and complexity associated with SLE, unlike many other diseases, it takes time for physicians both to identify patients that would benefit from certain treatments and then to optimize the timing of the treatment.

This is why we believe and our market research validates this, that physicians wait to prescribe BENLYSTA until they believe their patients will benefit and even then they will first try BENLYSTA on a few patients to examine its efficacy.

It turns out that it’s not until physicians determine that BENLYSTA helps these patients, they begin to adopt the drug more broadly amongst the broader patient population they treat. Given the benefits, patients experience following BENLYSTA treatment, we believe it will increasingly become an appropriate option for both patients and physicians.

Slide six. What I have just described is corroborated by recent market research we have conducted. The difficulty we’re having in the first drug to be approved as the disease modifying agent for disease like lupus is that you’re really changing the paradigm of how rheumatologist treat the disease. As a result, the adoption curve is unique.

The first step for the process is illustrated in the top left of the slide. It shows how physicians wait to identify patients, who will benefit, gather more information on BENLYSTA and they hear what peers are experiencing.

Our physician education programs and speaker series have shown success in educating and encouraging physicians to initiate treatment. At the early stages of launch, we were at the step.

The second step, the trial phase is that which physicians use as they BENLYSTA on a select subset of patients who fully understand its benefits in their practice. We found that physicians often select between one and three patients who observe for sometimes up to six to nine months before they expand their adoption. For the first few quarters, we believe that most accounts had been this trial phase.

The third step is that if BENLYSTA works in their patients, physicians increase their rate of adoption and prescribe the drug to more of their eligible patients. We call this the adoption phase.

As you can see with the graph at the bottom left in slide six, what we describe here is borne out by the data. 76% of physicians are reporting that they have prescribed BENLYSTA and is they – and if they are trying. This compared to 30% in the early stages of our launch. The prescription rates are a leading indicator of accounts generating sales.

There is often a two-month or longer lag between prescribing BENLYSTA for patient and implementing the infusion that generates the sale. Market data show that more than 50% of key accounts have generated sales of BENLYSTA as of the end of March 2012. This is up from 40% as of the end of December 2011 and we expect this will approach 76%, given the physician feedback, I have just described.

Now what you see in the bottom right of this chart is that physician adoption is clearly increasing. As physician see the BENLYSTA benefits their patients, they are beginning to prescribe it more broadly within their eligible patient base.

In the first quarter of 2012, we saw a 42% increase in accounts generating over $15,000 within a four-week rolling average, which is approximately -- translates approximately five patients versus 16% growth of account with more than five patients in the prior quarter.

We believe this is early evidence that more accounts are beginning to move to the adoption phase of their use of BENLYSTA. So we won’t speculate on the next quarter or any quarter. You can see why we continued to have conviction in BENLYSTA prospects.

Now we are still in the early stages of launch but we expect that the recent slow launch impacted by the wait and try approach that physicians are exhibiting will shift to a more rapid take as physicians BENLYSTA more broadly.

Slide seven, now regarding my point that BENLYSTA is benefiting patients. Take a close look at the information on slide seven. We’ve had BENLYSTA on market for about a year, so we do have the ability to go out and see how lupus treating physicians believe their patients are doing.

Recent market research captured the clinical experience for 270 patients treated by 80 rheumatologists. The data show of 127 patients who had been treated with BENLYSTA for greater than three months, showed that physicians perceived that 90% of patients, who had been treated for at least three months are showing improvement in at least one aspect of the diseases manifestation.

In our review, physicians looked at all of the different points of symptom reduction that are listed on the left side of chart number seven and there is a consistent improvement across the Board, including symptom such as Fatigue, Arthritis, Rash and others. This data demonstrate that with use physician will perceive the strong real world benefits of BENLYSTA to patients. This will continue to drive increase adoption of BENLYSTA use.

Slide number eight, what also hasn’t changed is that the addressable market for the treatment of lupus and therefore BENLYSTA because it is the only approved remains very large. And we’ve been looking at the market for BENLYSTA as you know for years and believe the market opportunity is not only large but certainly compelling in it size.

In United States there are approximately 1.5 million patients that are deemed to have lupus in related condition, if you narrow this to those patients that are both diagnose with systematic lupus and under the care of rheumatologist, we get to a number of approximately 325,000, about two-thirds of this number will have moderate to severe disease activity sometime during the course of their disease, so we see the initial market to be about 200,000 of this patients.

At a price of about $35,000 this translates to a market opportunity of about $7 billion in the U.S. alone, and this does not include patients with mild disease, some of whom might become candidates for BENLYSTA at some point in the future, and this why we have world conviction in BENLYSTA blockbuster potential.

Slide nine, beyond BENLYSTA we have several other exciting compounds that provide upside opportunity for our shareholders. Let’s take raxibacumab for inhalation anthrax, which currently generates revenues under U.S. government contract. Also we have substantial rights to two late-stage compounds currently in Phase 3 trials and being developed by GSK, darapladib for cardiovascular disease and albiglutide for type 2 diabetes.

We also have an attractive mid-stage pipeline with two oncology candidates mapatumumab, HGS1036, as well as Rilapladib for alzheimer’s disease. These programs target very attractive markets and if successful in the clinic represent significant economic value to our shareholders.

Slide nine, a potentially big value driver for us, darapladib is a Lp-PLA2 inhibitor developed by GSK using HGS technology. And it essence in large epidemiological trials Lp-PLA2 has been identified as an independent risk factor, independent from LDL cholesterol, for example, for hypertension, for coronary heart disease and stroke. Inhibition of Lp-PLA2 may reduce future cardiovascular events in patients.

Clearly, if it is successful, darapladib targets a large and lucrative market, and we have attractive economics on this drug, which includes a 10% royalty on worldwide sales and additionally, a 20% profit sharing co-promotion arrangement or option on sales in North America and Europe. If successful approximately one-third of the value of this drug would flow to Human Genome Sciences shareholders.

Now GSK is investing very heavily to develop darapladib, and the combined Phase 3 clinical program is one of the largest ever conducted to evaluate any cardiovascular medication. GSK is running about 28,000 patients in two large Phase 3 trials at the current time. Each of these studies is event driven and will end when 1,500 patients have a major adverse cardiovascular event, which is typically a heart attack or stroke.

Darapladib data are expected to be available some time next year depending on the accumulation events in the trials. Although, we are not involved in darapladib s development, given our very significant financial interest, we are watching its progress very closely.

Slide 11, to expand on my statement that darapladib targets very large market, let’s talk a little further about this. There is a potential population of well over 30 million, including statin patients, statin intolerant patients and acute coronary patients.

Now assuming the success of the Phase 3 program, the economic value to our shareholders of darapladib is substantial, which is why we continue to focus on it and also why we have asked our partner GSK for additional information.

Slide 12, in addition to BENLYSTA and Dapapladib, we have several other interesting compounds in our pipeline. Raxibacumab is a monoclonal antibody for inhalation anthrax that provides revenue under our government contract for the U.S. Strategic National Stockpile.

Albiglutide is the another long acting form of GLP-1, glucagon-like peptide-1, which was created by HGS using our proprietary albumin-fusion technology and licensed GSK when it was a pre-clinical candidate in 2004.

GSK’s Phase 3 program to evaluate albiglutide for the treatment of type 2 diabetes continues to move forward and GSK has indicated that Phase 3 data is expected to be available in mid-2012. If albiglutide is commercialized milestone payments could amount to as much as $180 million, including $33 million already received in addition to net single-digit royalties to HGS.

Our oncology program continues to progress as well. In March 2011, we announced the new collaboration with FivePrime Therapeutics to develop and commercialize HGS1036 for multiple cancers. In 2012, we plan to initiate Phase 1b studies of HGS1036 in combination with chemotherapy.

Another compound in our oncology portfolio mapatumumab is undergoing a randomized Phase 2 study in combination with Nexavar, which is currently ongoing in hepatis -- advanced hepatocellular cancer.

We also have substantial financial rights to Alzheimer's disease Phase 2 candidate Rilapladib, which is another novel drug that was discovered by GSK based on HGS technology. Similar to darapladib we are entitle to 10% worldwide sales royalties and an additional 20% profit sharing co-promotion option based on sales in North America, Europe, if this program reaches the market. So we look forward to GKS’ continued progress here as well. Each of these opportunities represent potential upside for HGS shareholders.

Slide 13. In addition to our products and pipeline opportunities, we have notable operational and financial assets. We have $2.1 billion in net operating losses which are valuable tax assets for our company. We also have $799 million in cash as of the end of March 2012.

On the operational side, we have world-class biologics manufacturing capabilities, which includes two times 20,000 leaders in-house facilities located here in Maryland, which in addition to manufacturing capacity for BENLYSTA are capable of supporting the developments and early commercialization of multiple monoclonal antibodies.

Slide 14. There has been some misrepresentation in the media in terms of our collaboration with GSK. So I want to be clear about this and any change of control, all of our rights, that is all operational and financial rights including our co-promotion agreements, profit-sharing agreements, royalty agreements with the GSK Partner programs of BENLYSTA, darapladib, albiglutide and rilapladib are fully transferrable to a potential third-party acquirer.

So in summary, we remain as confident as ever in the future potential of HGS. And our board has committed to maximizing value for our shareholders. BENLYSTA is a blockbuster in progress. Darapladib is a blockbuster in the making. And the other compounds in our pipeline represents additional upside for our shareholders.

Our financial and commercial rights are fully transferrable upon a change in control. The unsolicited GSK proposal does not capture the inherent value of the company. And we are currently undergoing a strategic review of our alternatives, including a potential sale of the company.

And as I mentioned, we do not intend to discuss the status of the process unless and until our specific transaction has been recommended for approval. So on that note, we will open the call to questions.

Operator, if you would please review the procedures for that and thank you very much.

Question-and-Answer Session

Operator

Thank you. (Operator Instruction) And our first question comes from Joe Schwartz, Leerink Swann.

Joe Schwartz – Leerink Swann

Hi. Thank you. I was wondering you gave us some figures and may be you can quantify it a little bit further for us, how far off is the value that you see inherent in HGS as GSK’s offer?

Tom Watkins

Joe, I’ll just tell you we’re focussed on maximizing shareholder value and I don’t want to make any comments on any specific conversations or offer but we’re focussed on. The board clearly has indicated they don’t view the offer as sufficient when you look at the value of the assets we have. And we’re running the process here to make sure we can maximize shareholder value.

Joe Schwartz – Leerink Swann

GSK see -- has said that they see $200 million in cost synergies, I think, that they could bring out and getting a better deal from them or someone else could necessitate even more cost cuts to justify. So what I’m wondering is to get your stock up further from here, it would seem easier for me to move the cost lever than the sales lever, given that your operating expenses are north of that $200 million, I think so. Do you have any thoughts on what you could do in that department?

Barry Labinger

I would say two things that are unrelated to one and other. Any cost savings that GSK or anybody has described, you have to ask them about those. As you know, Joe, we have committed to achieving profitability of HGS in 2014, and we believe that is certainly possible and that will come from a combination of more accelerated sales growth, which we’re confident in and tight spending control. And we’re in the process of doing both and I want to reaffirm our commitment to profitability in 2014.

Joe Schwartz – Leerink Swann

Okay. Thank you.

Barry Labinger

Thank you.

Operator

Let’s go to JPMorgan, Cory Kasimov.

Cory Kasimov – JPMorgan

Hey, good afternoon guys, and thanks for taking the questions. And thanks for all the market insight you provided. So I have two, my first question is when we think about growth for BENLYSTA, at this point, do you think it’s still being driven more by the trailers that you, kind of, frame the adopters -- all the adopters. In other words, more by the accounts coming on line or that same store use, you are alluded to within the accounts and then I have one follow-up?

Tom Watkins

Cory, we have Barry Labinger speak to that question?

Barry Labinger

Hi Cory. Clearly, since the early stages of launch, our growth was driven mostly by increased rent. So it was new accounts using BENLYSTA for the first time in a very small number of patients. I think we are in the transition phase now where we’re trying to corner where most accounts have started to use, we’re in the front end of a few accounts having liked what they’ve seen and moving into what we call the adoption phase and increasing the number of patients per account significantly but that’s relatively few accounts and most accounts are still in this trial phase.

So I think right now, we’re only getting a little bit of their growth that’s attributable to the increase in depth and most of it is -- hence up until now come from the increases in threats.

Cory Kasimov – JPMorgan

Okay.

Barry Labinger

We certainly think that’s once people will have a chance to see patients on therapy for three, six, nine, months then we’ll see them acting on the good things that they do.

Cory Kasimov – JPMorgan

Okay. And then my follow-up, probably on Dave on darapladib, which we suddenly received a lot more incoming calls on. Can you just, kind of, update us, remind us in your thoughts on the target biology here, may be why you don’t think the recent setback for a competitive molecules should necessarily be extrapolated to darapladib? Thanks.

David Southwell

Yeah. Great question. I don’t extrapolate it all. You have to -- when you’re in a situation where you cannot do pivotal trials that are absolutely confirmative of ways to experience and clearly for large cardiovascular outcome trials, that’s not possible. You really have to dig into the target biology and what if anything you learnt from biological exploration phase 2. I think when you look at darapladib, you look at some very compelling things.

So the target is there in the offending pathologic plaque. It’s clear the target has a physiologic role in an inflammatory cascade within the plaque. If you take preclinical [animals] through our atherosclerosis found and you suppress Lp-PLA2 target activity, you do suppress the progression of the atherosclerotic process.

In humans, there is a better amount of hematologic data which establishes the independent correlation of this target in patients. It’s independent of non-HDL cholesterol and systolic blood pressure for the risk of cardiovascular events like cardiac attack and stroke.

Interestingly, if you go to some Pacific rim, generic variance where their genes actually predict for a low-level expression of the target. They have a low level of cardiovascular risk. So you got a large consolation of target biology of the hematologic data which makes us think quite interesting.

Obviously, the phase 2 data can’t tell you whether you’re going to reduce heart attack or stroke but it does tell you, you can interrupt progression of the necrotic core of these offending plaques. I take it all together plus the fact that their implementation risk is basically zero. I’ve worked with these investigative groups. You’ve got two blue ribbon global cardiovascular team doing your studies. Take it altogether, this could work. I mean, this is not so unreminiscent of the discussions we had for five years of our BENLYSTA. You really had to look at the target biology in the epidemiology.

The next step, if you’re going to do anything is clearly do what GSK is doing and I assume I believe the same thing. They are spending a lot of time in purchase capital on it. And if it does work, you’re talking about huge medical need and significant commercial opportunity. So I’m anxious to see this data, and I’ve asked to know what I can know about the progress of these trials. I look forward to seeing it.

Cory Kasimov – JPMorgan

Great. Thanks. That’s helpful.

Tom Watkins

Thank you, Cory.

Operator

Up next let’s go to Chris Raymond with Robert Baird.

Chris Raymond – Robert Baird

Thanks so much. I know, Tom, you said you were not going to talk about the process at all but one sort of, line of question, I think that’s, sort of, outside of the process and maybe, sort of, duck tailing off of Dave’s very last comment here is. So assuming that you guys along the lines of the question that you asked requesting additional information, regarding darapladib, I guess, number one, did they provide it? And then you add color specifically on what they provided will be great?

Number two, does it give you more confidence that it does not fully capture the value?

Tom Watkins

Well, there are two things, Chris, first of all, we’re very confident in the value of darapladib as we talk about we think is value upside as we said in other pipeline product which includes albiglutide and what we requested were updates to the clinical information that GSK is in position of. We look forward to receiving it. I’m not going to comment where we are in the status of receiving that but we’re confident of the value here and we are cheering GSK on and their success here with these programs.

Chris Raymond – Robert Baird

Thank you.

Operator

Matthew Harrison, UBS, please go ahead.

Matthew Harrison – UBS

Hi. Good afternoon. I had another BENLYSTA question. I was hoping you could walk through the graph on slide six in the bottom right, which looks like you had nice growth in sort of fee accounts prescribing more but when you look at the sales and you look at sort of back inpatient ads, it looks like patient adds are down from, sort of, 900 to 1,000 we were seeing towards, in the third and the fourth quarter of last year. So I’m wondering if you could just help understand what’s going on there? Thanks.

Barry Labinger

Matthew, this is Barry. What you see in the bars on the bottom right hand side of slide six is an acceleration in the rate of growth of accounts, who have moved into using five or more patients, using BENLYSTA five or more patients, where you had a 42% increase in the first quarter compared to a 16% increase in the fourth quarter. We’re very encouraged by that and it does validate this model that we talked about that we tried in a few patients, see how it works and when they like what they see, they move on into broader adoptions.

The reason that you don’t see a broad acceleration in the number of overall patients is because this is 200 accounts which is about 10% of the total. So its good evidence that the models that we’ve seen in the play out in the market research is playing out in the real world but so far, that’s not mainstream that most accounts are moving trial to adoption. Most of them are still in trials. When they move into adoption as these 200 accounts have then we’ll see acceleration and growth overall.

Matthew Harrison – UBS

Great. Thanks. And then just one follow-up, GSK has also announced some recent data on [cincaria], may be you could just talk about what you view the commercial profile there as well? Thanks.

Barry Labinger

Yeah. We can’t comment a lot on albiglutide that’s GSK has been running that program and they’ve been doing most of the work on it. The GLT-1 class is getting more crowded but also getting bigger and serves an important role in treatment of type II diabetes on top of other therapies. So we think from what’s been announced so far. The product has a competitive product profile and it’s going to compete for a significant share of the GLT-1 market.

David Southwell

But Matthew, we do recognize that very competitive nature of that market in assessing the valuation of the different assets that we have. So I think -- we’re realist about how difficult that area will be too compete.

Matthew Harrison – UBS

Thank you.

Operator

Let’s go to Mark Schoenebaum, ISI Group.

Les – ISI Group

Hi. This is [Les] filling in for Mark. I have two questions. My first question was about same store sales. You mentioned that you saw early evidence of adopters. Is there anything categorical about these early adopters in terms of either geography or clinic size or any thing else that might help us get some color and help us get comfort with the potential extrapolating that out into further clinics?

Tom Watkins

Yeah. Well, that’s a good question. We’ve been looking at that ever since the launch and there really isn’t any set of factors that differentiate the early adopters from the rest of the prescribers other than their early adoption. So for every big account, it has become a big account for BENLYSTA using it in dozens of patients. There are a number of other accounts that are the same and that are just starting the process.

So we’re confident that we’re going to go through the same process. It’s just going -- it's just the fact that they are going to go at different speed. So I don’t think that we can describe anything that rules accounts in or out. I think what we’re seeing from the early adopters is what we’re going to see from the later adopters. Only it’s going to take a little more time.

Les – ISI Group

Great. Thanks. And my second follow-up question is about darapladib. Do you have any additional comments about an interim like that may have happened or may well happen as well as additional thoughts on the timing of the phase 3 readout?

Tom Watkins

Dave has some comment on that.

David Southwell

I don’t want to get into specifics for a program I’m not running but I will refer you to two papers that were published last year and the year before in the American Heart Journal that describes the design of each of these large studies. They are very rich publications in terms of how the studies were put together and what the plans were. In those papers, they do refer to interim analysis plans which were initially to be safety analysis but at least for one of the studies that were efficacy analysis plan when a significant numbers that have been short of the final event number were experienced as to whether those have happened, I can’t comment.

Les – ISI Group

Okay. Thank you.

Operator

From Goldman Sachs, let’s go to Terence Flynn.

Terence Flynn – Goldman Sachs

Hi. Thanks for the taking the questions. Just a follow-up on darapladib. I was wondering if you guys are contractually obligated to receive any of the data from GSK. I know you’ve said, you requested it and you look forward to receiving it but are you actually contractually obligated to any of that data?

Tom Watkins

Terence, what I would just say that is under the arrangement we have with GSK. There is certain information we received, and we received that and what we requested in our lab was we’re up-to-date informations as we set earlier on the progress of clinical trials et cetera. What we perceived is certainly what was outlined in the arrangement and we just went a little bit more up to data.

Terence Flynn – Goldman Sachs

Okay. So you have done day in the past, and this is just kind of more of an update on the status of the studies?

Tom Watkins

I think it’s fair characterization, yeah.

Terence Flynn – Goldman Sachs

Okay. And then one question on BENLYSTA, was wondering if you can clarify, I know you have about 2,200 accounts total. You got the targeting but how many would you classify as actually key accounts. I know, it’s a subset but you can help us think about that number?

Barry Labinger

There are, right around, 2,000 accounts which we consider demand generating accounts. So those are either hospitals or community clinics that have rheumatologist in them and are either in choosing patients or selecting patients to be infused elsewhere. And we consider all those importance we have announced resources in the sales force and in other areas to support all of those accounts.

Certainly, we do have some concentrtation. The top 10% of our business comes from a pretty small number of accounts and it expands from there. But we don’t really need to differentiate how key account is from the standpoint of what the effort that we put against them there. All in those 2000 are fully worth, strong effort and we’re going after all of them with our team.

Terence Flynn – Goldman Sachs

Thanks Barry. I guess, I was just trying to get a sense of -- you say 50% of key accounts of initiative treatment. So as I was just trying to understand the denominator on that a little bit.

Tom Watkins

Yeah. I’m talking about 50% of the 2000 accounts.

Terence Flynn – Goldman Sachs

Okay. Thank you.

Operator

Michael Yee, RBC Capital Market.

Charmaine Chan – RBC Capital Market

Hi. This is Charmaine on behalf of Michael. I’d like to add (inaudible) the momentum seen in accounts averaging five patients or more. Can you comment on whether you expect roughly the same number of accounts that go on to this higher usage mode, like I said reflective of what’s gong forward?

And secondly can you comment on whether the need for insurance verification in the quarter has had any impact on sale? Thank you.

Barry Labinger

Yeah. You are use to hearing from our side. I am not going to predict what rate of increasing adoption is going to going forward. I think we are just on the front-end of accounts going from this initial trials Phase 2 the broader adoption phase. So it’s kind of go up overtime and how fast it goes, I really can’t say.

As far as the insurance re-verification, definitely that has an effect on first quarter sales, in particular in the first couple of months. For those of you less familiar with that process, all the patients on biologics have to get their insurance re-verified at the beginning in the year to make sure that they have coverage.

And so offices intend to prioritize their efforts on existing patients, who are do for an infusion at the certain point in time, so new patients tend to be held off until at least later in the quarter. And then there is a backlog that has to be cutoff to.

So our product obviously is more relying on new patients than other more mature products, who are more relying on existing patients. So that’s certainly have some effect, how much of an effect is little bit hard to say.

Operator

Moving on to Cowen and Company, Nicholas Bishop.

Nicholas Bishop – Cowen and Company

Hi. Good evening, and thanks for taking my question. I have three-part question on the pipeline. The first is, I wonder if you could elaborate little bit more on Rilapladib, which is a compound we haven’t heard much about before, just what’s kind of the rational behind that on an Alzheimer's disease?

Second is are there any other compounds that we haven’t mentioned on the call today that are covered under the collaboration with GSK?

And finally, to the extend you’re able to get additional information about darapladib or any of other pipeline compounds in GSK, would that be in anyway confidential with respect to potential other bidders or would you be able to share all of that freely? Thanks.

Tom Watkins

So let me ask Dave Stump to comment on your, at least your first question there, first part of your question on Rilapladib.

Dave Stump

Yeah. I wouldn’t go near the third question. The Rilapladib is in the same family as darapladib, the target in Alzheimer's, the biological rational is much less material. In fact, the study they are doing is a small Phase 2A pharmaco biomarker study.

But I think that obviously in Alzheimer's disease the big issue for mapping downstream likelihood of success is can correlated any biomarker with an outcome in Alzheimer’s and that’s kind of the impediment. So that very early days, I would call it highly exploratory.

Tom Watkins

And with respect to second part your question, the three products that we’ve identified here, I talked about darapladib, Rilapladib and albiglutide. The first two are the products that we are aware of that were covered by the original collaboration agreement with then SmithKline back in the 90s.

The albiglutide as you know is the subject of a separate independent we will out license arrangement between ourselves and GSK, which took place in October of 2004. So to answer your question is that is what we know about it.

There other products that we talked about in our pipeline here that are not partnered with GSK but are partnered with others, but that’s the situation with respect to those.

Nicholas Bishop – Cowen and Company

Okay. And then anybody one hazard and answer to the last part. Would there be any confidential information exchange here or…

Tom Watkins

I’m not going to comment on -- I am not going to comment on what’s confidential and what’s not and how we conduct those items going forward.

Nicholas Bishop – Cowen and Company

Okay. Thank you.

Tom Watkins

Thank you.

Operator

Jim Birchenough with BMO Capital has our next question.

Jim Birchenough – BMO Capital

Yeah. Hi, guys. One question and a follow-up. Just on BENLYSTA, can you comment on whether the trajectory we’ve seen in average weekly sales in April suggest any inflection from what we saw towards the end of the first quarter? That’s the first question.

And then just saw in darapladib just wondering historically when you have been provided with updates, have you been updated on the number of events that have occurred and based on that would you have expected to see an interim by now?

David Southwell

Yeah. This is Dave. Let me preface this. We have had occasional time driven updates from GSK. And let me make it clear, they have been very interactive with us on the program. I have never detected any -- anything but an interest in being interactive with us. I’ve been said there were certain things that they’re careful with and I think ongoing event rates have been one of those.

And I have been fine with that, because this really in the end your data and safety monitoring committee is where the knowledge resides, and I assume we would no sooner later as we heard everyone else, obviously a little event has happened recently for us that changes a landscape little bit. So my interest now is knowing every piece of data, I’m entitled to know about that program on behalf of HGS shareholder.

Jim Birchenough – BMO Capital

And then just may Barry in terms of the trajectory that we are seeing with BENLYSTA in April?

Barry Labinger

Yeah, Jim. It’s fair question. But, as you know from before, we’re not sharing data intra-quarter, we are only few weeks in, so it would be hard to interpret anything from that so soon anyway.

Jim Birchenough – BMO Capital

So may be I ask you alternate question?

Barry Labinger

Yeah. Sure.

Jim Birchenough – BMO Capital

And that is just, so when you think about the trial use and where BENLYSTA has been used in been list has been used in few patients, and then when physicians get experience they broaden presumably in the similar -- patient group and how big is that, is it patients that have had consistent flares in the certain organ system. I am just trying to get a sense of where the trial is and how that might be an indicator of how big this opportunity could really be?

Barry Labinger

Yeah. That -- Jim, that’s one of the hallmarks of lupus is every patient is different and the way that every physician things about it is different. So the specific patient type that physicians try BENLYSTA in is pretty variable, there are certainly common themes that the people who have tried other therapies, they have ongoing disease activity, more of them are going to have serological evidence like positive anti-double strands of DNA may be low compliment. But there is a lot of variability around those characteristics.

Generally, what we see is that if physicians are impressed with what they see in their first few patients and what they hear from that appears, which is the real focus of our speaker programs that we are spending so much time doing.

Then they tend to broaden types of patients that they’ll consider treatment, and in fact, their own experience reinforces more positively their perception of the efficacy of BENLYSTA, and that is what it takes for them to consider BENLYSTA in a broader array of types of patients.

Jim Birchenough – BMO Capital

Great. Thanks for taking my questions.

Tom Watkins

Okay.

Barry Labinger

Thank you, Jim.

Operator

Up next let’s go to Canaccord, excuse me, Canaccord, Salveen Richter.

Laura Ekas – Canaccord

Hi. It’s Laura Ekas on behalf of Salveen Richter. And just a question on the overlap between the community practices that are using the drug and how many of those fall into the 211 accounts that are treating more than five patients?

Tom Watkins

Yeah. So, the once that are in the 200 that are treating more than five patients really are spread fairly widely across community and hospital account. There are certainly a tendency that bigger accounts with larger patient cohorts are kind of over represented in the 200. But like I said earlier, there are just as many big accounts like that who are still on their trail phase and aren’t quite there yet.

So there isn’t one type of accounts that seems to go through this process and seems to get to broad use of BENLYSTA. There are multiple types of accounts large and small community and hospital basis.

Laura Ekas – Canaccord

Then I guess what sort of activities do you have ongoing that are geared to increasing penetration, specifically into these community accounts or they just you have to wait and see -- wait for the patients to have experience with -- their physicians to have experienced with drug before they are going to start treating more patients?

Tom Watkins

Yeah. I’m glad you ask that question because nowhere we just waiting to see how it goes. We are doing everything we can in our marketing programs to accelerate that process. So part of it is what our sales force does in the office working with other staff within the office like nurses to make sure that patient response are appreciated and communicated within the office.

So the doctor knows more quickly that patients are doing better, part of it is to do hundreds of speaker programs where rheumatologist with more experience can talk to those with less experience and basically validate the experience in a couple of patients with their own experience in tens of patients.

We are working on our consumer programs to drive more consumers and patients into as per BENLYSTA which will helpful with all patient identification difficulty. So there are number of things that we’re doing to -- and try to accelerate this process. Obviously, the drug doing its work and helping patients is going to have a positive effect overtime and all the other things that we do are targeted to make that happen faster.

Laura Ekas – Canaccord

Okay. Thank you.

Tom Watkins

Thank you.

Operator

Next, we go to Liisa Bayko with JMP Securities.

Liisa Bayko – JMP Securities

Hi. Thanks for taking my question. How much value do you really applying to BENLYSTA subcutaneous versus the IV. We’ve gotten some feedback that perhaps a lot more patients could be captured by due to subcutaneous formulation, I am just wondering how you see – sort of initial value of BENLYSTA versus what might be Harry Potter in the subcutaneous formation in the safe development?

Tom Watkins

Liisa, we think there is great value in having both to offer. There are certainly some additions who prefer IV formulation. That way they can take care of the patients, see them every month and make sure that they comply. So there are benefits to that. There are obviously a number of patients who would value the convenience of being able to self administer BENLYSTA. Some of those are on the milder end of the spectrum, maybe even moderates but on the milder end of moderates or even mile patients.

So we definitely thing subcu is going to open up new possibilities, and we also think that the IV is readily accepted by most patients and in someway preferred by some physicians. So it’s totally in our benefit to have both available to meet those needs.

Liisa Bayko – JMP Securities

Okay. Thanks. And then -- quick question on darapladib. Do you know GSK has -- I mean do they get sort of real time or fairly regular updates on how many events have occurred and then one was their latest communication to you -- regarding where they were in the process – process of these events?

Tom Watkins

Liisa, I would just say, to ask them what their communication and their information flow is somewhere unsteady. As I said earlier, our communication, David Stump elaborated on this moment ago has been fruitful and timely and consistent with the arrangement that we have. I am not going to comment on when the last update was but it’s been, maybe forth coming with all the information on the timeframe as been excepted and there’s been good dialogue.

Liisa Bayko – JMP Securities

Okay. Thanks a lot.

Tom Watkins

Thank you.

Operator

Moving on, let’s go to Ying Huang with Barclays.

Ying Huang – Barclays

Hey, guys thanks for taking my question. First one is regarding to the patient report on BENLYSTA, can you guys give a breakdown in terms of how many -- what percentage of patients are severe and what the percentage on the patient on BENLYSTA are actually moderate?

And the second question is do you know for fact that GSK has only access to blinded data including both placebo arm and drug arms for darapladib? Thanks.

David Southwell

This is Dave. I can almost guarantee you that they have an independent agency monitoring committee and only that committee sees unblinded data. I have worked – I have worked with both of these large cardiovascular groups in my past life. I have done mega trials and I know how they do these studies. So I can tell you that without hesitation.

Having said there, there are full blinded metrics that come from any study. I get them from my own teams in our studies that can sometimes be informative, certainly informative about the quality of the study and the quality of the data even if they don’t tell you what the unblinded answer is. Then I think those are kind of issues we want to look at.

Barry Labinger

On the question about the severity of patients receiving BENLYSTA. I have to give the caveat first of all that our information about the severity for patients comes from market research with physicians where we rely on each respondents, own definition of what severe versus moderate is and it’s different for everyone. What I would say is that we get quite a few -- quite a lot of moderate and quite a lot of severe, severe that we don’t get are the ones who are acutely severe like severely active in nephritis that’s excluded from the label.

Those patients need something like Cytoxan high dose steroids that are faster acting than BENLYSTA is. But those patients after they’ve gotten their acute treatment and our more stable are sometimes feel perceived by their physician as severe patients, just not severely active at that point in time. Those are ideal candidates for BENLYSTA and a lot of our patients are in that category. More of them are moderate.

So they haven’t needed IV Cytoxan. They haven’t had an imminently organ threatening flare but they have had frank disease activity every part more therapies than the standard who care then have been on and they go on BENLYSTA. And that’s the sweet spot for drug that are more of those then the former. Partly that’s because there are more of those out in the community and means really severe patients are the minority of patients out of the total pie of lupus patients.

Ying Huang – Barclays

Thank you. That’s helpful.

Barry Labinger

Thank you.

Operator

And we have time for one final question at this time, that will come from Maxim Group, Echo He.

Echo He – Maxim Group

Hi. Thank you for taking my questions. I have got two here. First one I wanted to know some more about BENLYSTA reimbursement. We’ve got some feedback, anecdotal feedback, of course, from patients that are -- they said their physician have to support them or advocate the BENLYSTA drug. And then the insurance company will be interested otherwise and there would be slight difficulties. Is that what you have to seen?

Barry Labinger

Generally, coverage by insurance companies is very positive for BENLYSTA. They refuse in a widespread way treatment of BENLYSTA or any biologic though. You generally prior authorizations, and different plans, quick physicians thorough different levels of hoops to provide the right documentation to get car authorization. So yeah, it’s not on common that a physician has to advocate at some level. It’s variable how much they have to do it and attempts would be more related to the individual plan and what they do with biologics generally than it does to do with BENLYSTA specifically. Overall we are pretty happy with reimbursement but it’s not a simple process these days to get reimbursement for biologics, any of them.

Echo He – Maxim Group

Okay. I understand. And another one is could you just talk about the -- from the competition standpoint of your any stay ongoing reimbursement that could go through for Rituxan and Cellcept, these drugs and there were some patient that, they were kind of still – had a good experience previously and still wanted to go?

Barry Labinger

Yeah. I think it sound that it’s pretty widely reimbursed. It’s inexpensive and though it isn’t approved…

Echo He – Maxim Group

Right.

Barry Labinger

….it’s considered part of standard of care especially for patient with renal disease. So I think payors are covering Cellcept. Rituximab is a little more variable not only, isn’t it approved but trials were conducted and failed. So that’s a great opportunity for payers to really not cover rituximab or at least have very stringent requirements for having -- they have tried pretty much everything else before they get covered.

Now, for an individual patients who has responded in the past and the physician really wants to get him another cycle that probably can be done with really strong advocacy from the physician. So there isn’t widespread used of Rituxan anymore and it’s not growing but it is -- it does occupy a small space for late stage patients who have failed most other therapy.

Echo He – Maxim Group

Okay. I understand. That’s all. Thank you so much.

Tom Watkins

Thank you for your question. Operator, are we completed with the questions.

Operator

That is correct. I’ll turn the conference back over to you for any additional or closing remarks.

Tom Watkins

Thank you, operator. Well, I thank everybody for joining us today and for your interest in HGS. We look forward to continue our dialog with you. Thank you. Have a good day.

Operator

And once again, we now conclude our first quarter 2012 financial result conference call and webcast. Thank you for your participation.

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