PDL BioPharma Q4 2005 Results Conference Call (PDLI)
February 27, 2006
Ami Knoefler, Sr. Director Corporate Investor Relations
Mark McDade, Chief Executive Officer
Steven Benner, Chief Medical Officer
Bret Holley, CIBC World Markets
Eric Hoffman, JP Morgan
Joel Sendek, Lazard Capital Markets
Craig Parker, Lehman Brothers.
Tom McGarrin, Merrill Lynch
Phil Nadeau, SG Cowen
Catherine Xu, Pacific Growth Equities
Jason Zhang, Prudential Equity Group
Ami Knoefler, Sr. Director Corporate Investor Relations
Good afternoon everyone and thank you for joining us today. With me are Mark McDade, Chief Executive Officer and Dr. Steven Benner, our Chief Medical Officer and for Q&A we will also be joined by George Jue, PDL’s Vice President of Finance and Chief Accounting Officer.
During today’s call we will begin by reviewing our 4th quarter and full year 2005 financial results. Steve will then provide an overview of recent clinical highlights and Mark will discuss our ’06 financial guidance and provide a quick recap of our five year plan, vision 2010.
Let me remind you that the information we’ll cover today covers forward looking statements regarding our financial performance, clinical milestones and other matters and out actual results may differ materially from those expressed or implied in the forward looking statements. Factors that may cause differences between current expectations and actual results are described in our filings with the SEC. I’ll now turn the call over the Mark McDade, PDL Biopharma’s CEO.
Mark McDade, CEO.
Thanks, Ami and thanks to all of you for joining us today.
I’m very pleased to welcome you to PDL Biopharma’s first official earnings call. In conversations with numerous investors and analysts in 2006, many of you have commented on the degree of difference at PDL. We have changed. Changed so much that we changed our name, adding Biopharma to better reflect our status as a commercially capable biopharmaceutical company, while retaining our heritage with PDL as the leader in the antibody space. The new PDL is a dynamic enterprise, staffed by just over 1,000 employees, with three proprietary marked products, a focus on the acute care hospital marketplace and an exciting pipeline of 6 novel programs, four antibodies and two peptides, that address significant and unmet medical needs.
2005 was a remarkable and productive year for all of us involved with PDL. We achieved our commercialization goal 2 years ahead of schedule. We bought a company and another product; we announced positive trade 2 data and pushed forward toward a potential three products and pivotal studies by the end of this year, 2006. we entered 2 new alliances, one with Biogen Idec and the second one with Roche and very significant to US investors, we achieved our financial goal of achieving positive cash flow, not Justin the 4th quarter but for the full year.
Clearly some of the progress we’ve made is reflected in the numbers just reported today.
Change starts with the topline with revenue growth of 266% and 188% for the quarter and the year, respectively. Obviously, those growth rates reflect the addition of product sales revenue from our acquisitions or ESP Parma and Retavase and they underscore our focus on commercialization.
In the months following the acquisition we’ve successfully integrated and retained our new sales force, while expanding it to a total of 105 talented representatives that support our three key brands, Pyridine IV, Retavase and IVBusulfex. As evidenced by our overall results in 2005, the sales force has made significant inroads in penetrating roughly double the number of hospitals in Q1 of ’05 and increasing net product sales. I believe this achievement is a promising sign o f the new PDL at work.
Central to advancing our business is building an even deeper and more exciting biotech pipeline. Funded in part by strong global partners who are committed to sharing development and commercialization of novel biologic products. Both our new partnership with Biogen Idec and our expanded partnership with Roche which pertain to our mid-stage products which address needs in multiple sclerosis, oncology and transplant maintenance reflect this commitment.
At the same time, we are more focused than ever on advancing our unpartnered later stage program. We are in a position to have three breakthrough molecules in pivotal studies by year end. , already in phase 3, Nuvion, which is underway in a pivotal phase 2 study and ularitec, which we are targeting for phase 3 initiation in Europe by the end of this year. We also anticipate initiating a phase I study in late 2006 of a new humanized antibody in a setting of multiple myeloma, delivering on our promise to build our pipeline by starting clinical trials for at least one new antibody product per year.
Steve will shortly provide an update on the status and plans of our clinical programs, but from my perspective, our pipeline has never been more robust and our 2005 progress has enabled us to kick off 2006 on a track to have our 3 most advanced products in, entering or perhaps even completed phase iii by the end of this year.
These significant achievements reflect our enduring commitment to building a commercial infrastructure while building a deeper clinical pipeline. The fact that we have been able to do this and achieve positive cash flow in the fourth quarter and full year 2005, should be viewed favorable, given the monumental challenges associated with growing a sustainable biopharma company. In my view, the achievements of 2005 have been made possible by our growing stream of royalty revenue that helps us offset the investment of creating commercial infrastructure and building our pipeline.
We continue to benefit from the success of our licensees, Genentech, med immune Wyeth and Roche, whose breakthrough antibody-based products are driving double digit growth for PDL’s royalty revenues. With more than $4 billion in licensed product sales worldwide by our licensees during the last 4 quarters, we are proud of our licensees’ accomplishments and believe we will continue to benefit from a growing royalty stream from these and potentially other future-approved products.
Now let me briefly review our financial results in fourth quarter and full year 2005, which were characterized by continue strong revenue growth and achievement of positive cash flow.
Total operating revenues increased to $83.7 million in the 4th quarter of 2005, compared to $22.8 million in the fourth quarter of 2004. Total operating revenue increased to $276.9 million for the full year of ’05, at the upper end of our guidance, from $96 for the full year 2004, an increase of 188%. This overall increase is due both to the addition of product sales as a result of our ESP Pharma and Retavase acquisitions and strong royalty revenue growth driven principally by the growth of licensed antibodies marketed by Genentech and Medimmune.
PDL recognized net product sales of $39 million in the 4th quarter of 2005 and net product sales of $118.4 million for the full year. Our three key marketed products are CardineIV, for the short term treatment of hypertension when oral therapy is not feasible or desirable, Retavase, used to dissolve coronary blood clots and improve blood flow in heart attack patients, and IVBusulfex, a conditioning agent used in connection with bone marrow transplants in chronic biologenous leukemia. During the 4th quarter sales of these three products totaled approximately $36.7 million, while sales of the branded products were about $2.3 million. We are very pleased with these results and believe our sales closely track with end user demand. We have continued our progress, aimed at low wholesaler inventories, which aids our visibility into end user demand. Cardine continues to be placed on more hospital protocols each day as our recently expanded sales force reaches more customers. With Retavase, we did experience a period of roughly 1 month where we were unable to ship product due to delays related to a label changeover from the original Senacor label. And this obviously impaired our 4th quarter Retavase net sales results. We are, however, encouraged that our efforts to promote Retavase are beginning to have a positive impact, as evidenced by recent NDC data, we show that in December, 2005 as well as January 2006, we have gained marketshare in the AMI segment.
Our year end performance with net product sales of $118.4 million, for roughly 9 months of 2005, reflects growth throughout the year, largely driven by Cardine and the efforts of our sales and marketing team. Their ongoing promotional activities and the penetration across more than 1,600 hospitals and major acute care centers in the US. With our commercial infrastructure in place, we are launching new promotional initiatives in those 6, specifically to support Cardine and Retavase and are currently evaluating targeted label expansion investments in these products to build longer term sales. We plan on discussing these initiatives and providing more details and disaggregated product sales analysis as part of our forthcoming business update now targeted for the beginning of May, following release of our first quarter 2006 results.
Revenue growth also included a 67% increase in royalties, which were $33.4 million during the 4th quarter, compared with royalty revenues of $19.9 million in the same quarter last year. PDL’s full year 2005 royalty revenues were $130.1 million, which met the high end of our guidance range, compared to $83.8 million for 2004. As you know, PDL receives royalties based on worldwide net sales of 7 antibody products licensed under our antibody humanization patent. Most notably during 2005, we’ve seen strong growth in the four licensed Genentech antibody-based product, Avacin, Proceptin, Zolar and Reptiva. Remember that we book royalty revenues based on sales in the prior quarter. You should also not that a small portion of these royalties, roughly $1.2 million, was paid to PDL for sales of generic Declomycin by pharmaceutical.
Fourth quarter revenues also included $11.3 million in license fees, reimbursements and other revenues, a significant increase from the same period in 2004, largely due to payments under the new Biogen Idec and Roche collaborations. There are two important elements of this revenue. The first is payments for reimbursement of expenses which are currently recognized as revenue and which will become increasingly important during 2006 as we increase the scope of our clinical stage programs covered under these 2 large alliances. The 2nd element is upfront fees and milestones under our collaborations, which are amortized over time.
So now let’s turn to expenses.
Our cost of product sales was $16.8 million in the 4th quarter and $60.3 for the full year 2005. PDL did not report sales in the comparable periods of 2004, prior to the addition ESP Pharma in March 2005 and therefore did not report costs of sales for 2004.
Excluding non-cash amortization of product costs associated with the purchases of ESP and Retavase, costs of product sales was $6.2 million in the 4th quarter of 2005 and $24.8 million for the full year 2005.
Selling, general and administrative expenses increased to $28 million, compared to $8.6 million in the 4th quarter of 2004, primarily due to selling and marketing expenses associated with PDL’s new sales and strategic marketing teams. For the full year 2005, selling, general and administrative expenses increased to $82.3 million compared to $31.8 million for the full year 2004, reflecting our rapid integration of the new commercial business infrastructure and increased promotional costs focused on our three new marketed brands.
Research and development expenses increased to $47 million in the 4th quarter of 2005, compared with $30.2 million in the same three months of 2004. For the full year 2005, research and development expenses increased to $172 million, compared with $122.6 million for 2004. The increase in R&D expenses reflects our continued increase in clinical trial efforts, manufacturing related efforts and planned growth for personnel in these areas. More importantly, this increase is due to advancements of several programs into later stage development and the acquisition earlier in the year of two later-stage programs. In particular, we’ve initiated or plan to initiate new studies for Ulericide and Nuvion and have expanded our program in MS and transplant maintenance.
Total costs and expenses were $107.8 million in the 4th quarter of 2005, compared with $38.8 million in the 4th quarter of 2004. This includes $16 million of non-cash impairment charges during Q4, primarily related to PDL’s option to acquire from Roche the rights to Zenotax for prevention of acute kidney transplant rejection. As you know, we will not exercise that right under the new and expanded collaborative arrangement with Roche, announcement in November 2005, so the impairment charge was made to reflect the elimination of that right. Other non-cash expense in the 4th quarter included amortization of intangible assets of $11.1 million and depreciation expense of $4.3 million.
On a Non-GAAP basis, total costs and expenses for the full year 2005 were $260.7 million compared with $138.6 million for 2004. Non-GAAP adjustments for the full year 2005 included primarily an acquired in-process research and development charge of $79.4 million in the first quarter, related to the ESP Pharma acquisition. Add to that impairment charges of $31.3 million related to the and branded products and write off of the option to acquire from Roche the rights to Zenotax for prevention of acute kidney transplant rejection, and the amortization of intangible assets of $37.6 million associated with the EOSBiotechnology and ESP Pharma and Retavase acquisitions, as well as the reacquisition of rights to manufacture and market Zenotax in 2003, plus stock-based compensation charges. Reconciliations of GAAP results to non-GAAP results are included in the tables accompanying our quarterly press release and are available on our website.
We have historically used non-GAAP financial measures in evaluating the company’s operating performance and for budgeting and planning purposes. Our company and its financial objectives have changed significantly since the beginning of 2005. So for 2006, we are introducing a new measure in our financial tables, starting with today’s release. Today and subsequently, we intend to provide GAAP results as well as non-GAAP numbers, based upon adjusted EBITDA calculations to provide you with a clearer understanding of our operating results. Adjusted EBITDA as reflected in our report under earnings, is net income before interest income, interest expense, income taxes, depreciation and amortization, or EBITDA adjusted to exclude certain non-cash and other charges. These adjustments include amounts related to impairment charges, acquired in-process research and development and stock-based compensation. Therefore, using adjusted EBITDA as the basis, our non-GAAP net income for the 4th quarter of 2005 was $7.5 million or $.07 per basic and $.06 per diluted share, compared with a non-GAAP net loss of $11.9 million or $.12 per basic and diluted share in the 2004 Q4. Going forward, this is a key metric by which we intend to measure our performance and believe it will provide you the greatest visibility of our underlying financial performance.
PDL reported a GAAP net loss of $23.1 million or $.22 per basic and diluted share in the fourth quarter of 2005, compared with a GAAP net loss of $14.6 million or $.15 per basic and diluted share in the fourth quarter of 2004. Using adjusted EBITDA as the basis, our non-GAAP net income for the full year 2005 was $16.2 million or $.16 per basic and $.15 per diluted share, compared to a non-GAAP net loss of $42.1 million or $.44 per basic and diluted share in 2004. In addition, positive cash flow from operations was even higher than our non-GAAP income at approximately $31.3 million for full year 2005.
For full year ’05 the GAAP net loss was $149.8 million or $1.45 per basic and diluted share, compared to $53.2 million or $.56 per basic and diluted share in 2004.
Overall, we believe these results for Q4 and full year 2005 mark a tremendous achievement for PDL. We delivered positive cash flow in Q4 2005 and feel we are tracking consistent with our aim to start sustainably delivering earnings for full year 2006 and beyond. At this time, I’d like to turn the call over to Steve Benner, our Chief Medical Officer, to review our clinical programs.
Steve Benner, Chief Medical Officer.
Thanks Mark. I’d like to focus on a brief update of three products we believe are closest to market. Turlipressin Avasopressin Analog has both an orphan drug and fast track designation as a potential therapy for type I hepatorenal syndrome. On ongoing phase III clinical trial is being conducted by our partner, Orsin therapeutics. Turlipressin is an approved drug in Europe for the treatment of esophageal varices and other complications of advanced liver disease. Type I hepatorenal syndrome is associated with a very high mortality rate, currently there are no proved medical therapies. We expect the trial to enroll approximately 120 patients and to be in a position to report the study results for the fourth quarter of 2006. To date, well over ¾ of the patients have been accrued and as the pace has picked up it may be possible to complete the trial earlier.
Nuvion, our humanized anti-CD3 antibody is in development for the treatment of IV steroid refractory ulcerative colitis. Earlier this quarter, we begun enrollment in the first pivotal trial, the phase 2 tree study and believe we’re on track, pending a positive review later this year, to initiate the second pivotal study by the end of the calendar year.
Small open label pilot studies of Nuvion in Crohn’s disease are ongoing. At DDW in May 2006 there will be an oral presentation of the initial findings of one of the Crohn’s disease pilot studies. As we indicated earlier this year, we’ve seen activity with Nuvion in this setting, including patients previously exposed to or unresponsive to . We are currently creating a development plan to guide future studies with Nuvion in Crohn’s disease and will plan on discussing this in greater detail during our fall R&D update in New York.
Uleritide, a peptide derived from the hormone of ANT, has shown promise in a phase II trail reported at the European society of cardiology last year. We now have an open I&D and are in the process of finalizing the study design, based on comments from the FDA. We look forward to moving this US trial ahead as soon as possible.
Separately, we are discussing with the European Medicine’s Agency, the EMEA, the possibility of using data from a single phase III as the basis for market authorization application in the European Union, using the scientific advice procedure. If this approach is successful, we believe we’re on track with our stated objective of initiating a pivotal trial to support European registration in the 2nd half of this year. We also hope to take full advantage of the potential EU pivotal trial as a component to support the US dossier.
With Daclizumab, our anti IO2 receptor antibody, a single dose and multiple dose studies of such continuously administered PDL-manufactured Declizumab in healthy volunteers, have completed dosing. We are in the process of collecting data from these trials. These studies are a necessary component of switching to the PDL manufactured antibody that is formulated for sub-cutaneous administration. In collaboration with our partner Roche, the next step in the development of Daclizumab in Asthma, is a phase IIb dose range finding study in patients with chronic, persistent Asthma. We hope to begin this study in collaboration with Roche in the 2nd half of 2006.
You will recall that we also have an ongoing study of Daclizumab with relapsing, remitting Multiple Sclerosis. This trial, initiated by PDL is now part of our collaboration with Biogen Idec. The initial randomized placebo control study, evaluates Daclizumab as an add-on to Beta-interferon in patients with active, relapsing forms of MS, using the Roche manufactured antibody. We will be closing this trial to further enrollment in March. The first, the final sample size is estimated to be 165 patients, smaller than the initially predict 270. The trial will allow us to confirm the activity in a blinded study and in similar patient populations as were previously studied at the NIH in open-label trials. Through our collaboration, a second mono-therapy trial will be initiated this year, using PDL manufactured antibody. This development plan will allow us to have the data from 2 randomized trials in MS and is not expected to prolong the timeline. The Monotherapy trial is a randomized placebo control study evaluating 3 Daclizumab dosing regimens. The study will have an MRI endpoint and is expected to enroll 264 patients. We are pleased to have the expertise of Biogen Idec in MS to help us strengthen the development plan for Daclizumab in this disease study. Daclizumab is additionally partnered with Roche for development as a maintenance agent for solid organ transplant. Our future plans for the new transplant maintenance effort will be discussed in greater detail later this year as we and our partner Roche fully refine and agree on the next steps.
Olafixumab, also known as M200, is an anti-angiogenic antibody that binds to alpha5 beta1 integrant and is under development for the treatment for solid tumors. We continue to anticipate the first public release of data from at least 2 of the ongoing open label phase ii studies in solid tumors around the time of the meeting in the 2nd quarter of 2006. we are developing Olafixumab in collaboration with our partner Biogen Idec.
Overall, during 2005 I believe we’ve continued to make great strides in advancing our multiple clinical stage programs, which address a number of important unmet medical needs. In addition, our collaborations with Roche and Biogen Idec are facilitation broader and more rapid studies of three of our phase II programs, which also allows our growing team to focus on our three most advanced programs: Turlipressin, Nuvion and Uleritide.
I’ll now turn the call back to mark to discuss 2006 guidance and summarize our new five year plan, vision 2010.
Mark McDade, CEO.
Thank you Steve. Looking ahead at the year I’m sure you’ll agree that the company has some significant and exciting activities, including the possibility of three of our latest stage products being in stage 3 programs by the end of the year. We expect these pipeline advancements and the associated R&D investments to be coupled with continued topline growth from our current product portfolio and solid royalty revenue streams but also expect to be profitable on a non-GAAP basis. As I mentioned, our non-GAAP numbers are based on adjusted EBITDA and the reconciliations we have described on this call and in our press release issued earlier today. Specifically, PDL expects that total operating revenues for ’06 will range from $405 million to $435 million including $175-$185 million in product revenues and $170 million-$180 million in royalties. Revenue guidance also includes license fees and total collaboration revenue defined earlier as expense reimbursement and the amortization of upfront fees and milestones of approximately $60-$70 million. Many of you have inquired about the scope of anticipate reimbursement fees during 2006, associated with our collaborations with Biogen Idec and Roche. As we see those alliances progress, we expect well over half or approximately $40 million of these licensing collaboration revenues to be associated with these significant collaborations, enabling us to continue advancing our mid-stage pipeline and maximizing the product opportunities for both alliances across patient populations. On Declazumab in Asthma, MS and Transplant maintenance and M200 on multiple tumor types and Fusave in autoimmune diseases such as rheumatoid arthritis.
On a non-GAAP basis, PDL anticipates total costs and expenses in 2006 as follows: costs from product sales to be approximately $40 million. And, we reaffirm our goal to maintain 80% growth margins on our marketed products through 2008 on a non-GAAP basis or excluding amortization charges.
Research and development expenses in a range of approximately $230-$240 million, reflecting significantly planned investments for clinical development of later stage such as the planned pivotal programs for uleritide and Nuvion, as well as funding our share of the co-development expense for the partner programs. These expenses also anticipate select development activities to support and extend the opportunities for our currently marketed products. These expenses exclude depreciation expense, tied largely to our new production facility or approximately $25 million for 2006.
Selling, general and administrative expenses in the range of approximately $90-$100 million, reflecting modest growth in our commercial infrastructure and appropriate preparations to support Turlepressin as it approaches the market as the first potential treatment for type I hepatorenal syndrome and the first drug launched by PDL biopharma. We excluded form our Non-GAAP numbers the stock-compensation expense, which we cannot estimate with certainty at this time, but which we anticipate will be in a range between $32-$38 million.
For the full year 2006, PDL anticipates non-GAAP earnings, based upon adjusted EBITDA, in the range of approximately $44-$54 million. On a per share basis, PDL anticipates non-GAAP earnings of approximately $.38-$.47 per diluted share for full year 2006. as we discussed, this forward looking guidance excludes certain non-cash charges, based on current estimates for the full year 2006, including the impact of stock-option compensation expense and amortization of certain expenses of approximately $44 million, related to the acquisitions of EOS biotechnology, ESP Pharma and Retavase and the reacquisition from Roche of the rights to develop and market Zenotax in applications other than transplantation. Note that our non-GAAP results include licensees milestones that we have received as to which we recognize revenue over time. Our 2006 results will not include any significant revenue from sales of the four off-patent products acquired with ESP Pharma in March 2005 as we completed the sale of one, Declamycin and expect to conclude the sale of the other three smaller volume products quite shortly.
Looking beyond 2006, at recent investor conferences in San Francisco and New York, we shared our enthusiasm and our aims for the future in a plan we referred to as vision 2010. We’ve outlined that if we successfully market our drugs and achieve first or second dollar market share position, expand operations commercially in Europe and successfully develop and launch our three most advanced drug candidates over the next 5 years, and we believe we can reach total operating revenues of $1 billion by the end of 2010.
And so long as we continue to steadily shrink our ratio of R&D to revenues, we believe we’ll build year after year sustainable non-GAAP earnings by at least 25% between 2006 and 2010.
We’re excited about these new aims and more specifically about the promise of our numerous pipeline opportunities. And we’re committing to you that the roughly 1,000 employees of PDL biopharma are doing their very best day after day to deliver on our vision for 2010.
In closing, I’d like to acknowledge that Dr. Gary Queen has resigned from our Board of Directors as announced in the filing earlier today. As the founder of PDL and key inventor of our antibody-based technology, Dr. Queen’s efforts lead to the breakthrough today known as humanized antibodies, leading to significant treatment advances for a variety of serious health conditions. His scientific innovations have been fundamental to building our company and we are grateful for his years of service and contributions to PDL. Dr. Queen will continue to act as a consultant to the company so that we can continue to benefit from his knowledge and expertise. All of us at PDL biopharma are grateful to Gary’s many contributions as a scientist, inventory, co-founder, manager and director. Thank you Gary. I’d like to close by expressing my thanks to all of our partners, collaborators, advisors, employees, directors and shareholders for helping us continue to build an exciting new kind of drug company, PDL biopharma. Now let me turn the call back over to Ami.
Thank you Mark and Steve. That concludes our prepared remarks, operator please begin the Q&A.
Our first question comes from Joel Sendek, from Lazard Capital Markets.
Thank a lot. 2 questions. The first is, can you go over again why the Retavase sales were down? And can you tell us whether the Cardine and Busulfex, the revenues from those drugs increased sequentially in the 4th quarter vs. the 3rd quarter? Thanks.
Mark McDade, Chief Executive Officer
Second question first. The answer is yes, Joel and on Retavase, just to be clear we missed slightly more than a month of sales because due to some delays related to changing over the label from Senticor, who used to market the drug, to the new one that reflected ESP Pharma at the time, there was an unexpected delay and therefore at our end a stock out of Retavase. So we were not able to ship to the wholesalers.
I’m just wondering whether there will be pent up demand here in the first quarter that would impact the sales for Retavase that would have otherwise happened in the fourth quarter, as a result.
Probably not is my guess. The biggest impact was that inventory levels in the trade went down to very, very low levels and we are building that back up.
Okay, thank you.
Our next question comes from Craig Parker from Lehman Brothers.
Hi Mark. I just wanted to focus a little more on the product sales guidance. If I just pick the midpoint and look at the 3rd and 4th quarter next year over the 3rd and 4th quarter this year which I think is the relevant way to look at it, the gross is something like 18.5%. Is that the right way to think about the longer term growth for the ESP products?
No, we continue to believe in 25% as our basic guidance for ’06, ’07 and ’08, Craig. So I guess you’re at the low end.
I guess that’s a backwards way of asking if you consider that guidance…that guidance is inconsistent with 25%. Again, picking relevant periods, meaning quarters where you’ve reported a full quarter of sales, third and fourth quarter ’05 compared to third and fourth quarter ’06 that would be implied. Or you’re saying that your sales are going to be quite back end loaded in 2006.
Again since we don’t have the benefit yet of a full year and that’s why we’re actually going to have this business update in May to kind of breakdown how the products are doing. I’d say, obviously, we do expect scale up quarter by quarter so that trend should be larger. Is our guidance conservative? Again, the guidance that we’ve given is intended to be over that multiple time year period, so from 2006 to 2008, Craig.
Okay, thanks Mark.
Our next question comes from Brett Holley from CIBC World Markets.
Thank you. I’ve got a question about the Declizumab trial on MS and what were the reasons for stopping the trial before the kind of planned number of patients were enrolled in the combo trial? And then, how are the trials going for monotherapy and are you going to need additional trials in combination with your formulation to get an idea of where you would go in phase iii for combination therapy?
The real reason to stop the trial with less than the full accrual for the combination trial was that we thought we would have sufficient patients to be able to determine whether or not we were seeing the same kinds of activity that had been previously observed in the open label studies. But we wanted to get additional dose finding information using the PDL manufactured antibody, which is what’s going to be used in the monotherapy trial. So we wanted to have those range finding information with our antibody. And we believe that the monotherapy trial could guide for the combination trials in terms of the appropriate dosing. So we don’t think that there would be a need to repeat, should we take combination further. The other thing I would want to mention is that we also felt here that this was an opportunity for us to take advantage of the strength of our collaborator Biogen Idec who we feel can efficiently complete a monotherapy trial, where if we considered that alone prior to beginning to any studies, felt it might be difficult for PDL.
Great, thanks a lot Steve.
Our next question comes from Jason Zhang from Prudential Equity Group.
Thanks. Steve, I just wanted to follow up on your comments on the open , I wonder what is holding you up part of this process and then
Jason, you’re breaking up on the question but I think I know where you’re headed so I’ll respond. We had wanted to start a trial by the end of Q1 and the team has been on track, the I&D was filed before the end of last year, 2005, and that study would be up and ready to go. But we’ve also received some comments from the FDA with regard to the trial design and we’re very interested in making sure that we perform a trial that will suit the needs of the agency. So we’re going to have those discussions which will be taking place very soon before we actually start enrolling patients into that trial. So we don’t at this point have any formal changes to the timeline. We think that the upcoming FDA discussion will resolve any issues with regard to the trial design.
Would the discussion change for as you have at least ?
It might, we need to have that discussion with the agency before we know whether or not we’ll be making just minor modifications to the current trial or more substantial changes.
What about ?
At this time we have no changes to predict. We’ll get back to you after we’ve been able to clarify with the agency what we think are the best steps for the US trial and to get that underway as soon as possible.
Our next question comes from Phil Nadeau of Cowen.
Good afternoon, congratulations on a successful 2005. My question is actually on the on phase ii, iii that I think you said just began. First, did I heard you correctly in saying that study is underway and second is the protocol for that study the same as what you said at your R&D day last fall?
Yes, that trial is open and has begun accruing patients and the trial design is the same as we discussed at the R&D day. So it’s a 150 patient randomized trial, in patients that have IV steroid refractory colitis.
Have you disclosed exactly what the S&B is going to be reviewing and what the trigger is that you need to see to start that second phase iii trial?
We have not disclosed that in any details. What the S&B will be doing will be looking at the safety profile to make sure that’s consistent with the previous experience and that we’re detecting enough difference between the salicimed treated patients and the placebo treated patients, that it would be likely that the study could produce a positive result.
Okay and while you’re going over a decision on the phase iii, being dependent simply on this phase ii, iii continuing, are you going to get any of the DSMB’s analysis or data before you make your decision or is the go decision from the DSMB good enough for you to go with your phase iii?
That’s correct. We will not have access to any of this data and that allows us to complete the initial study while we cull the phase ii, iii out of the phase iii, so that all the patients enrolled in the initial study will contribute to the phase iii analysis. A positive report from the DSMB that they believe it’s appropriate for that trial to continue will be our trigger for starting the second phase iii.
Okay, great. Thank a lot.
Our next question comes from Eric Hoffman from JP Morgan.
Thank you for taking my questions and congratulations on a successful 2006. My two questions are on your antibody royalty stream. First, does your guidance include any additional products that could potentially reach the market in 2006 such as Nisavery or Lucentis? And number two, on the D&A royalty rates stepped down for the US sales, have the first threshold levels been reached? As I understand it was not yet reached as of last quarter. Thanks.
On your first question Eric, thanks for calling in, the answer is no, we continue to guide consistent with the past several years. That is, for products that are not approved we do not include that to the best four ability and for unapproved agents or agents that are withdrawn from the market for one reason or another, we have not included those in our guidance as well. It’s our belief that dealing with guidance in that fashion allows for upside events rather than downside events if we did build that into our guidance and also as we talked about in the past, since those royalties provide us a significant chunk of our operating expense it helps us in budgeting if we are a bit more conservative in those topline estimates. Your second question with regard to &DA, could you perhaps repeat it? It has to do with the D&A bulk discount, but I’m not quite certain what your question was referring to Eric.
Sure, so as I understand it the aggregate Genentech sales in the US have not yet triggered the first threshold as of the last quarter. Which is I think something you disclosed. So I was wondering if that first threshold has been triggered by full year sales?
We do not believe so.
Thank a lot.
The next question comes from Tom McGarrin from Merrill Lynch.
With regard to Nuvion you mentioned that you were possibly starting a study in pediatric ulcerative colitis, maybe one in MS this year. Is that still on track?
We are still considering starting additional trials including pediatric populations as well as retreatment studies and those are still on schedule. We haven’t made a final commitment as to whether or not we’ll be starting an MS pilot study this year or not. Our focus predominantly is on the lead indication, which is IV Steroid Refractorial Ulcerative Colitis.
The next question comes from Craig Parker from Lehman Brothers.
Hi, thanks for taking the follow up. Mark I’m sorry, I just missed your statement about the R&D reimbursement revenue – you said $40 million could be expected from…was it just Biogen Idec or Biogen Idec plus Roche?
We said both partners. So that’s multiple programs under Biogen Idec and both the asthma and the transplant maintenance that we do expect will be starting late in the year, Craig.
Okay and it sounds like there’s not much of a cue, maybe I can ask a second question, Mark I guess I’m just interest in your philosophy about EBITDA being an appropriate metric, particularly the depreciation portion. Because, obviously you guys have surveyed the landscape and no one else is reporting that way. And while other people may be excluding stock options and amortization I don’t know of anyone else who is excluding interest, taxes or depreciation.
Well, okay. Let me dive in. I think it’s pretty clear. ’06 is very different financially for PDL than ’05 or any prior year because our plant opened up for the first time. And so if you were looking and you were not informed as to any of the details of our business, and you saw an aberration in expenses to the tune of $25-$30 million, the average person might be puzzled as to what’s going on and yet those expenses are tied and they’re non-cash, directly to a brand new plant that’s coming up to speed in the middle of 2006. On top of that, interest expense and income is relatively neutral, so I think for the time being that it’s not a significant item. And then the third adjustments we make related to amortization tied to the acquisitions of value adding pieces that we believe again, since they’re non cash, don’t reflect how the business is operating from a more purely financial perspective. So I guess from at least my view as the CEO of the company, that’s really the philosophy that we’re trying to embody in our newly stated financials, Craig, going forward.
But just to be clear, the depreciation that you want to exclude is all depreciation, not just the depreciation from that facility?
Yes but the bulk of it, more than 2/3 of that figure, is the brand new plant. And so you’d have this aberration if you didn’t adjust for it otherwise.
And so when do you go back?
Our next question comes from Catherin Xu from Pacific Growth Equities.
Thank you. My question is regarding the Nuvion phase ii, iii. My understand is that the trial has been open for a while and the dosing of the first patient hasn’t started yet or you guys would already put out a press release. Just wondering is there anything of note with regard to this seeming delay?
No, there’s no delay, the study started as scheduled and the first patient’s been dosed.
Okay. Thank you.
Miss Knoefler, we are showing no further questions at this time. I will turn the conference back over to you.
Thank you. Before we close I thought it would be helpful to let you know that we will be giving several presentations in the coming weeks. These include the Citigroup conference in Washington on March 1st, the SC Cowen conference in Boston, March 9, and the JMP Securities in San Francisco, also on March 9, and the Lehman Brothers conference in Miami on March 10. Also, for the first time in early May, following the release of our Q1 results, we plan to conduct a business update for Wall Street, to review the commercial strategies and lifecycle management plans for our marketed products including Cardine IV, Retavase and IB Bisulfex as well as to discuss the opportunities we see for our more advanced pipeline programs. Please look to our website and future press releases for additional information on the business update in the very near future. We look forward to seeing many of you at these events and invite you to contact us for further details about any of these programs. Please also contact IR with your follow up questions regarding today’s press release and conference call. Thank you and good afternoon.
This concludes the conference call for today. We thank you for your participation and ask that you please disconnect your lines.
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