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Inspire Pharmaceuticals (NASDAQ:ISPH)

Q4 2007 Earnings Call

February 26, 2008 10:00 am ET

Executives

Jenny Kobin - VP, Investor Relations and Corporate Communications

Thomas R. Staab - Chief Financial Officer, Treasurer

Christy L. Shaffer - President and Chief Executive Officer

Joseph Schachle - Executive Vice President, Chief of Commercial and Corporate Operations

Analysts

Liana Moussatos - Pacific Growth

Ian Sanderson - Cowen

Angela Larson - Susquehanna

Analyst for Sapna Srivastava - Morgan Stanley

Analyst for Navdeep Jaikaria - Rodman & Renshaw

Operator

I would like to welcome everyone to the Inspire Pharmaceuticals’ fourth quarter 2007 financial results conference call. (Operator Instructions) I would now like to introduce Ms. Jenny Kobin, Vice President of Investor Relations and Corporate Communications. Ms. Kobin, you may begin your conference.

Jenny Kobin

Good morning and thank you for joining Inspire Pharmaceuticals’ fourth quarter and Full Year 2007 financial results conference call. As always, we must begin by reminding you that the forward-looking statements in this conference call are based on preliminary information and management assumptions.

These forward-looking statements are subject to a wide range of risks and uncertainties that could cause results to differ in material respect, including those relating to product commercialization, product development, revenue, expense and earnings expectations, competitive products, adverse litigation and regulatory development, results of clinical trials, the need for additional research and testing, funding and the timing and content of decisions made by regulatory authorities including the US Food and Drug Administration and the Securities and Exchange Commission.

Further information regarding factors that could affect our results is included in our press releases and filings with the Securities and Exchange Commission including our most recent 10-K, 10-Q, and 8-K. We undertake no obligation to publicly release the results of any revisions to these forward-looking statements.

On today’s conference call we have President and CEO Dr. Christy Shaffer; CFO and Treasurer Tom Staab; and Executive Vice President and Chief of Commercial and Corporate Operations Joe Schachle. For today’s call, Tom will begin with a review of our fourth quarter and full year financial results and our 2008 financial guidance and then Christy will provide an update on our key commercial and clinical programs.

I would now like to turn the call over to Tom.

Thomas R. Staab

Thank you, Jenny and good morning, everyone. I’m pleased to provide you with an overview of our fourth quarter and full year 2007 financial results as well as to provide some additional detail regarding our 2008 operating guidance.

As you will hear from Christy shortly, we accomplished a number of important milestones in 2007 and advanced initiatives in key areas of our business. I’d like to take a moment and touch on some of those financial highlights. Those highlights are:

Significant revenue growth. We continued to achieve double-digit increases year over year. Specifically, we increased revenue of 64% in the fourth quarter and 31% for the full year as compared to 2006.

Tight control over operating expenses. Our actual operating expenses for 2007 were under our projected range of $115 million to $130 million. In addition, we utilized $11.7 million of cash from operations in the fourth quarter, which was at the lower end of our projected range of $10 million to $20 million. We consider our cash and investments to be precious and strive to be judicious in its allocation to programs and initiatives that will provide an appropriate stockholder return.

Maintain a strong balance sheet. We enhanced our liquidity with an increase in cash and investments of $37 million over the balances at December 31, 2006. We have been successful in reinforcing our balance sheet to provide sufficient liquidity to fund operations through 2009 in the face of what appears to be an increasingly difficult macroeconomic environment, especially for smaller market cap companies in the biotech/pharma industry.

I’ll begin my detailed remarks with a discussion of the fourth quarter and annual 2007 results. For the fourth quarter ended December 31, 2007, we incurred a net loss of $18.1 million as compared to a net loss of $15.5 million for the fourth quarter of 2006. As mentioned in our third quarter 2007 results and reiterated in the press release issued earlier this morning, Inspire recorded a non-cash deemed dividend of $8.3 million to our preferred stockholders on October 31st in association with the exchange of all outstanding SEC shares of Series A preferred stock issued to Warburg Pincus earlier in 2007. This non-cash dividend which is recorded as the result of a deemed beneficial conversion feature embedded within the preferred stock, does not affect our net loss but does impact our loss per common share as prescribed by GAAP.

Accordingly, the accounting treatment for this embedded conversion feature increases our loss per common share in the fourth quarter of 2007 by $0.16 for a net loss per common share of $0.51 as compared to our loss per share in the fourth quarter of 2006 of $0.37.

When comparing our net loss between the quarters, our 2007 net loss increased $2.5 million from 2006 as a result of substantially higher revenue in 2007 offset by higher commercial cost from growing our sales force by 50% to approximately 100 territory managers as well as adding managed markets and other commercial personnel to support the commercialization of AzaSite. Total revenue for the fourth quarter of 2007 was $13.9 million compared to $8.5 million for the fourth quarter of 2006, representing a 64% increase.

Now let’s begin our revenue discussion with Restasis, which has become an increasingly important revenue stream for us representing 63% of co-promotion revenue in the fourth quarter and a little over half of our total revenue in 2007. Co-promotion revenue on net sales of Restasis for the fourth quarter of 2007 was $7.4 million and represents a 73% increase in revenue compared to the fourth quarter of 2006.

Restasis achieved an important milestone in the fourth quarter achieving over $100 million in net revenue in a quarter for the first time since its launch in April 2003. Restasis continues to grow nicely year-over-year by responding to Allergan’s investment in DTC advertising and Allergan and Inspire’s DTC efforts. We are pleased with the product’s prescription growth of 22% for both the year and the fourth quarter as compared to the same time periods in 2006.

As a reminder, we have reached our highest entitled percentage of Restasis net sales in 2007 calculated at just over 7% when compared to the aggregate net revenue for the quarter as disclosed by Allergan. Based upon strong 2007 performance and expected continued growth, Allergan has projected net revenue for Restasis to be in the range of $375 million to $405 million for 2008.

Moving onto Elestat, our co-promotion revenue from Elestat for the fourth quarter of 2007 was $4.4 million increasing from $4.2 million in the fourth quarter of 2006. We are pleased to have increased Elestat revenue in 2007 especially as the overall allergic conjunctivitis market, as measured in prescriptions, decreased approximately 1% and in the face of new product offerings contributing to an increasingly competitive marketplace.

As mentioned in our third quarter call, we have lost approximately 1% market share in the last 12 months, but we have increased our margin on each Elestat prescription as compared to 2006 and have stabilized and maintained our current market share position over the last several quarters.

In regards to AzaSite, we recorded $2 million in revenue in the fourth quarter, the first full quarter of AzaSite sales since the product’s launch in August. AzaSite continues to be an exciting product opportunity for us and we are working diligently to educate the marketplace on AzaSite’s product profile and its distinguishing characteristics. Although it is still early in AzaSite’s lifecycle, having launched the product approximately six months ago, we had anticipated a more rapid early adoption of the product.

With that said, our long-term optimism for the product’s potential continues to be reinforced by our discussions with key physicians in the marketplace. We are making progress and building the brand and we continue to see weekly increases in prescriptions. Christy will discuss in more detail our future plans for this product in her remarks.

Now let’s move down the income statement for a discussion of our operating expenses. In the fourth quarter of 2007, operating expenses increased to $32.6 million from $25 million in the fourth quarter of 2006. As mentioned earlier, this increase was largely due to higher commercial cost associated with our enhanced infrastructure to support the commercialization of AzaSite with selling and marketing costs increasing approximately $8 million and recording cost of sales of $1 million.

In regards to other operating expenses, R&D expense decreased 9% and G&A expense increased modestly by 4% as compared to the fourth quarter of 2006. As Christy will discuss in more detail, we continue to advance our development programs yet are conscious of our operating run rate in cash burn. As evidenced by our 2007 actual operating expenses in our 2008 guidance, we are striving for an appropriate balance between aggressively advancing our commercial and development programs yet conserving resources in a challenging economic and regulatory environment so as to extend our liquidity.

In regards to full year 2007, we incurred a net loss of $63.7 million or a $1.61 loss per share as compared to a net loss of $42.1 million or a $1 per share loss in 2006. Once again, the deemed dividend associated with the exchange of preferred stock to common stock had an impact on our loss per share increasing loss per share $0.19 for the entire year.

Similar to the discussion of the fourth quarter, the increase in our 2007 net loss is associated with an increase in our annual aggregate revenue of $11.6 million offset by a larger increase in our R&D expense and sales and marketing expense in 2007 aggregating for an increase in our net loss of $21.6 million.

The increased operating expenses included a one-time AzaSite in licensing payment and R&D expense of $13 million and higher sales and marketing costs associated with the expansion of our sales force and AzaSite promotional activities. In addition to the benefit from the larger revenue base in 2007, we were successful in decreasing our general and administrative cost by approximately 12%, largely due to a reduction in our overall legal expense.

Moving on to the balance sheet, we ended the year with $140 million in cash and investments and working capital of $108 million reflecting a strong financial position in which to enter 2008. Our cash and investment balances increased $37 million from December 31, 2006 and reflect additional liquidity provided by a strategic investment by Warburg Pincus in the middle of the year netting $74 million and an increase in net borrowings which yielded $46 million, both of which were offset somewhat by normal operating cash usage. I will remind you that our 2007 cash usage included one-time AzaSite milestone payments of $32 million that will not reoccur in 2008.

Now I’d like to spend a little time giving additional details on our 2008 financial outlook and our operating guidance as initially announced last month. Our 2008 results will be highly dependent on the commercialization of AzaSite as well as the clinical and regulatory developments and corporate plans for our Denufosol, Prolacria, Epinastine, and glaucoma development programs. Taking those considerations in mind and based upon AzaSite, Restasis, and Elestat trends, we expect aggregate revenue to be in the range of $62 million to $76 million and aggregate operating expenses to be in the range of $109 million to $129 million.

Breaking down our expense guidance into the various components, we expect operating expenses to be in the following ranges:

Cost of sales, $5 million to $8 million;

R&D expense, $42 million to $54 million;

Sales and marketing expense; $50 million to $57 million;

G&A expense, $14 million to $18 million.

I will also remind you that our cost of sales includes three primary components: the actual AzaSite cost of goods sold, AzaSite royalties payable to InSite Vision, and the amortization of the AzaSite FDA approval milestone paid in 2007. In addition, we estimate that we will incur approximately $5 million of non-cash equity-based compensation expense, which is based upon the company’s current stock price and stock-based compensation strategy. Finally, we expect our cash utilization for 2008 to be in the range of $50 million to $80 million.

As I mentioned previously, we entered 2008 with a strong balance sheet and with the expectation that we have sufficient liquidity to fund our operations through 2009. We are pleased that we accessed the capital and debt markets before the macroeconomic environment began to weaken. Our liquidity and cash usage does not take into a consideration any business development activities that we may undertake. These activities would likely be of an out licensing nature, most notably ex-North American rights for our CF program, and we would expect, if we are successful, that any transactions would enhance our liquidity by bringing in non-diluted capital.

Now, I would like to turn the call over to Christy for the AzaSite and R&D program update.

Christy L. Shaffer

Thank you, Tom and good morning. During 2007, we made progress in several key areas of our business. First, we advanced multiple clinical programs in our two therapeutic areas of ophthalmology and respiratory which will generate several potential key catalysts in 2008; second, we enhanced our commercial operations with the addition of AzaSite and third, we secured a significant investment of $75 million from a highly respected investor, Warburg Pincus.

As many of you are aware, we expect to report top line results in two of our Phase III programs by the middle of this year. Further, we expect to provide an update on potential progress in our dry eye program in the third quarter and expect to complete several Phase IV clinical studies of AzaSite during the year. Therefore, given the multiple programs in our pipeline, we will be prioritizing activities as data becomes available in each of our program.

This morning I will begin by discussing our 2008 plans for AzaSite and then discuss upcoming catalysts in several key R&D programs that are expected to occur throughout the year. The primary focus in 2008 for our commercial organization is to grow our revenue from our co-promoted products as well as AzaSite.

I would like to address our plans for increasing patient and physician awareness and utilization of AzaSite. We have carefully analyzed our sales and marketing efforts over the initial six months since launch determining what has worked well for us and now focusing on specific areas for improvement. We have met with numerous key opinion leaders in ophthalmology to gain valuable feedback and input on the use of AzaSite in their specific practices. Based on these discussions, there is a high degree of interest regarding the prodoct profile of AzaSite including its convenient dosage regiment and azithromycin’s unique combination of anti-infected and anti-inflammatory properties.

We know we need to do more to effectively gain broader product awareness and we have developed a robust plan for 2008. First, our sales force will be using a targeted marketing campaign focused on eye care specialists versus the pediatrician. We’ve recognized that eye care specialists are often the early adopters of new products and that they value extensive scientific information on product attributes and mechanisms of action to determine how to best use a product for their patient population. We just recently included more scientific details in our marketing material for the eye care specialist.

In contrast, it takes more time to build awareness and change habits among pediatricians. In addition, health plan coverage is critical for that audience. On that front, we’ve been working diligently to ensure competitive coverage, but it takes time to gain traction. AzaSite’s managed market presence continues to improve as the product had moved to a more commercial payor and state-formulary coverage review cycle. The availability and access to AzaSite to commercial plans has increased as we move six months post launch and access to AzaSite within state Medicaid, government and Part D has also improved as the product have moved through normal review cycles. This coverage is particularly important to pediatricians who serve children covered by state Medicaid plans.

Our direct calling efforts will be actively supported by a full schedule of educational program to create and broaden awareness to product. These activities include hosting physician dinner meetings supporting key new programs and having a significant presence at major medical meetings such as ARVO, AAO, the American Association for Pediatric Ophthalmology and the American Academy of Pediatrics to name a few.

Simultaneously with these initiatives, our ophthalmic R&D team is focused on expanding scientific data on AzaSite through a comprehensive series of Phase IV studies to evaluate more information on the pharmacokinetics, antimicrobial effects, anti-inflammatory effects, as well as safety and efficacy in other chronic or other ocular conditions; in this case blepharitis.

I am pleased to report that we have already had positive results from the first of several ongoing Phase IV studies demonstrating pharmacokinetic evidence of high ocular tissues concentrations of AzaSite relative to a competitive product. Finally, with patent coverage due 2019, we have a number of years to benefit from our investment in AzaSite.

At this point, I would like to move on to highlight some of the upcoming events in our clinical development program. I would like to begin with an update on our Epinastine nasal spray program. Today, we are pleased to announce that enrollment has been completed in the first Phase III pivotal clinical trial for seasonal allergic rhinitis that was conducted during the Mountain Cedar pollen season. We are on track to report top line results in the second quarter as we’ve previously guided.

In addition, the required six-month intranasal toxicology study in one animal specie is ongoing with those results expected by the middle of the year. Further plans will be dependent on these results plus other factors such as progress in obtaining IP protection, assessment of the commercial opportunity relevant to competition, and status of our other clinical development programs.

I would now like to provide an update on our high priority programs, Denufosol for cystic fibrosis. We expect to be in a position to report top-line results from our first Phase III pivotal clinical trial TIGER-1 by mid-year. As a reminder, this trial includes a 24-week portion for efficacy followed by a 24-week open-label Denufosol safety extension. By the time we announce the efficacy results, we would expect to have a majority of the patients in the open-label safety extension to have completed a full 48-weeks of dosing.

Also earlier this month, we announced the initiation of TIGER-2, the second pivotal trial for Denufosol. This trial is a 24-week double-blind, placebo controlled, randomized study comparing 60 milligrams of Denufosol inhaled three times a day to placebo in approximately 350 patients with no open-label safety extension. The trial’s primary efficacy endpoint is a change from baseline in FEV1 in liters at the 24-week time point. Secondary endpoints include other lung function parameters, pulmonary exacerbation, requirements for concomitant CF medications, and quality of life.

TIGER-2 has now begun screening and enrollment in the United States and Canada and we are pleased that a large majority of these sites involved in TIGER-1 are also now participating in the TIGER-2 trial. Given the highly innovate nature of Denufosol and the fact that it is addressing a high unmet medical need, we plan to move forward aggressively if TIGER-1 is positive. This would include discussions with the Pulmonary Division of the FDA given our fast track status and negotiations with potential ex-North American partners.

At this time, I would like to move on to other events expected in the latter part of the year. In 2007, we made progress in our dry eye program by identifying a reasonable path forward to potentially obtain regulatory approval of Prolacria. As we’ve previously indicated, based on analysis of our existing clinical data and input from dry eye experts as well as several meetings held with the FDA, we are now focusing our efforts on evaluating the effects of Prolacria on the central region of the cornea as measured by fluorescein staining scores.

Today, we want to let you know that we are now actively enrolling patients in a pilot trial studying Prolacria and ORA’s proprietary dry eye model. The purpose of this trial is to confirm an appropriate clinical trial designed to be used for a potential pivotal Phase III clinical trial. If the data from the pilot study is favorable, we plan to move this program forward aggressively. Based on current plans in the program, we are on track to provide you with an update on our progress and potential next steps for the third quarter of 2008.

Today, we are also pleased to provide you with an update regarding the development of this dry eye product in Japan. Our Asian partner, Santen Pharmaceuticals, a premier ophthalmology company in Asia, has made significant progress in their Phase III program over the past year. Santen has now publicly stated that they plan to file an application for marketing approval with regulators in Japan in the July to September timeframe this year. We will be eligible to receive a modest cash milestone payment upon completion of the Phase II testing and we will receive royalties in Japan as well as non-other Asian countries that the product is ultimately approved. In Japan, alone, there is an estimated 8 million dry-eye sufferers, so it is a large market there as well. Santen has extensive experience in this market and we are encouraged by the progress in the development of the product in Japan.

Finally, we are enthusiastic about our early-stage program in the R&D pipeline for glaucoma which represents the largest ophthalmic market. Our program represents a novel approach to treating the condition and we expect to report top-line results this year from our ongoing Phase I proof of concept study of INS115644, the first of several potential product candidates. In addition, we expect to file an additional IND on another compound for glaucoma later this year.

In summary, we are focused on three key drivers this year. First, we will have access to clinical data in our late-stage programs, in particular Denufosol, which will enable us to prioritize and invest in our programs with the greatest potential to increase shareholder value. Second, we plan to increase awareness and the use of AzaSite and grow our sales. And third, we will be prudent in deploying our cash to position the company for both near-term and long-term success. We look forward to the opportunities that lie ahead this year and we will be providing additional updates as key milestones occur.

At this time, we’ll be happy to open the floor for questions.

Question-and-Answer Session

Operator

Your first question comes from Liana Moussatos - Pacific Growth.

Liana Moussatos - Pacific Growth

When you release the TIGER-1 data, is there any chance that it’s going to happen at ATS or will you have any data at ATS?

Christy L. Shaffer

We actually expect to have, based on their timing of this, a press release that would provide just the top line results and similar to other programs that have gone on in cystic fibrosis, the very large meeting where all the CF communities gathers. It’s the North American CF Conference which is in the fall. So our expectation would be to provide a very detailed result for the study at the North American CF Conference.

Operator

Your next question comes from Ian Sanderson- Cowen.

Ian Sanderson- Cowen

On AzaSite what has been the most surprising hurdle to the adoption at this point and why do you think it’s been disappointing?

Second, the selling and marketing expense in Q4 was down sequentially despite the AzaSite launch and was there some rethinking of the spending late in the quarter there?

Thirdly, can you give us a little bit of color on the status of the European partner for Denufosol and are people waiting for data? What’s the situation there?

Christy L. Shaffer

I’d like to take the third question first, if you don’t mind, Ian, and then I’ll ask Joe and Tom to address your other two other questions. The third question, of course, was around the partnership for Denufosol outside of the United States. So, I want to reiterate that our plan is to keep the opportunity to commercialize Denufosol in the United States and Canada in part because it’s quite manageable now that we’ve built out the commercial infrastructure. We have the capability of doing that.

As you know, there are about 110 accredited CF treatment centers in the United States and about 90% of the diagnosed patients are seen at those centers. So, it’s a fairly contained market and certainly a fairly easy commercial atmosphere, if you will, for that particular disease state day and for selling products in that space.

We have talked to several potential partners, particularly partners that can cover all of Europe which is our ultimate goal. CF is a Caucasian disease largely and so there really isn’t an opportunity in Japan or in Asia so, we’re really looking for an ex-North American partner.

We did have a number of discussions ahead of the TIGER-1 result and we felt that we would get significantly greater value for the asset post the TIGER-1 result. We would anticipate if TIGER-1 is positive that we will gear back up with those parties that we’ve been talking to and ultimately find the best opportunity for us to partner.

Again, it would be most likely a party that could optimize it very, very well outside of North America, not just to a specific region.

At this point, I’d like to ask Joe to address the question regarding hurdles that we’ve seeing with AzaSite to date.

Joseph Schachle

I want to touch on some of the barriers we’re facing and really the two primary ones that affect two different customer groups. If you look at reimbursement, that’s been one of the challenges coming out of the gate and reimbursement, as Tom mentioned, is very important especially to the pediatrician population who treat a lot of Medicaid patients.

If you look at ophthalmology, one of our bigger challenges is having adequate Phase IV data and we’re starting to build the Phase IV data at this point. But if you look historically, we only had the Phase III data to work from and the ophthalmologist really is looking for more information than what we had available to us at launch. We’re both building on reimbursement and also building our Phase IV data and actually have some positive results from one of our first trials by looking at pharmacokinetics of the product.

Thomas Staab

Ian, in response to the question about sales and marketing expenses, we certainly have not taken our foot off the gas. As a matter of fact, as Christy mentioned, we’re investing in a Phase IV program and so you see that in the sales and marketing line item. But the difference between Q3 and Q4 is primarily associated with launch-type expenses and so there were some additional expenses in the third quarter that you wouldn’t see in the fourth.

Operator

Your next question comes from Angela Larson - Susquehanna.

Angela Larson - Susquehanna

I’m staying with the AzaSite line of questions. Could you tell us a little bit about when you first launched, what percent of the calls were going to eye care specialists versus pediatricians? Also, if you could give us a little more color on the Phase IV studies. Are any of those new indications or is it just continuing to further characterize the product and the attributes that eye care specialists are interested in?

Joseph Schachle

Angela, roughly 60% of the focus is around eye care and 40% is around all others, which includes PCPPs and all other physicians. We’ve roughly been at a 60% to 65% range of focus around eye care since launch.

Christy L. Shaffer

Regarding Phase IV, we are prepared and actually have started a comprehensive Phase IV program really to focus on obtaining additional scientific data, looking at a number of factors.

For example, there is quite a bit of data in the literature on Azithromycin as a molecule in terms of having a very interesting anti-inflammatory property. In fact, there’s a lot of data on ocular surface, including the fact that now CF patients typically take Azithromycin or Z-Pac, if you will, for some of their respiratory infections. So it is used in that population.

We are doing some experiments on the ocular surface in terms of understanding the anti-inflammatory effects, which we think will be very interesting. We’re also doing some additional pharmacokinetic work. As you probably know, InSite Vision did a very nice job on a couple of Phase III studies for an NDA, but there was a lot more work that could be done to really build the elegant science around the program.

Regarding other potential uses, we are, in some of these Phase IV studies, exploring potential other uses for the product. An area that the key opinion leaders have expressed a lot of interest is blepharitis, which is quite a pervasive condition, and it represents a large unmet medical need and there are no approved agents at the moment for blepharitis. We’re beginning to explore that in some of our Phase IV work.

In terms of potential new indications, we wanted to obviously see data from this Phase IV work to determine whether or not it would be worth pursuing them officially or formally as an indication with the FDA.

Operator

Your next question comes from Sapna Srivastava - Morgan Stanley.

Analyst for Sapna Srivastava - Morgan Stanley

Just a quick question on the CF program. If TIGER-1 produces either non-statistically significant results or disappointing results, what does that mean for TIGER-2 and your path forward?

Christy L. Shaffer

We are assuming that TIGER-1 needs to get its primary endpoint and to have a good result in order for TIGER-2 to be justified.

Analyst for Sapna Srivastava - Morgan Stanley

Would you stop TIGER-2 at the time you get the data if that’s the case?

Christy L. Shaffer

I think that obviously data is very interesting to look at and there’s lot of data for this trial from a lot of different perspectives, but I think if we saw that it looked as if TIGER-1 had results that were very clearly negative, for example, most likely terminate TIGER-2 at that time.

Analyst for Sapna Srivastava - Morgan Stanley

On the flipside, if TIGER-1 produces really sort of striking data, do you think that would be enough to file off of or do you think that you will definitely need two trials to get onto the market even in an accelerated fashion?

Christy L. Shaffer

I think that’s a great question and we certainly had some preliminary discussions with the pulmonary division on that point. Basically, they have indicated to us that would be something that they could only discuss upon such time if they actually see the TIGER-1 data. We do have fast track status. We do have a open status. However, I will remind you that we’re in a currently very conservative regulatory environment. I would expect that they would anticipate that we would proceed with TIGER-2 which could be ongoing at that time. We will have from TIGER-1 the requisite safety data that we need in terms of over 100 patients being on the drug for a year and I will remind you that we also have another gating item which is a two-year inhalation carcinogenicity study in rodents and that data won’t be available until the second half of ‘09. So our anticipation is that we would need both of those studies, that’s why we started TIGER-2 such that the results of that trial would hopefully come out about the time that we would have the carc data and it would all fit together nicely in a package.

Operator

Your next question comes from Navdeep Jaikaria - Rodman & Renshaw.

Analyst for Navdeep Jaikaria - Rodman & Renshaw

I have a few questions regarding AzaSite. What is the status of formulary coverage for AzaSite? When do you expect the formulary coverage to begin? What’s your guidance for AzaSite revenues for 2008? When do you expect Canadian regulatory approval to market AzaSite in that country?

Joseph Schachle

Let me address the formulary coverage question first. We are making progress in the coverage in managed care. We continue to gain coverage if you look at third-party payors as well as looking at Medicaid and the government Medicare Part D. We’re not giving specifics on that around the timing. But what we have is when we launch the product, you have to get into cycle for review and we’re getting into the cycles to review and getting favorable feedback. So, not to give specifics, but we are getting progress around reimbursement for the product and seeing increases in formulary coverage.

Christy L. Shaffer

Regarding the question about Canada, let me just make a comment that I think it’s probably more appropriate to ask InSite Vision on their earnings call, which I believe is later today. They have submitted that NDA and we do have the right to market it in Canada as well. But it does take a little bit longer in Canada than in the United States which usually is longer than a ten-month review.

Analyst for Navdeep Jaikaria - Rodman & Renshaw

The other question was the revenue guidance for AzaSite sales.

Thomas Staab

We have given the aggregate revenue guidance of the $62 million to $76 million which historically, what we’d done which is give aggregate and not product-specific guidance. We did give product-specific guidance prior to the launch of AzaSite, which is sort of a one-time thing, and we wouldn’t intend to do that in the future. We’ll revert back to what we historically have done since we had commercial products in 2004 which is just providing aggregate annual revenue.

Operator

At this time, there are no further questions. I will turn the call back over to Dr. Shaffer for any concluding remarks.

Christy L. Shaffer

Thank you very much for your continued interest in Inspire and participation on the call today.

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