ViroPharma Incorporated Q4 2007 Earnings Call Transcript

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ViroPharma Incorporated (VPHM) Q4 2007 Earnings Call February 27, 2008 9:00 AM ET


Will Roberts - Vice President, Corporate Communications

Michel de Rosen - Chairman, President and Chief Executive Officer

Colin Broom, M.D. - Vice President, Chief Scientific Officer

Vincent J. Milano - Vice President, Chief Financial Officer and Chief Operating Officer

Daniel B. Soland – Vice President, Chief Commercial Officer

Thomas F. Doyle – Vice President, Strategic Initiatives

Robert G. Pietrusko – Vice President, Global Regulatory Affairs and Quality


Joel Sendek - Lazard Capital Markets

Rachel McMinn - Cowen & Company

Mike King - Rodman & Renshaw

Brian Rye - Janney Montgomery

Meg Malloy - Goldman Sachs

Daniel Mallin - WBB Securities

Yale Jen - Maxim Group


Welcome to the ViroPharma teleconference call. (Operator Instructions) I will now turn the call over to your host, Mr. Will Roberts.

Will Roberts

Good morning. And welcome to ViroPharma’s conference call and webcast to discuss ViroPharma’s fourth quarter and full year 2007 financial results and other business matters. This call is scheduled for approximately one hour.

Certain statements regarding future demand for Vancocin, the timing of any FDA actions related to potential approval of a generic version of Vancocin, and our estimates of wholesaler inventories, the timing of the clinical studies, and NDA and MAA filings, our ability to fund the path forward of HCV-796, and all elements of our 2008 guidance made during this conference call are forward-looking statements.

As you know forward-looking statements involve substantial risks and uncertainties and actual results may differ materially from those projected in such forward-looking statements. The development, marketing and sale of pharmaceutical products are subject to risks and uncertainties and as a result our actual results could differ materially from those results expressed in or implied by this conference call.

Please refer to the press release issued this morning and to our filings with the SEC for more information regarding these risks and uncertainties that could cause future results to differ materially from the expectations expressed on this conference call.

And with that I will turn the call over to Michel de Rosen, ViroPharma’s, President and Chief Executive Officer.

Michel de Rosen

Good morning and welcome to ViroPharma’s conference call. With me on the call this morning in addition to Will, are Bob Doody, our Manager of Corporate Communications and my colleagues of the management team, Vinny Milano, Colin Broom, Tom Doyle, Bob Pietrusko and Dan Soland.

The agenda for this morning’s call will be as follows, first, I will provide an overview of our progress during 2007. Next, Colin will provide an update on our clinical pipeline. Vinny will then walk you through our results for the 2007 fourth quarter and year and discuss our guidance for 2008. Finally, I will provide some closing comments and leave some time for Q&A.

Before I start on the company, I want to provide some brief comments on our news of yesterday. As of March 31, I will be stepping down as President and CEO; Vinny will be assuming that role and Dan will become ViroPharma’s Chief Operating Officer.

One of the strengths of ViroPharma is that we have a remarkable team. This is true throughout the organization and it certainly applies to our exceptional management team. Those of you who know Vinny and Dan can attest to their capability, intelligence and integrity. Vinny will be a great CEO of ViroPharma and I believe he will lead the company to the next level and then higher.

And I am certain that this transition of management will be smooth. Vinny has served ViroPharma as CFO for the last 12 years. He and I have worked together for eight years. So I can attest to the fact that he is an extraordinary leader with exceptional talent and demonstrated integrity.

Vinny has been instrumental in building ViroPharma to where it is today, including leading efforts to dramatically strengthen our financial position, the restructuring and refocusing of the company in 2004, and the acquisitions of Camvia from GlaxoSmithKline and Vancocin from Eli Lilly. As Chairman of the Board, I will remain deeply committed to ViroPharma and I look forward to an extremely bright future for our company and its shareholders.

Ladies and gentlemen, both the fourth quarter and full year 2007 were a period of strong momentum throughout our organization with much of our attention during the year focused on the clinical pipeline. During 2007, we achieved the following milestones, beginning with Camvia, our anti-CMV agent in Phase 3 development for prevention of transplant-related CMV disease.

In February, we received orphan drug designation in the U.S. providing important exclusivity and financial benefit to the company. In May, we announced our intention to develop and market Camvia in Europe ourselves and launch ViroPharma Europe. Today our European team continues to grow and is making good progress in the European development of the compound.

In July, we opened our second Phase 3 clinical study to enrollment, this one in liver transplant patients. This follows on the heels of our first Phase 3 study of the drug in stem cell transplant patients which began in Q4 2006. In November, we received orphan drug designation for Camvia in Europe. This provides us with ten years of orphan exclusivity plus an additional two years with approval of a pediatric plan which we intend to pursue.

We commenced work during the year toward our 2009 initial NGA and MAA filings, including significant efforts on data accumulation, hiring the right people, process and technology. And we engaged further in our medical efforts and our pre-launch work encompassing efforts by our marketing and via advocacy teams in both the U.S. and Europe in support of these filings.

Next after Camvia, C. difficile infection or CDI, in 2007, we focused on treating the disease appropriately and on working toward developing innovative therapeutic options for the future. First, led by our medical affairs team, we increased our efforts to raise awareness of CDI and help physicians know how to appropriately treat the disease.

To this end we spent 2007 very engaged in activities directed at shedding new light on this important infection, as well as providing clinicians with new information that would enable them to provide their patients with the best care possible. We have in the last year provided unrestricted support for independent medical education related to C. diff that has reached several hundred thousand clinicians.

We have supported important research activities that have improved the understanding of the epidemiology of CDI, its clinical manifestation, management and prevention. And we have partnered with national medical societies and government agencies including the Infectious Disease Society of America, The Society for Healthcare Epidemiology of America, and the CDC to enhance projects directed at raising awareness of the changing epidemiology of C. diff infection.

Next, in the field of CDI, we made also strong progress with our preclinical program, NTCD or nontoxigenic C. difficile. The program, as you will hear, aims to address a very important unmet medical need that is both serious and poorly understood, namely, the prevention of recurrent CDI.

Our hope is that NTCD will be an extraordinary new therapeutic option very different than anything else available or in development today. Among other things during 2007, we received positive initial feedback from FDA on this novel approach to potentially prevent recurrent disease.

We completed much of our initial assessment of the market opportunity and we made great progress in advancing the program toward first in man later this year. Colin will discuss this program.

Finally, in CDI regarding our commercialization of Vancocin, we began our work to prepare for the first sales efforts to promote Vancocin. As of this week we have launched our initial multi-sales force into the field to promote Vancocin and provide further education to the healthcare community. This is very exciting.

We began work in preparation for the presentation of new CDI treatment guidelines which we expect to be finalized and published during the second quarter of this year. These guidelines are important, because they describe the clinical definition of severe CDI and also clarify that Vancocin is considered the first line therapy for the patients who have severe disease. This creates good growth potential for this drug.

And of course we continued our efforts with the FDA as we remained focused on assuring patient’s safety and very engaged in our efforts against the OGDs recommended dissolution-only approach to determining bioequivalence. We met in January with the Office of Pharmaceutical Sciences or OPS and with others within FDA.

These FDA representatives were interested in our point of view. This meeting was an excellent opportunity for us to present and discuss our concerns with them and we believe that it was a very positive step. Overall, we will continue to be relentless until we feel that the best interests of patient safety have been fully addressed.

For HCV-796, our non-nucleoside inhibitor of HCV, the situation is very different. As you will recall, in August we presented strong 12-week anti-viral data showing that the combination of HCV-796 and the current standard of care increased the proportion of patients who achieved a viral title below the limit of quantification. However, we also observed clinical significant elevations of liver enzymes in approximately 8% of patients receiving HCV-796 which led us to discontinue dosing with the drug.

We will not spend much time on this call addressing HCV-796. Patients continue to receive standard of care in the three arms of this Phase 2 study, but as of right now we are not yet ready to present a meaningful update.

We have and continue to work feverishly with our partners at Wyeth on this effort including initiating non-clinical studies, assessing metabolize and TK data, and reviewing efficacy and safety data. We remain very engaged in our efforts to identify an appropriate path forward for this compound. Please stay tuned.

Operationally, we grew our net product sales of Vancocin by 22% over those of 2006 and our research and development expenses increased by 87% over the full year 2006 primarily driven by investments in Camvia, NTCD, increases in medical affairs activities and increased hiring to support our expanded global initiatives.

Financially, we achieved our 12th consecutive quarter of positive cash flow and profitability. This is something that very few other biotechnology companies can claim. We produced $19 and $116 million in operating income for the fourth quarter and full year 2007 respectively. We grew our working capital position even further by $21 million to $594 million, and during the fourth quarter we produced operating cash flows of $33 million and $125 million for the full year 2007.

I will now turn this over to Colin, for a brief review of the progress in our pipeline and some upcoming milestones.

Colin Broom, M.D.

I will spend most of my time this morning addressing the status of two of our very exciting product opportunities, Camvia and our pre-clinical compound NTCD.

But first, Camvia, in November 2007, we received orphan drug designation in Europe. This is important to us for several reasons. European orphan status enables assistance from EMEA in optimizing a drug’s development through participation in the design of protocols, onto marketing applications, and we qualify for reduction in regulatory fees.

Importantly, this designation also provides ten years of potential market exclusivity when the drug is approved in the yield. And when a pediatric investigational plan is completed, an additional two years of exclusivity could be granted and we are pursuing a pediatric indication for the drug.

So, all in all this should provide us with up to 12 years of orphan exclusivity at launch in the yield which dovetails nicely with the patent exclusivity in the U.S. which we believe with Hatch-Waxman extension will take us out to between 2018 and 2020.

We have two pivotal Phase 3 studies enrolling patients as we speak. A study in stem cell transplant patients which began enrolling patients in the fourth quarter of 2006, and a liver transplant study with enrollment initiating in the third quarter of 2007. For each of these studies, enthusiasm is extremely high among investigators.

Although we do not provide specific updates on enrollment timelines, we can reiterate today a previously stated goal of filing our initial NDA in 2009, so next year. To date, we have received positive feedback from European regulators on our development program and with their agreement we anticipate filing our MAA in Europe in a similar timeframe.

At the recent Bone Marrow Tandem meeting in San Diego, we sponsored a CMV symposium for clinicians on the challenges and opportunities of CMV infection in stem cell transplant. And we held a meeting for our international clinical investigators. This confirmed the level of excitement and engagement among our participating clinicians.

These physicians experience daily the problems associated with CMV in their practice. They understand the perils of CMV infection including life-threatening pneumonia, severe abdominal pain, graft failure and even death, despite the fact that many people outside of their specialist community thus far do not. We are working diligently to communicate to the wider community the promise that Camvia may bring to these physicians and their very sick patients.

Moving on to NTCD, our pre-clinical program targeting recurrent C. diff infection, or CDI, we have thus far not spoken much about this product candidate but we expect 2008 to be a year of visible momentum. I will cover the great opportunity and the recognized need, the role that NTCD may play in this market, our strong progress during 2007 and our plans for 2008.

First, the opportunity and medical need, acute CDI is generally well treated by today’s drugs. Vancocin continues to be the reference drug. Indeed recent prospective double-blind randomized clinical trials have shown that Vancocin is statistically, significantly better than metronidazole, in severe CDI, and it remains the trusted drug of choice in these very ill patients. Metronidazole, although not approved for CDI, may be beneficial in mild to moderate disease.

However, irrespective of the treatment choice for acute disease, there remains a great unmet medical need in treating recurrent disease which generally occurs within a few weeks of treating a first acute episode in 20% to 30% of CDI patients. And unfortunately for CDI patients, recurrence is often a long-term problem. More than 50% of patients who have one recurrence will experience additional recurrences.

So, to put this in a more tangible format, if one uses a conservative estimate of about 400,000 cases of acute CDI each year in the U.S., approximately 100,000 of them would experience at least one recurrence of disease, and more than 50,000 of them would experience recurrent disease. In today’s dollars we estimate that the direct medical cost of CDI recurrence is more than $1 billion per year. On a per patient basis these costs exceed $10,000.

Next, the role of our pre-clinical product candidate NTCD on nontoxigenic C. difficile may play and while we believe that one day may be an answer to this unmet medical need. NTCD is an orally-dosed spore form of C. diff but one that cannot cause disease. In fact it does not have the genetic material needed to become toxigenic, that is produce toxins and cause disease.

And due to the size and number of the necessary genes, the organism cannot spontaneously acquire the ability to produce toxin. We also know that NTCD is very good at rapidly colonizing susceptible GI tract of humans who have been exposed to antibiotics. And consistent with this, it displays higher adherence to human mucosal cells compared to even the current epidemic toxigenic BI strain.

The goal of this program in its more simplistic form is to provide protection based on the physical presence of a naturally occurring good C. difficile bug, out-competing and keeping out the invading bad bugs in the lower GI tract of a CDI patient who has been cured of his or her initial disease.

Remember, these are patients who are likely hospitalized because of some other bacterial infection like pneumonia and were subsequently treated with a broad-spectrum antibiotic. The antibiotic treated the pneumonia but also eradicated some of the protective and highly competitive bacterial flora, normally present in their GI tract, which are usually able to out-compete any invading bugs and thus making the lower GI tract susceptible to C. difficile infection.

The scientific and clinical rationale is compelling, based on both animal data and clinical observation. It has been shown that colonization with NTCD is highly effective in preventing CDI in animals caused by toxigenic strains including the BI strain.

We also know that about 40% of strains in hospital environment are nontoxigenic and do not cause infection. If you are a patient lucky enough to pick up one of these nontoxigenic strains, your likelihood of getting disease is dramatically less, as you are better protected by these strains from picking up the strain that causes disease.

We made great progress in 2007 with NTCD. Among other things we had a positive meeting with the FDA during which we discussed the proposed pathway forward and we made great strides in refining the GMP manufacturing process. Thanks to this momentum, I am happy to say that our goal is to begin human studies with this drug candidate this year in 2008.

Our initial target will be to prevent disease in patients after their primary infection has been eradicated. Though the possibility exists to one day use a drug like this as prophylaxis to prevent disease in high-risk patients before they’re ever exposed to toxigenic strains in the hospital. I look forward to keeping you up to date on this program as we move forward.

Finally regarding HCV-796, as Michel mentioned 2007 marked the beginning of a benefit-risk analysis. On the benefit side of the equation, we saw strong four and twelve-week antiviral data. However, on the risk side, we had evidence of a potential liver toxicity in 8% of our patients which, thankfully, appears reversible.

I want to remind everyone that the Phase 2 study is ongoing. Although patients have discontinued HCV-796, patients will complete 48 weeks of therapy with standard of care, and be followed for an additional 24 weeks to determine the rate of SVR.

We get many questions about the two patients we spoke of on our August 2007 call who had dangerous liver enzyme elevation. These two patients have recovered with liver enzymes back to pre-treatment baseline levels and they remain HCV-free. Our goal is to elucidate a path forward with the drug if in fact there is one. We are anxious to arrive at a decision point that will require discussions with FDA.

I will now turn the call over to Vin for an overview of our financial results.

Vincent J. Milano

Good morning to everyone on the call. I will cover several topics including Vancocin net sales growth, a financial review of the company for the fourth quarter and full-year periods of 2007, and a discussion of our reiterated 2008 guidance.

For the full year 2007, Vancocin net sales were $204 million, compared to $167 million in 2006 representing year-over-year growth of 22%. For the quarter, Vancocin net sales were $48 million representing growth of 24% over the same quarter in 2006.

During 2007, our investments into our clinical pipeline increased significantly over that of 2006. Our R&D expenses for the fourth quarter in year 2007 were $13 million and $36 million respectively up 305% and 87% over the same periods in 2006. This increase is primarily associated with the increased costs for Camvia development and the increased personnel were hired to support our clinical momentum.

Our 2007 marketing, general and administrative expenses grew as well to $13 million and $37 million for the fourth quarter and year respectively. This represents growth of 79% and 51% over the same periods in 2006. For both periods, these investments grew with increases in medical education, share-based compensation, and legal and consulting costs. Our combined R&D and MG&A expense was $73 million for the year including the impact of FAS 123(NYSE:R).

Our interest income for the fourth quarter 2007 was $7 million, more than double the $3 million in the fourth quarter of 2006 and for the full year 2007, our interest income was up dramatically from that of 2006 to $24 million. This is due to the simple fact that we have significantly more cash on the balance sheet than we did a year ago. Our annual interest expense also increased by approximately $4 million compared to last year, primarily related to the interest expense associated with our senior convertible notes due in March of 2017.

On the tax line you will note that the effective tax rate is 29.7% for the year 2007 which is lower than previously anticipated. This decrease is the result of a $4 million benefit for evaluation allowance reduction related to additional deferred tax assets that we management believe are more likely than not to be utilized for 2008.

Thanks to the continued strong Vancocin performance we reported net income of $20 million for the fourth quarter and $95 million for the full year 2007, 43% more than that of the full year 2006.

On a per share basis we reported net income of $0.29 basic and $0.25 per diluted share for the fourth quarter 2007 and $1.37 basic and $1.21 per diluted share for the full year. So another year of very strong financial results for ViroPharma, I am also pleased to say that our balance sheet strengthened further during the year.

During the fourth quarter our cash-cash equivalents in short-term investments grew by $32 million to $584 million and our working capital also grew further by $21 million to $594 million. Finally, our operating cash flows also continue to be strong. During 2007 we produced $125 million in operating cash flows, compared to $95 million in 2006.

I will now comment on our current guidance for 2008 which was first issued in January of this year. First, our guidance assumes no generic competition for Vancocin this year. Next, we expect top-line Vancocin sales to grow to a range between $210 and $235 million for the full year 2008.

Our combined research and development, and selling, general and administrative expenses excluding the impact of FAS 123(R) are expected to be between $105 and $115 million. This year-over-year growth is primarily driven by increased clinical expenses associated with the Phase 3 evaluation of Camvia, investments into our NTCD program, and continued and new investments into our Vancocin business.

We expect the FAS 123(R) impact to the expenses I just described will be between $9 and $11 million. So, including the impact of FAS 123(R), the combined R&D and SG&A expenses are expected to be between $114 and $126 million.

So, we expect another year of strong Vancocin sales and of course an appropriate increase in investment, thanks to our advancing clinical pipeline, new expenses associated with promoting Vancocin for the very first time, and our pre-launch efforts around Camvia.

With that, I will turn the call over to Michel for some concluding comments.

Michel de Rosen

As you have heard from the team, we believe that 2007 was a year of investment into our products and of strengthening the company in terms of people and financial resources. Our passion is to develop and commercialize safe and effective compounds for patients with few, if any, treatment options.

In 2008, you will see continued momentum in the following four areas. First, we will continue to focus in the area of CMV. For any company to file an NDA or MAA is a huge undertaking. We are not underestimating the amount of work and the effort that will be required by many people throughout the organization.

All aspects of the Camvia business, both in the U.S. and Europe, are focused on these filings to assure the quality, accuracy, precision and timeliness. The goal is an initial NDA and MAA filing in 2009. We have already begun to increase our pre-launch activities and then priority this year will be to spend more time with you, to illustrate the great medical need and how Camvia may provide a novel solution.

Next, our focus will continue in the CDI business. We will continue to increase our investments on resources to assure physician education enabling them to identify patients in the high-risk population and use Vancocin appropriately in these high-risk patients. Working with physicians to control outbreaks of CDI in their facilities and assuring that all patients who need Vancocin have access to it.

We have an obligation of stewardship in the CDI arena. We are for the first time promoting Vancocin with a goal of providing product growth in 2008, 2009 and beyond.

We will continue our effort to the FDA if we remain focused on assuring patient safety and very engaged in our efforts against the OGDs proposed recommendations for a dissolution-only approach to determining bioequivalence, and we will begin clinical development of NTCD. Our goal is to meet the unmet medical need of CDI recurrence. NTCD represents a very unique opportunity for ViroPharma to remain the leader in the CDI arena for many years to come.

Next, hepatitis C, as soon as possible, we with Wyeth, will decide what the future of HCV-796 is and execute on our decision.

And finally, there remains the potential for providing additional growth through business development. On every quarterly call, I remind you that it is our goal to leverage our strong balance sheet and expertise in our areas of focus to bring additional value drivers to the company.

In biotechnology, cash is king and being profitable and cash flow positive is very rare. We are unique confident that we can claim both. The financial markets have clearly deteriorated and they are likely to stay difficult for some time. This should make the price of many assets lower and the value of our cash higher.

We believe that the strength of our balance sheet is a real advantage to us as it relates to business development. 2007, ladies and gentlemen, was an exciting period for ViroPharma and I expect that 2008 will be even more so with greater momentum throughout our organization.

On a personal note, if I may, my decision to step down as Chief Executive Officer of ViroPharma has been a difficult one for me, but my family must come first and so I am going home to France. I would assume there the position of CEO for private company.

My eight years at ViroPharma have been extremely gratifying on both a personal and professional level. Truly it has been a privilege. I have a strong belief in what ViroPharma is and what it can be, and I have a huge trust and respect for Vinny.

I leave my CEO position with a sense of pride and the company in excellent hands in a period of great clinical and commercial momentum and in the strongest financial position in its history. I look forward to continuing to participate as Chairman of the Board of Directors in the future successes of ViroPharma.

Thank you for your attention and interest in our continually improving business. Let’s open the line now for some Q&A. As a reminder, the team members in the room available for questions in addition to me are Vinny, Colin, Dan, Bob, Tom, Bobby and Will.

Question-and-Answer Session


(Operator Instructions) The first question is from Joel Sendek - Lazard Capital Markets.

Joel Sendek - Lazard Capital Markets

Michel, since this is your last conference call maybe give us an update on the partnering outlook for the company and whether you will be still involved with the in-licensing activities as chairman?

Michel de Rosen

So, there are two aspects to your question. Let me answer the second one first. As Chairman of the Board I will be involved with areas of strategic interest to the company and that does include business development but it’s not limited to that.

On your first question, it has been our priority for some time now to try and add one or more value drivers to the company and we have remained since in our last two deals in fact, of the Vancocin deal which we did at the end of 2004 and then the NTCD deal that we did two years ago. Since then we’ve spent time looking at other opportunities.

We looked at many and we have always, always kept a discipline that this company will keep going forward about not wanting to be engaged in a deal where we would not be convinced that it would be good not only for the company but also for the shareholders. And that is why we never committed to any date for any deal, because that’s the best way to do a bad deal if you start being a prisoner of some kind of timeframe.

So we believe, as I said in my opening comments, Joel, that the situation today in 2008 is pretty favorable for a company like us, because we have very good balance sheet and because the evolution of the market has depressed the value of a number of assets.

So that is why as we are starting 2008 we are continuing to work on business development opportunities. We have some active discussions but we will still not commit to any date because we will never sign a deal until we are convinced that it is a good deal for our shareholders.

Joel Sendek - Lazard Capital Markets

You say you have some active discussions. Can you characterize that as maybe more active or less active than they have been over the course of 2007?

Michel de Rosen

No, I would say it’s comparable. It’s certainly not less active. I don’t think we could say it’s more active because, Joel, you know how this goes. You have some things that are active and then we are very, again rigorous, we do diligence and if we see that some things that [inaudible] that we don’t like, well then we stop. And then so, it comes and it goes, but overall I would say since mid-2007, it’s been pretty active and I believe it will continue to be active in 2008.

Joel Sendek - Lazard Capital Markets

Then just a separate question on C. diff, you mentioned a slowdown in the incidence rate of C. diff, of CDI. I am wondering if you could quantify that at all. How much of a slowdown since you are closest to it?

Daniel B. Soland

So what we are seeing is a plateauing of the disease as you might see in any epidemic. And it’s hard to say exactly what the projectile of the disease incidence is, but we are definitely seeing a plateauing of the disease.

And as we have spoke about in earlier conference calls that our move now is to garner a larger market share with the new guidelines that are coming about and with the two Phase 3 trials, by the way that we did not pay for, but reflect that Vancocin is a superior product to metronidazole. And with the beginning of our new sales force, these are the things that we plan to do in the future to continue to grow Vancocin sales.

Joel Sendek - Lazard Capital Markets

If I can define plateauing, it’s more of a de-acceleration. It’s not a negative growth. Okay, even though in the press release, it says “slowdown” which I guess could be interpreted that way. I just want to make that clear.

Daniel B. Soland

Yes, a deceleration of growth, Joel. That’s the way to characterize it.


Our next question is from Rachel McMinn - Cowen & Company.

Rachel McMinn - Cowen & Company

Any Vancocin inventory stocking in the fourth quarter?

Vincent J. Milano

No, the inventory levels at the end of the year were within a couple of days of what they were at the end of the third quarter. So pretty close to the same.

Rachel McMinn - Cowen & Company

Okay. And then, in terms of, can you comment whether there was any further communication with the FDA since your January meeting or any expectation of when the FDA will get back to you on that meeting?

Thomas F. Doyle

We don’t comment on our daily interactions with FDA. We had a very productive meeting with them, but as a matter of policy, we don’t want to get into details about back and forth with the agency.

Rachel McMinn - Cowen & Company

Is there any guidance you can give us, though obviously your sales guidance, you are saying, your assumption is no expectation for generic Vancocin. Do you have any expectation? Are you pushing to actually get a panel meeting set up for this year to review this issue?

Thomas F. Doyle

We are certainly very engaged and working with the FDA on this issue, but again, we don’t comment on our tactics with FDA.

Rachel McMinn - Cowen & Company

This last question is on Camvia. Are all centers open for recruitment right now and can you remind us to whether there are any interim looks in the data in either trial?

Colin Broom, M.D.

The question about the number of centers, both the studies are running in of the stem cell study and the liver transplant study. We have initiated centers in Europe. We’ll call it the liver study; it was initiated a little later than the stem cell study. So now we have our European centers enrolling. We still have some centers to get up in Europe where we’re more advanced in the U.S., so good momentum on both studies.

Rachel McMinn - Cowen & Company

Are there any interim looks?

Colin Broom, M.D.

There are no interim looks from a statistical basis based on efficacy I will say. However, remember, there are two committees that are independent of ViroPharma who are looking at the data. The first committee is the Data Safety Monitoring Committee, and the second committee is one that is an independent review of the end point; that is, the CMB disease.

The first of those committees, the Data Safety Monitoring Committee, is unblinded to the data. They meet regularly to review the safety data. The most recent meeting have given us approval to continue the study, so clearly based from that, they saw no adverse signals in the study.

The second committee is to look independent. They are blinded, but they will adjudicate on the cases of CMB disease. Now of course they don’t know, we don’t know what the attribution is but those two committees are ongoing and supervising the study. And again studies are progressing well.

Rachel McMinn - Cowen & Company

Just a follow-up on that second committee, you must have a sense, then, of the incidence of CMB disease, and does that fit well with your statistical plan and participation?

Colin Broom, M.D.

Yes, it will be inappropriate of me to comment on that other than saying clearly there are cases of disease and then maybe we’ll look at them, but of course we do have visibility but I am not going to comment further on that.


Our next question is from Mike King - Rodman & Renshaw.

Mike King - Rodman & Renshaw

Let me just ask about NTCD first. I am just trying to understand the preclinical. How does one sort of validate NTCD pre-clinically both from a standpoint of a clinical model of C. diff and how does one satisfy if there are any FDA requirements for safety with NTCD?

Colin Broom, M.D.

Mike, this is Colin. Two aspects, so what’s the preclinical data, what’s the animal data, and then I think also very importantly, what’s the whole clinical or human exposure database that we are basing this on?

First, of all pre-clinically and in the animal model, there are a number of animal models that have been looked at, but the best is in the Syrian hamster. So that’s an animal that’s very susceptible to see C. difficile. If you treat it with antibiotics and you challenge them with toxigenic C. difficile, they die within 48 hours. It’s lethal to them. So in that model there’s extensive literature and work that’s been done demonstrating the protective effect of intervening and colonizing with a nontoxigenic strain.

Now the specific strain that they are taking to develop in the clinic is actually the most common nontoxigenic strain that you find in a hospital environment. So there are four large studies, environmental studies in hospitals that have demonstrated that if you were lucky enough to get colonized with a nontoxigenic strain including the specific one that we are developing, you are at very, very low risk of developing C. difficile.

On the other hand if you get a toxigenic strain of course you are at a much higher risk of developing disease. So, it’s pretty clear from these observational studies that if you are able to colonize a patient you are likely to prevent them from getting toxigenic strains.

Robert G. Pietrusko

To add to the second part of your question about meeting with FDA and the guidelines, and we had a very successful meeting with FDA where we discussed our overall plan.

And then within that plan we talked about the non-clinical studies that we were performing and discussed that with them as well as the manufacturing process. How do you make a viable spore and we went through the process and discussed that, as well as initial proposal for the clinical study and there was a general endorsement of that program. So, we feel very good about that.

Mike King - Rodman & Renshaw

Is there any evidence, sort of a theoretical concern because that’s what the FDA, that’s sort of their job to sit around thinking about theoretical rather than practical concerns. But has there ever been any evidence in epidemiologic studies of C. diff that those with the nontoxigenic strain that there has been any gene transference to the nontox from a toxigenic strain?

Colin Broom, M.D.

Mike, referring back to what I said during the call, the genetic material for that need to be possessed by these bacteria to be toxigenic is quite a large and multiple genes. They don’t get transferred and in fact now there is a library of these strains of C. difficile where they are toxigenic or nontoxigenic and they have remained true. So, a nontoxigenic strain does not become toxigenic. It does not have the ability to acquire those genes.

Mike King - Rodman & Renshaw

So if it had genes it might be able to swap genes but the absence of genes prevents it from acquiring those genes?

Colin Broom, M.D.

Yeah it’s not just the plasmid. It cannot be transmitted by a simple plasmid because of the complexity of what’s called the pathogenicity locus that isn’t necessary to produce toxins.

Mike King - Rodman & Renshaw

As far as Vancocin sales are concerned, two things, first, I thought we were to expect a little bit of a strengthening in the latter part of ‘08 due to the impact of the sales force kicking in.

Number two, this may be coincidence, but if one looks back the quarter-over-quarter progression in ‘06 looks like you have strength in sort of the middle part of the year and weakness in the first and fourth quarter. Is there just some seasonality that came into play in this current quarter?

Vincent J. Milano

I think that Mike the answer on the fourth quarter of last year was partially impacted by a reduction in the wholesale inventories. You may recall that there was a stocking up in Q3 and a stocking down in Q4. So, it’s difficult to look at it quarter-over-quarter.

I think our experience with Vancocin and frankly the last couple of years that Lilly was selling the product is that there is clearly an increase in demand for Vancocin in the March to May, June timeframe. So, we have clearly seen second quarter increases and then there is more of a let’s say a plateauing to the first quarter level for Q3 and Q4. So, that would become a distribution that we have experienced when you look at it from a demand perspective, taking out the lumpiness that inventory channel stuff does.

As far as your question about 2008, I think that you probably noticed that our range is a little wider than we have traditionally provided for guidance and that’s because with all due respect to our knowledge base, we have never promoted Vancocin before and these new guidelines are potentially very, very meaningful. You don’t know exactly when those guidelines will be out and it’s difficult since we don’t have any promotional history to predict with a level of precision what the impact is.

We clearly believe that the guidelines and the promotion are going to drive Vancocin sales in the later part of 2008 and 2009 and beyond. But we thought it would be prudent to put a range out that incorporated the concept that maybe we didn’t see that effect until 2009.

Mike King - Rodman & Renshaw

And can you anticipate any price increases in that at all?

Vincent J. Milano

We don’t comment on the elements of our guidance, but you probably do know that we took a, what we call a pharmaceutical cost of living increase in early February of around 9%. So, we did that and that’s pretty consistent with what we did in 2007 and 2006, both in timing and the magnitude.


Our next question is from Brian Rye - Janney Montgomery.

Brian Rye

Vinny, just a follow-up on Mike’s line there, what the actual year-over-year change was in prescriptions for Vancocin and then I may have missed this but do you have an expectation for the effective tax rate in 2008?

Vincent J. Milano

I think we put out 27% to 31% as the range for our expected tax rate in 2008. And the drivers for that range are twofold, one, the amount of value we get from the orphan drug credit. And two, we have begun the building of a European business and we hope to realize some benefits from the different tax positions in Europe. So we have a range of 27% to 31% is our prediction today for 2008.

Daniel B. Soland

And I guess on your question on year-on-year growth on prescriptions, I would like to start by reminding everyone that it’s very difficult to track prescriptions for Vancocin and also metronidazole and to come up with some true comparisons. That being said, the data suggests that there was a sort of mid single-digit increase in prescriptions year-on-year.

Brian Rye

You had mentioned that the sales force sort of kicked in this week on the Northeast and I was wondering if you could maybe expand on your expectations for the timeline of rolling it out either nationwide or region-wide or whatever the ultimate plans are?

Daniel B. Soland

So, typically when you put up a sales force into place, you might expect an impact to be seen in the first sort of six-month sort of timeframe and we would be looking to make a decision on that potential expansion probably in the next six to nine months.


Our next question is from Meg Malloy - Goldman Sachs.

Meg Malloy - Goldman Sachs

I was wondering if you could elaborate a little bit more on the last question in terms of how you expect the initial rollout of the sales force to impact awareness, and what specific areas are you addressing, and what are your expectations about pull-through?

Daniel B. Soland

So, we have some extremely important data that as I mentioned that there are two Phase 3 studies that have been conducted and both reflect that Vancocin is superior to metronidazole in severe patients. And in some of our market research it’s quite clear that this data is compelling. And so we think it’s necessary for a sales force to get out and talk about these two very positive Phase 3 trials.

Along with that it’s expected that we’ll have formal guidelines as Michel and others spoke about in the call earlier in the next few months, and we think that’s also another very important message that a salesperson can help us to deliver. And we think with the very powerful data and the new guidelines that are available, the sales force should have an impact on the sales of the product especially in severe patients.

Meg Malloy - Goldman Sachs

If I could just drill down on that a little bit more. There are couple of sets of guidelines that IV docs pay attention to. Could you put the new guidelines in context?

Daniel B. Soland

I think that when you are talking about C. difficile, these guidelines are extremely important to the point that I think they start to set medical precedents to how to treat patients with C. difficile and especially severe C. difficile disease. And again I can tell you that in our interactions with IV physicians out in the field, they find these guidelines will impact their medical practice.

Colin Broom, M.D.

If I can elaborate, these guidelines are currently draft. They were presented last year at the IDSA meeting. So, they are in draft form. I think the most important thing that they will contribute is to identify and define what patients are considered as severe patients and that is really the critical thing. That has been an area of discussion for a long time.

So expect that to define the patients who then should be treated appropriately and should be treated with Vancocin. So the key piece of communication that we hope will be formalized and available next quarter.


Our next question is from Daniel Mallin - WBB Securities.

Daniel Mallin - WBB Securities

I am hearing a lot of language about how this new policy and the data that come out for Vancocin versus metronidazole can be used to convince physicians. It seems to me that the equally or perhaps even more critical issue is convincing insurance companies. Because I get the sense that a lot of insurance companies basically look at these two drugs as effectively equivalent.

You still have something like 80% of the prescriptions for metronidazole, and I am aware of at least some cases, people that I know personally, who were affected by C. diff only to be faced with the situation where the insurer would only cover metronidazole and would not reimburse for vancomycin. Can you describe, please, your efforts to convince insurers to cover Vancocin as a frontline treatment?

Daniel B. Soland

I think your concern is a valid one especially if you’ve had relatives or acquaintances who have been affected that way. I think the effort, again, is going to go back and show them the data. At the end of the day, the data are what the data are, and that’s the best tool that we have to convince insurance companies to cover Vancocin as first-line therapy in severe patients.

Daniel Mallin - WBB Securities

Do you have any specific efforts targeting insurance companies? That’s really what I am curious about, because I am hearing you talk about convincing doctors, but I get the sense that doctors are much easier to convince based on the data and that the bigger influence in terms of getting prescriptions over to Vancocin would be convincing insurers.

Daniel B. Soland

We have had ongoing dialogue with various third parties regarding reimbursement for Vancocin. I don’t know if can comment beyond that, but again the data are quite powerful and we think at the end of the day the data will convince people.

Colin Broom, M.D.

Yes. In some therapeutic areas, guidelines are largely ignored. This is an area of infectious disease where guidelines are adhered to not just by physicians and IV docs, but also by the insurance companies. So these are powerful guidelines really put out by the most influential of bodies, IDSA and SHEA. They will be taken seriously. So this should be pushing against an opening door.

Vincent J. Milano

And I would add to that, that since we acquired the product, we have not had any contracts with any third-party payers other than the federal government and when Vancocin is used, it’s used in the most severe cases. And we haven’t had heard of issues with this on a large scale in terms of reimbursement. But clearly the new guidelines represent an opportunity for us to revisit.

Daniel Mallin - WBB Securities

In terms of pricing of organic growth, have you announced any price increase for Vancocin for 2008?

Vincent J. Milano

We have taken a price increase. We took it on February 1, I believe, around 9%.

Daniel Mallin - WBB Securities

Is that the same 9% that you are referring to in ‘07?

Michel de Rosen

Yes. We did 9.4% at the beginning of ‘07, and we did something pretty identical a few weeks ago.


We have another question from Yale Jen - Maxim Group.

Yale Jen - Maxim Group

Regarding the European efforts you mentioned, could you give me some sort of hints as what this overall effort you have thinking about what can be, automatically will be starting in Europe and what’s the overall action seeing that effort?

Daniel B. Soland

Well, I think we are planning to launch in Europe approximately at the same time as we would launch in the United States and our efforts are geared around preparing ourselves to be able to do that. So, you could imagine that includes having a medical team, a regulatory team, a commercial team in place so that we are able to again maximize this opportunity in Europe as we are in the U.S.

Michel de Rosen

There are no further questions. We thank you for being here with us today and please stay tuned for the next steps of the development, growth and success of ViroPharma. Have all a very good day. Good-bye to all.

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