Ladies and gentlemen, thank you for standing by and welcome to the InterMune Second Quarter 2012 Results conference call. During the presentation, all participants will be in a listen-only mode. Afterwards we will conduct a question and answer session. At that time, if you do have questions you may press the one followed by the four. If you require operator assistance at any time during the conference, you may press star, zero. As a reminder, this conference is being recorded Monday, July 23, 2012.
I would now like to turn the conference over to Jim Goff, Vice President, Investor Relations. You may begin, sir.
Thank you, Operator. Good morning and welcome to the InterMune earnings conference call. This morning we issued a press release that provides details of the Company’s unaudited financial results for the second quarter and first six months ended June 30, 2012 as well as the completion of price discussions for Esbriet in Germany. The press release is available on our website at www.intermune.com.
During the course of this conference call, we will state our beliefs and make projections and other forward-looking statements regarding future events and the future financial performance of InterMune. We wish to caution you that such statements are predictions and expectations and actual events or results may differ materially. We refer you to the Company’s publicly filed SEC disclosure documents for a detailed description of the risk factors affecting our business, including those discussed in our Form 10-K filed with the SEC on February 29, 2012. These documents identify important factors that could cause our actual results to differ materially from our projections and other forward-looking statements. These risk factors include regulatory, revenue, intellectual property, clinical development, capital resources and other risks relating to our business.
On the call today are Dan Welch, InterMune’s Chairman, Chief Executive Officer and President, and John Hodgman, our Chief Financial Officer. Joining us for questions and answers will be Giacomo Di Nepi, our Managing Director for Europe, and Dr. Markus Leyck Dieken, our country manager for Germany.
I will now turn the call over to Dan Welch.
Thanks Jim, and thanks everyone for joining us today. With that, we have two important topics to share with you today: the completion of price discussions for Esbriet in Germany as well as our quarterly results. I’ll focus first on the Esbriet pricing in Germany and then cover other details related to the ongoing launch of Esbriet in Germany, including market dynamics, epidemiology, underlying demand, our efforts to educate physicians and assure proper selection of IPF patients. We’ll share some marketing research results and other important aspects of the launch. John Hodgman will then cover our financial results.
We’re very pleased to report that we have achieved a successful and early conclusion of our negotiations concerning the reimbursed price of Esbriet in Germany. As you know, Esbriet is our product market in Europe for adults with mild to moderate idiopathic pulmonary fibrosis, or IPF, a chronic and uniformly fatal disease. Since the confirmation of Esbriet’s benefit by the G-BA on March 15 of this year, we’ve been engaged in negotiating the price of Esbriet in Germany with the Umbrella Organization of the Sick-Funds, the entities that reimburse the cost of medicines in that country. Negotiations were expected to be concluded by September 15 but were completed early as we reported today.
Effective September 15 of this year, the Esbriet gross ex-factory price will be €32,142.00 or about $39,000. Net of the mandatory 16% rebate imposed upon all medicines marketed in Germany, the Esbriet price will be approximately €27,000 or about $33,000 per patient per year at current exchange rates. This represents an approximately 10% discount from the price at which Esbriet was launched in Germany in September of last year. The duration of the pricing contract with the Sick Funds is for two years until September 15, 2014 or when the total cost to the healthcare system in Germany reaches €50 million in any 12-month period, at which time the price of Esbriet will be revisited.
Importantly in the press release today, in addition to announcing the Esbriet pricing, the German authorities officially exempted Esbriet from the prescription budgets of all office-based doctors and outpatient clinics reimbursed by the Sick Funds. This means that after many months of uncertainty in the minds of many physicians concerning the future reimbursement of Esbriet, it will soon be clear to all German doctors that they can prescribe Esbriet without concern for their individual healthcare budgets.
The press release also noted that Esbriet is the first drug that the Sick Funds have approved for IPF and off-label use of other drugs for this indication is now generally not allowed. While we view this as a positive statement in respect to the market conditions for Esbriet, it’s important to recognize that the Sick Funds generally reimburse Tier 1 hospitals for so-called off-label prescriptions, especially in the case where they are relatively low price, as is the case for N-ac, Prednisone, and/or steroids used to treat IPF patients. The Esbriet price that we negotiated is very comparable to what we view as analogous products in Germany, among those oral drugs used for the treatment of pulmonary arterial hypertension. Specifically, the Esbriet net price is about 6% below the Tracleer price. Given that Tracleer was priced a decade ago in a significantly less challenging economic period, we believe the Esbriet price fairly reflects the value of Esbriet to patients and to the healthcare system.
The strength of the €27,000 price negotiated for Esbriet is even more significant when we put it into local German context. Our new price of Esbriet is at the high end of the prices of other oral specialty medicines marketed in Germany such as Tarceva, Iressa, Ticurb and Gilenya, which range between 20,000 – which is Gilenya, and €28,500 – Iressa – net per year. Of note, none of these drugs went through the AMNOG negotiation process.
Turning now the Q2 revenue results for Esbriet in Germany, our launch continues to be one of the most successful orphan product launches in Germany, achieving revenue and new patient starts consistent with the best orphan drug launches after nine months of marketing. Specifically, when compared to a cohort of the most successful orphan launches in Germany, Esbriet ranks fifth in sales and sixth in terms of estimated patients on drug after nine months of commercialization. This is remarkable considering that all but one of the other drugs in this successful cohort are prescribed by oncologists, a group of physicians I think you’d all agree as recognized as being among the fastest adopters of new medicines. When measured versus Tracleer, the only product in the successful launch cohort to which I just referred, this is not an oncology product. Compared to this product, Tracleer, Esbriet has reached a level of revenues in three quarters that were reached in twice the time, or in six quarters, by Tracleer. For reference, Tracleer is today a brand that has registered more than $100 million in 2011 net sales in Germany at current exchange rates.
Physician awareness and positive perceptions of Esbriet in Germany remain strong. Our market research from Germany indicates that Esbriet is on track to become the drug of choice among pulmonologists who care for IPF patients and has begun displacing triple combination therapy. Recent market research indicates that awareness of Esbriet among German pulmonologists is 88% when unprompted and 94% when prompted. Seventy-five percent of our targeted physicians have prescribed Esbriet at least once, and 25% of the targeted physicians surveyed already consider Esbriet the drug of choice, the highest percentage of any treatment including no therapy. Esbriet revenue of $5.5 million in the second quarter of 2012 represents an increase of 13% from that of the prior quarter.
While our launch is progressing very well by all measures, as we just shared with you, there are two principle reasons why our Q2 revenue growth rate was less than that of Q1 and less than the sequential growth rate of new patients. The two explanations for this are what we call the IQWiG effect on new patient starts, and then increase in the rate of therapy discontinuation. I’ll talk about each of these.
First, the IQWiG effect on new patient starts – I’m sure you’re recall that we reported a slowdown of new patient starts in the first quarter of this year due to the unsupportive December 2011 IQWiG preliminary assessment of Esbriet’s value. Esbriet’s revenue growth in the second quarter reflects this slowdown of new patient starts in the first quarter. As we shared on our Q1 call, the number of Esbriet starter packs sold is a useful but imperfect metric to estimate the number of new patients started on Esbriet therapy. On our Q1 call, we shared with you that we applied a host of assumptions to this imperfect metric of starters packs sold to estimate new patient starts on Esbriet, the most important of which is that approximately one-third of Esbriet starter packs are not used by new patients. That’s important. We estimate that approximately one-third of Esbriet starter packs are not used by new patients. They are used for dosage adjustments, for example.
After marketing Esbriet for several more months and having completed marketing research with our targeted physicians, we now have a clearer picture of new patient starts for Esbriet since launch. We now estimate that the number of patient starts, excluding NPP patients rolled over to commercial Esbriet, were approximately as follows: 350 new patients in Q4, 300 in Q1, and 400 in Q2. I’ll repeat that for your notes: that’s approximately 350, 300 and 400 new patients sequentially Q4, Q1, Q2.
We can see the impact of the December IQWiG recommendation in the decrease of new patient starts from about 350 in Q4 to roughly 300 in Q1, and we can see the rebound after the G-BA confirmed the benefit of Esbriet in March from around 300 new patients in Q1 to approximately 400 in Q2. This increase in new patient starts in Q2 versus the first quarter, which we expect to translate into future revenue growth in the coming quarters.
We all know that most Europeans enjoy longer summer vacations than do most Americans, and this translates into fewer doctors and patients seeing each other in the months of June, July and August, which of course has an effect on new patient starts and prescriptions. During these months, the pharmaceutical industry in Europe observes a 5 to 10% decrease in new prescriptions when compared to the months before the summer, and we expect the same for Esbriet.
We believe that the clarity on the reimbursement status of Esbriet announced today and additional promotional and educational efforts that I’ll highlight in a moment will enhance the growth in new patient starts in the coming quarters.
Second quarter Esbriet sales were also affected by what we view as a higher than expected rate of discontinuation of therapy. We estimate that the current annual rate of discontinuations is approximately 30%. This is somewhat higher than the rate of 20% that we had earlier estimated, and we believe we understand the dynamics behind this, which I’ll explain now. We believe this higher rate is related to two principle phenomena – first, during this early phase of the Esbriet launch in Germany, we’re seeing a higher than expected proportion of new patients with more advanced and progressing IPF placed on Esbriet therapy. This is a phenomenon common to the availability of the first medicine approved for a uniformly lethal disease. It should come as no surprise that patients with advanced and progressing disease would drop off therapy at a rate higher than those with less advanced and more stable IPF. We would not expect patients with very advanced fibrotic disease and whose disease is actively progressing to have their fibrosis reversed or their active progression to be stopped, even with an effective anti-fibrotic like Esbriet. In the face of some side effects of Esbriet that are well-known and for these patients no obvious and rapid benefit, the majority of these patients do not remain on therapy more than a number of months, and of course a number of them die. We note that this phenomenon of later-stage patients and relatively high dropout rates was also observed for Tracleer during its launch phase in Germany, Tracleer being the first oral product for PAH.
The second point related to duration of therapy of Esbriet is that some physicians are doing a fine job of managing patients through side effects and keeping them on Esbriet through patient counseling and our active dosaging titration, and this is part of our promotional campaign, while other doctors need more education on the benefits and techniques of dose modification of Esbriet to encourage them to keep them on medicine. Therefore, we’re now focusing our promotional and educational efforts on the appropriate selection of patients to be prescribed Esbriet and on maintaining patients on therapy through active dosage adjustments.
Our specific actions and plans to address these two phenomena are as follows: we plan to increase our 15 field-based personnel in Germany by a total of seven personnel at the beginning of September. That would be six sales reps and one sales manager. This expansion will allow a higher frequency of contacts in our Tier 1 and Tier 2 centers, provide more active follow-up with patients as their care transitions from these Tier 1 and Tier 2 centers to the office-based pulmonologist, and provide a broader and deeper delivery of our messages on the appropriate selection of patients for Esbriet and on dosage titration to keep patients on the medicine.
We also are implementing several new programs to provide additional education to physicians, nurses and patients on the management of side effects to keep patients on Esbriet and to provide education to doctors and nurses on the appropriate selection of patients for Esbriet therapy. We believe that the positioning of the Esbriet and the reimbursement guidance from the Sick Funds and the IPF treatment guidelines of the German Pulmonology Society both emphasizing the use of Esbriet in mild to moderate patients will increase the proportion of mild to moderate IPF patients in our patient mix and thus contribute to a decrease in the discontinuation rate over time.
As a result of the positive developments just mentioned and our various promotional and educational efforts, we expect the proportion of patients with mild to moderate IPF to increase and that of severe and advancing IPF to progressively decrease over the coming quarters. We also expect the discontinuation rate for all patients to progressively decrease over the same period. We also expect the number of net new patients per quarter – in other words, the number of new patients added to Esbriet therapy net of patient discontinuations – to gradually increase over the next several quarters.
Now a word on epidemiology – having spent more time in the German market and having conducted our analyses of the prevalence and incidence of IPF in Germany, we’re now in a better position to estimate the prevalence of IPF in Germany. We now believe that there are between 13,500 and 18,000 IPF patients in Germany. This low end of the range is based on the EU orphan estimate that we’ve shared with you before and the high end is based on the median estimate from 13 published epidemiology studies that we have also shared with you before. This range of 13.5 to 18,000 IPF patients is corroborated by our own market research conducted in Germany and the other major EU countries. Using this estimate of all IPF patients and taking an assumption of between 60 and 70% of all patients having mild to moderate disease, we estimate the prevalence of mild to moderate IPF patients in Germany to be between 8,000 and 12,000 patients.
We believe that new diagnoses will increase, as is typical after the first drug in a disease is commercial available, so we expect the prevalence of IPF to increase over time. Importantly, in terms of incidence or annual diagnoses of IPF, we believe that approximately 2,000 to 3,000 new mild to moderate patients are diagnosed with IPF each year in Germany. This is a very substantial number of new patients for an orphan disease and represents a steady flow of new patients into the system every year that meet our description of the ideal Esbriet patient – those with mild to moderate disease.
We estimate about 750 to 800 patients are currently on Esbriet in Germany, which implies an approximate 6 to 10% penetration of the 8 to 12,000 prevalent mild to moderate IPF population and a 4 to 6% penetration of the total prevalent IPF population after nine months of marketing. As already mentioned, this is on pace with the most successful orphan drug launches in Germany.
On other Esbriet developments, in terms of those across Europe, on June 28 Esbriet gained reimbursement in Sweden. The annualized list price of Esbriet in Sweden corresponds to more than $37,000 per patient per year. Now, it’s important for you to recognize that Sweden uses a scientifically rigorous and highly quantitative process to assess the cost benefit and to price new medicines in their country. They use the so-called ICER approach. ICER stands for Incremental Cost-Effectiveness Ratio. The Swedish system reimburses a medicine when the cost per ICER of the medicine is considered to be an acceptable value to the healthcare system, thus the price of Esbriet secured in Sweden reflects the outcome of a very demanding and highly quantitative health technology assessment. Esbriet has been commercially available in Sweden since July 2; however, the full resourced commercial launch will begin after the summer in September.
Esbriet is now reimbursed in seven European countries: Germany, Austria, Sweden, Norway, Denmark, Luxembourg, and Iceland, where in this latter country a net price of €35,695 or $43,700 per patient per year was granted. We announced today that we are maintaining previous guidance in terms of the dates by which we expect to conclude pricing and reimbursement discussions in other countries. Subject to individual country reimbursement timelines, we currently plan to conclude pricing and reimbursement discussions relate to Esbriet in France, Italy, Spain, Belgium, the Netherlands and Finland during the fourth quarter of this year, and in the United Kingdom and Ireland in the first quarter of next year, and to launch Esbriet as soon as possible and as soon as practical after the successful conclusion of pricing and reimbursement discussions in each country.
With regard to the use of Esbriet across Europe via our named patient program, or NPP, we today reported that as of July 13 a total of 1,168 patients were enrolled in the program across Europe outside of Germany, compared to a total 838 patients who were enrolled in the NPP outside of Germany in mid-April of this year. This represents an increase of 330 patients and 42% in three months. We also are announcing today that new patients may continue to be enrolled in the NPP through September 30 of this year.
With regard to bringing pirfenidone to patients in the U.S., we maintain our guidance that we expect our Phase III pirfenidone study, ASCEND, in the United States and certain additional territories will be fully enrolled around the end of 2012 and that results from the study will be available in the first half of 2014.
I’ll now turn the call over to our CFO, John Hodgman, for the financial discussion. John?
Thanks Dan, and good morning everyone. As a result of the June 19 2012 divestiture of Actimmune, historical and current period Actimmune revenue, cost of goods sold, and operating costs will be reported in discontinued operations in this and future financial statements and are therefore not included in the following discussion.
Net income for the second quarter of 2012 was $0.5 million or $0.01 per basic and diluted share, compared with a net loss of $39.9 million or $0.68 per share in the same quarter of 2011. Net loss for the first six months of 2012 was $46.1 million or $0.71 per share compared with a net loss of $72 million or $1.25 per share in the comparable six months of 2011. The net income or loss in the three and six-month periods of 2012 reflects income from discontinued operations of $51.4 million related to the divestiture of the Company’s rights to Actimmune.
We today reported total revenue in the second quarter of 2012 of $5.5 million from the sales of Esbriet in Europe, primarily Germany, compared with $1.3 million in the second quarter of 2011 when there were no Esbriet sales, as Esbriet’s initial commercial launch occurred in September 2011. InterMune reported total revenue for the first six months of 2012 of $10.4 million compared with $2.6 million in the first six months of 2011. Total revenue in the first six months of 2011 consisted solely of revenue from the Company’s research collaboration with Roche, which was completed in June of 2011.
Research and development expenses in the second quarter of 2012 were $25.2 million compared with $20.1 million in the second quarter of 2011, an increase of 25%. R&D expenses were $48.4 million for the six months ended June 30, 2012 compared with $36.9 million in 2011, an increase of 31%. Higher R&D expenses in both the three- and six-month period of 2012 compared with the same periods in 2011 reflect expenses related to the conduct of ASCEND trial, which was initiated in July of 2011.
Selling and general and administrative expenses were 25.6 million in the second quarter of 2012 compared with $21.6 million in the same period a year earlier, an increase of 19%. SG&A expenses were $51.9 million in the first six months of 2012, an increase of 33% from the $39 million in the same period of 2011. The increased spending for the three- and six-month period in 2012 compared with the same period in 2011 are attributable to the creation of InterMune’s European infrastructure and investments in the launch and pre-launches of Esbriet in Germany and other EU countries, including but not limited to additional headcount.
As of June 30, we had cash, cash equivalents and available for sale securities of approximately $393.7 million, including $55 million from the divestiture of rights of Actimmune prior to transaction-related expenses.
Regarding our forward-looking financial guidance for 2012, we today reiterated our operating expense guidance for 2012 provided on June 20, 2012. We also provided forward-looking guidance for Esbriet revenue in 2012. Unlike a U.S. launch where a manufacturer can reasonably and confidently set revenue guidance in one country after some quarters following launch, our situation in Europe is very different. We will have as many as 15 countries undergoing Esbriet launches starting later this year and into early 2013. Whether or not we provide revenue guidance for 2013 will depend on the level of clarity we have on the pricing and reimbursement of Esbriet in each of our 15 targeted countries and if the amount of time we have commercialized in each of these countries allows us to confidently forecast an overall revenue trajectory for Esbriet in Europe. Therefore although we have given 2012 revenue guidance, we cannot at this time set the expectation that we will give 2013 Esbriet revenue guidance in early 2013.
Having recited that preamble, I reiterate from our press release the Esbriet revenue in 2012 is currently anticipated to be in the range of 20 to $25 million. The lower end of the range assumes no Esbriet launches in France, Spain or Italy in 2012. The upper end of the range assumes launches in all of these countries in the fourth quarter of 2012. R&D expense is currently anticipated to be in the range of 90 to $105 million for 2012. SG&A expense is currently anticipated to be in the range of 110 to $130 million.
We are now ready to answer your questions. Operator, please open the line for questions.
Question and Answer Session
Thank you, sir. Ladies and gentlemen, if you would like to register a question, please press the one followed by the four on your telephone. You will hear a three-tone prompt to acknowledge your request. If your question has been answered and you would like to withdraw your registration, please press the one followed by the three. If you are using a speakerphone, please lift the handset before entering your request.
Our first question is from the line of Michael Yee with RBC Capital Markets. You may begin, sir
Michael Yee – RBC Capital Markets
Thanks. Two quick questions – one is on demand and sales numbers. You gave the patient numbers for the quarters, but can you just quantify or qualify patient growth in April, May and June, and maybe comment about how you’re seeing July and are we already into the summer months and the slowdown of Europe. And then in terms of pricing, can you remind us what process would happen once you reach €50 million? Do we have any color there, and are there specific countries that reference this new German price and would that have any impact on those countries? Thanks.
Thanks. All good questions. So we give a lot of detail on these quarterly calls, but as not as much as you requested, at least on the first question; so giving month-by-month patient adds, we’re not providing that. In terms of the second question – what happens when we reach $50 million in cost to the healthcare in any 12-month period, what happens is a process begins – again, the AMNOG process whereby the price would be revisited. There’d be another dossier to be submitted, another review to be conducted, and the steps that you heard that you watched us take and other companies take through the AMNOG process would be repeated.
On the third question in terms of referencing – yes, absolutely. The price of pharmaceuticals in Germany are heavily referenced throughout Europe. This is why we think that getting what we believe is a fantastic price for Esbriet, especially in the economic situation that you all know about in Europe, is not only good for its own case in Germany but will set a bar for other countries and their pricing. It used to be where Germany would set its price—you could set your price as a free price and the price wasn’t very negotiated. Germany has rapidly become one of the toughest countries in which to gain prices. You’ve all read the headlines from various other manufacturers and their products, so a price negotiated in Germany under the AMNOG law – and there are now only two drugs, AstraZeneca’s Brilique or Brilinta and InterMune’s Esbriet that have successfully gone through the entire process of AMNOG. So under this new, more challenging system, I think other countries will view our price with the knowledge that it was heavily negotiated, and I think that makes a very important benchmark for other major countries and minor countries to respect. So we believe this should have a positive effect on our negotiations in other major countries over the coming months.
Michael Yee – RBC Capital Markets
Okay, thank you.
Our next question is from the line of Brian Abrahams with Wells Fargo. You may proceed.
Brian Abrahams – Wells Fargo
Hi. Thank you very much for taking my questions and appreciate all the details – it was very helpful. You mention that with your market research, the awareness among physicians in Germany seems pretty high, but at this point only about 25% are considering it the treatment of choice. Did you get any sense, any feedback on why some physicians may not consider Esbriet the treatment of choice at this point, and what are some of the things that you might be able to do specifically to try to improve this? I’m just wondering if you could maybe also remind us timing for the German Pulmonology Society guidelines and what the potential impact might be, and then I had a quick follow-up. Thanks.
Sure. So a little bit of background on how products launch and get taken up – the first step in any buying process is awareness, then there is interest, then typically there is trial use, then there is assessment of that trial use and then there is a determination of what they think of the product. We do that in pharmaceuticals, we do that when we buy an iPad – consumers do that all the time. So the first step being awareness, we’re very pleased at very, very high awareness; and interest likewise is very high because we have tremendous attendance at all of our CME events. We’ve had well over 100, maybe in fact over 150 CME events since launch, so interest remains very high.
And trial use is also very high, where we’ve said that three-quarters of our targeted doctors have already used it, and after nine months that’s very good in my 30 years’ experience in the pharmaceutical industry. That’s very good. So when you answer what will it take to get there, it’s going to take time, and we’re very confident that the steps we’ve made so far, and Esbriet being among the top five or six most successful orphan drugs – and that includes oncology drugs, by the way – and this includes something like 50 drugs altogether. Esbriet is among the most successful drugs taken up so far, so we can fixate and focus on consensus, and we all respect that because we all work very hard to come up with a consensus figure. But when you put it in the reality check of what do drugs do in Germany, in fact even in more liberal times of prescription and pricing, Esbriet ranks in the very best orphan drug launches, including oncology launches, ever in Germany. So by metrics of real life in the real country, Esbriet is doing fantastically well.
So we’re very confident that with time and continued message delivery, Esbriet is going to become a very important drug. We referenced Tracleer – we’re doing far better than Tracleer after nine months, and Tracleer is now $100 million product. It takes time to build products in Europe, a theme that we’ve been sharing with all of you for well over a year now, and the best metrics we can take are the metrics in-country of those that are most relevant. So to answer your question, that’s what it will take.
And then reiterating another comment I made, there’s going to be 2,000 to 3,000 new IPF patients coming into the system each and every year. That’s a number that’s about three times the number of patients that we currently have on medicine, and that doesn’t even count the prevalence that we’ve talked about between 8 and 12,000. There’s a ton of patients out there, and we believe the potential for Esbriet in Germany is remarkable.
In terms of the German guidelines, we think this will be helpful. They have been propagated and presented since April of this year by the IPF key opinion leadership. They started at the German Pulmonology Society in the spring. They continue to be presented since then, and we expect them to be published in the fourth quarter. The guidelines essentially say that Esbriet is the medicine to use for mild to moderate patients, which is a positive recommendation as opposed to the previous ATS ERS guidelines which was a weak negative recommendation. So this is a positive recommendation, so I believe this plus the Sick Fund press release today where they cited that this is the only drug approved, this is the only drug that in general will be reimbursed for IPF patients, subject to the caveat that I made on the prepared comments. Those will both help us, I believe, because it sets a stake in the ground as to what is the standard of care.
So with the pricing clarified, with doctors particularly in the community and the Tier 2 centers who were concerned about the reimburseability of Esbriet going forward, and with the treatment guidelines, with the Sick Fund’s comments, I think the conditions—we believe the conditions are very, very ripe for a continued evolution of Esbriet sales going forward.
Brian Abrahams – Wells Fargo
Thanks, Dan. That context is very helpful. And just a quick follow-up, then, I guess on your last point. Can you talk about the impact of resolving this today versus mid-September? Should we expect any positive pull-through on prescribing habits, or is that really not likely to change until September? And just remind me, how quickly does that exemption to the budget get implemented? Is that something that gets implemented starting today, or will that be starting September? Thanks.
Thanks, Brian. So we think the resolution of the very positive strong price of Esbriet in Germany will have a read-through across Europe in terms of our pricing and reimbursement. Had we waited until September, that would have been two months deeper into the process, and we are talking to many countries now and will continue. So having this water mark, what we believe is a high water mark for Esbriet among the heavily negotiated countries, we think that’s going to be very, very good for the remaining countries, the top five countries that we’re focusing on and the remaining ones that we have not yet secured.
In terms of your second follow-up question, I lost it! Does anybody remember, or Brian, you could--?
Brian Abrahams – Wells Fargo
The exemption to the budget. I know there was an issue among some of the Tier 3 physicians.
Oh, yes. Yeah, the exemption to the—the removal from the prescribers’ budget of the Esbriet line item, if you will. Yes, that goes into effect on September 15 along with the price. That goes into effect at the same time; however, the press release is out today which describes this, and this press release went to all of the German media.
Brian Abrahams – Wells Fargo
Thanks very much.
Our next question is from the line of Ritu Baral with Canaccord. You may proceed.
Ritu Baral – Canaccord
Hi guys. Thanks for taking the question. Dan, you used the word begin when you said that patients were coming off of triple therapy in Germany. Are you still seeing patients discontinuing that therapy enrolling onto Esbriet, even at this late date; and how are you now viewing that impacting ramp and time to peak sales? Are you seeing that sort of same trend in other countries or is that something unique to Germany?
Hi Ritu, thanks for the question. So triple therapy – just so everybody is on the same page, triple therapy is N-acetylcysteine, prednisone, and azathioprine, and there was a publication in May – the New England Journal of Medicine – that concluded that the triple therapy arm of an NIH study showed far more hospitalizations and more deaths than placebo; and as a result of that, that arm of the NIH study was discontinued. The results were published a couple of months ago. There was a press release that was out several months before that, but most physicians in Europe especially tended to take a wait and see on this. There was a press release out – the mortality rates of the placebo group were very low, and so they were a little bit skeptical about the results until they saw them. Once the doctors saw the results published, I think people really understood how toxic that regimen arm is, and so therefore there wasn’t much effect of triple therapy changing or prescribing habits changing in Germany until more recently.
Since the May publication and many of the thought leaders were at the ATS meeting where this was discussed in May, the movement seems to be more palpable and more discernible in the prescribing habits, so we would expect going forward for the triple conversion to take place. There are some physicians who believe that if a patient is stable on triple therapy that one should be very careful about taking them off triple. Also, if they are elderly or more advanced age, taking them abruptly off of steroids, many doctors would consider that a dangerous thing and something that one shouldn’t’ take lightly.
So there are some nuances about moving off. We are seeing that Esbriet therapy is taking share from triple – there’s no doubt about that – in our most recent market research, so we expect that now that May is just a couple months ago, and back to my earlier comments, it takes doctors a while to get a notion in their heads and then think about what to do with it, and then actually apply it in a consistent way. It takes time, and this will take some time; but we have a fantastic tailwind here on the triple therapy concept, as we do have a tailwind on the reimbursement and as we have a tailwind on the IPF guidelines that are out. So that’s why we believe the conditions are quite good for the coming quarters of Esbriet, but time will tell and we expect to deliver those.
This is Jim. I just want to mention something very quickly – we have a long list of questioners in the queue today, so we’re going to take just one question from each and if we have time for follow-ups, then we’ll come back to you in an effort to try to include as many as we can. So Operator, please go ahead with the next question.
Thank you. Our next question is from the line of Geoff Meacham with JP Morgan.
Geoff Meacham – JP Morgan
Good morning, guys. Thanks for all the detail on the launch. So Tracleer has a pretty wide range of pricing across Europe, even today, so I guess my question is a follow-up to an earlier one. Once the price is set in a country, is there a time period where it’s renegotiated and perhaps under that renegotiation, is that when we could expect the reference price to Germany? And just a quick follow-up to the earlier question on off-label use, specifically N-ac – how much of a driver do you really think that the Sick Fund recommendation of not allowing non-Esbriet regimens is going to be? Anything, either market share or maybe adherence to Sick Fund guidelines you can give us would be helpful. Thanks.
Sure, Geoff. So I’ll answer the second question and then I’ll ask Giacomo to give you a feeling for when we might expect--what the timeline might be expected for other countries to reference the German price, maybe those countries that are already priced.
So on the second topic, the triple combination therapy and the recommendation from the Sick Fund that only Esbriet would be reimbursed from September 15 forward, I mentioned on the prepared remarks that the Tier 1 hospitals in particular – these are kind of the academic, powerful hospitals that do a lot of different off-label prescriptions for all kinds of diseases. It’s our view that in those hospitals where they’re very adept at justifying the need and the—well, making the justification for off-label use, the Sick Fund will generally accept their requests for off-label prescription; in other words, reimburse.
It’s a little different story in the Tier 2’s. Tier 2’s are mostly—they’re not hospitals in Germany. They’re mostly kind of clinics, run usually by an individual, and also in the community and the community themselves. So in the Tier 2 accounts and in the community, that’s where we believe the Sick Fund’s kind of declaration that they won’t reimburse off-label anymore, that’s where we think that will have more play or more weight. But in the Tier 1, not as much.
So part of our rationale for expanding our sales force is get more out into the community to make sure that the prescription coming from the Tier 1 accounts goes to the Tier 2 account or the community-based pulmonologist, and both of those – the Tier 2 and the community-based pulmonologist – understand Esbriet and now will make sure that he or she understands that it’s reimbursed and it’s off their budget, is exempt from their budget.
So that’s our understanding – Tier 1’s will continue to be able to do this on an exception basis with a request to the Sick Fund, so it will be a little different than in the past where they just did it.
In terms of the reference pricing, Giacomo, would you answer that one, please?
Giacomo Di Nepi
Yes, thank you, Dan, Geoff. It’s a good question. I’ll try to give you a simple answer because as you can imagine, it’s quite complicated. But by and large, I would say that you can segment the countries into clusters. The first is countries that have negotiated prices, so like the situation now in Germany or Sweden; and at this point, these countries, they have some reference in principle that always exists, but one would reasonably expect that this price remains there for a relatively long period of time – I mean, several years. Then you have prices that are set from the manufacturers with some previous referencing that have a sort of re-referencing period. Norway, for example, is an example of this; and these, they have their own rules and their own applications which are different for everybody. I’ll just give you two examples – Norway, for example, they re-reference an average of the three or four lowest every year by law, but in practice they do that less frequently than every year. Austria, for example, is re-referencing, but the re-referencing happens only when you have more than 50% of the 27 countries that have a price, and then it’s by the referencing average.
I would say—I mean, if I had to model this, I would tend to assume a progression towards the average price with a sort of time lag of two to three years. Part of this also may happen with (inaudible) trade which becomes a sort of independent referencing, so you have differences in the countries, asymmetries in the countries, and (inaudible) trading will try to get advantage. But again, this is a process that will take time and it’s a process that happens only when you are outside a certain band. This explains also what has been always our strategy, which is try to set the prices in equivalent band.
So to make the long story short, we expect that some of the prices at the high end will eventually converge over time towards the average. It was part of our strategy to start from the highest priced countries, and I think we told this more than one time because everybody references each other. But I would expect that over time, these would converge towards the average.
So over some years, as opposed to instantly.
Giacomo Di Nepi
Okay, thank you Giacomo.
Our next question is from the line of Brian Skorney with Brean Murray. You may proceed.
Brian Skorney – Brean Murray
Hey, good morning guys. Congrats on some clarity on the German pricing. I guess just one of the things I’m trying to figure out—so according to my understanding, the difference between what you were pricing at for the first year and what the negotiated price is going to be, you’re going to have to reimburse the German healthcare system for that difference that was booked. Is that correct? And then how should we think about what your guidance range is taking into account – is the 20 to $25 million range, is that a mix pricing or is that all at the the new price, or all at the old price? How is that impacted?
Thanks, Brian. So the current price, or the price at which we launched Esbriet remains in effect until September 15. As of September 15, the new price gets put into place. InterMune does not rebate or pay back any delta at any time. That would have only come into play had we gone into arbitration. Since we didn’t, the price remains the price until September 15 when that becomes a new price – no kind of payback or settling of books on that delta.
Then on the guidance and how that fits, it just follows my comment that I just made before – it assumes our current price through September 15, and as of September 16 for the rest of the year it’s at the new price, which is roughly 10% lower on a net basis than the old price.
Brian Skorney – Brean Murray
Great, thanks. I’ll jump back into the queue.
Our next question is from the line of Matthew Harrison with UBS.
Matthew Harrison – UBS
Hi, good morning. Can you just help me understand – you referenced two years for the agreement to hold. Is there any potential other than the $50 million run rate in which the price can be renegotiated in Germany earlier than that two-year period? And then can you just give me a sense of your penetration into Tier 1 and Tier 2 centers? Thanks.
Sure. I’ll answer the first question and I’ll ask Markus to confirm it. So in Germany, like many countries, the manufacturer and the government sign a contract, and we’ve signed a contract for two years. The only thing that could intervene that would make a negotiation happen sooner than two years would be if we reached that €50 million total cost to the healthcare in any 12-month period, so that’s how that could get renegotiated. Short of—you know, if for some reason we don’t reach that level, then there wouldn’t be a renegotiation; but based upon where we are and the stage of launch where we are, we’re very bullish on Germany and what the revenues will be.
So the second question was on the—the first was on your two year. The second—oh yeah, the penetration into Tier 1 and Tier 2. We target about 500 or 600 doctors in the Tier 1, Tier 2. These are mostly pulmonologists, and we estimate that the penetration rate in general is, as we said, overall I think we said 4 to 6% penetration of all patients, and 6 to 10% of the mild to moderate. I don’t know if I can give any color beyond that.
We can see that the Pareto law of 80-20 – in other words, 20% of doctors providing 80% of the prescriptions – is generally right for us at this stage of the launch, and that’s very, very typical. In fact, that’s probably better than most launches. So at the beginning, you’ll have a cohort of early adopters and then it will take longer time where the other doctors who are more slow to pick up new therapies come in. The early adopters represent a minority of doctors overall, so it’s going right on track. That’s a sizeable number of doctors already after only nine months to be writing pretty strongly; and then like we said, 75% of all our targeted doctors have used it at least once, which tells us that the fat part of the curve, meaning those that are not early adopters but are touching Esbriet, practicing with it, making their assessment, they’re in that stage of becoming converted Esbriet doctors. So we think those numbers are very encouraging, that the early adopters are right on board and then the fat of the curve in terms of adopters is very encouraging – 75% of our targeted doctors using Esbriet at least once.
Our next question is from the line of Terence Flynn with Goldman Sachs.
Terence Flynn – Goldman Sachs
Hi, thanks for taking the question, and thanks for all the details as well. Dan, can you give us a little more sense of your guidance in terms of some of the assumptions that went into it, aside from just the 10% pricing impact in 4Q, specifically on foreign exchange, what you guys are considering, any hedging there. And then just one follow-up question – in terms of the new patient add data you gave us, can you give us what 2Q new adds would have been if you’d used your prior assumptions rather than the new assumptions? Thanks.
Sure, Terence. I’ll have John answer your questions around the guidance and hedging and foreign exchange and such.
Sure. Thanks, Dan. Yeah, the 20 to 25 million revenue guidance is based upon really if we are unable to secure launches in France, Spain and Italy, then it will be at the lower end if we can obtain those than we expect it to be at the higher end of that range. As Dan said, the old price continues in place in Germany through September 15. From then on, it’s at this lower price, which is about a 10% reduction, so that’s accounted for in that range as well.
As far as hedging, currently we have a hedging program for our balance sheet positions, not for revenue as we have expenses that out-map our revenue in euros, so we kind of have a natural hedge going on there. So we do not hedge currently revenues.
Thanks, John. So the second question, Terrence, if I understood it – are you asking what would—well, let me back up. We shared with the callers, the listeners today the fact that we have now spent more time in the market, we better understand how starter packs are used. We’ve done some marketing research and then we shared with you a tighter or what we believe to be more accurate Q-by-Q numbers of patients, or new patient starts. And so if you’d maybe just repeat your question to make sure we have it right.
Terence Flynn – Goldman Sachs
Sure. I guess I was just trying to get an apples-to-apples comparison of the new patients starts, so you gave us the data, the kind of reset data for all the three quarters – so 350 4Q, 300 1Q, 400 2Q. But then I was looking back, and before you told us it was 400 in 4Q, 363 in 1Q. I’m just wondering what the number would have been in 2Q if you had used your prior assumptions that you used to derive the earlier data.
I see. Yeah, it probably would have been 10% higher. Kind of just proportionally, you can see 10 or 15% higher.
Terence Flynn – Goldman Sachs
Okay, thanks. And then in terms of currency, are you guys assuming a continued weakening of the euro in your guidance, or are you considering it’s going to stay stable here?
Yeah, we think it’s going to be fairly stable, although we do recognize that there was a strengthening of the dollar towards the end of this second quarter in June, which we had hedges that protected us and we didn’t see the effect of that fully in the second quarter that we would expect to see in the third quarter. But pretty constant.
Our next question is from the line of Liisa Bayko with JMP Securities.
Liisa Bayko – JMP Securities
Hi, thanks for taking the question and thanks for all the information. I’m just wondering about some of the other countries where you do have pricing established – Norway, Sweden, Denmark, Iceland, Austria. I think that’s the list I have. When do you anticipate starting to see some sales traction in those countries?
Sure, thanks for the question, Liisa. So our focus, especially being a new company or a company new to Europe, has been largely on Germany, as you can imagine. It’s the single-largest country in Europe. The other countries that we’ve gained prices – the ones you have mentioned – we did begin, for example, in Austria a month or so ago, but generally speaking the way to think about this is that these countries will be, I would say, fully resourced in terms of commercial capability after the summer, say September. Before that, we were hiring general managers, we were hiring medical directors, we were starting to meet the key opinion leaders – I would say the very kind of pre-launch type of activity. I wouldn’t call it a pounding away at prescribers – not yet. But after the summer, so into September, for the last quarter we’ll be—those activities will begin, and that’s why we’ve tried to set an expectation that because they’d just begin in September and because we talk about this process of moving from awareness to use takes some time, these countries won’t deliver meaningful revenues until 2013.
Liisa Bayko – JMP Securities
Thank you very much.
Our next question is from the line of Howard Liang with Leerink Swann. You may proceed.
Howard Liang – Leerink Swann
Thanks very much for taking the question. Can you give us some sense of in terms of discontinuation – one, the patients are discontinued, whether soon after starting the therapy or after some period of determining efficacy; and do you have data on whether the discontinuations in the second quarter were mostly the early patients from the NPP program or whether those patients started fairly recently – first quarter or second quarter?
Thanks, Howard. So we’re seeing everything. It depends upon which patients you’re talking about. What we have seen is that a higher proportion of total patients on Esbriet, a higher proportion than we expected have what we would call more advanced disease and progressing disease. So you can think of these as very sick patients probably dying, and so we have a higher proportion of these patients than we expected. In retrospect, maybe we should have expected it. The first drug approved for a uniformly deadly disease, a doctor’s been caring for a patient for months, quarters, years, and finally there is something; so either the patient begs for it or the doctor tries to help their friend and their patient, and they put them on medicine knowing full well that the patient is probably not going to be saved – they’re just too far gone. So that group of patients, which is a higher than expected proportion, and we expect that proportion to go down over time especially as a ratio, as a proportion of total. Those drop off in some months – you know, two, three, four, five to six months, and that’s why we’re probably seeing this increase in discontinuation rates. We think this cohort of patients is driving the discontinuation rate higher than we expected.
If you put those aside, the discontinuation rate is more in line with what we were expecting and more in the 20% range, and so that’s why we think that over time by counseling proper, appropriate selection of patients, by counseling on expectations of Esbriet therapy, and by counseling and coaching on proper maintenance—sorry, titration of the dose will keep more patients on medicine and so drop-outs will improve over time. We have a very good understanding of the Tracleer launch in Germany – in fact, in all of the major countries in Europe. We’ve done a lot of research on this topic, and the exact same phenomenon happened in Germany where the first drug approved for oral PAH, Tracleer, was used in more later disease and over time it moved forward in earlier disease; and drop-outs were an unexpected issue in the Tracleer launch, and over time it equilibrated.
So we’re comfortable that over time we’ll continue to add net patients in a very meaningful way, and the new tailwinds that we talked about, I think are going to help us in the coming months, including the sales force expansion, the German IPF guidelines, the new reimbursement situation, and just time where doctors get more comfortable with Esbriet. So that’s the picture of the discontinuations, and it’s a major focus of ours, of course, because we want to get the right patients on medicine and keep them on medicine, and that will over time lead a net patient add per quarter that will be meaningful and growing. And let’s not forget the incident patients – 2,000 or 3,000 new ones. You know, that’s two or three times the number of patients we currently have on Esbriet today, so there’s plenty of patients, plenty of opportunity to grow over the coming years.
Our next question is from the line of Ravi Mehrotra with Credit Suisse. You may proceed.
Ravi Mehrotra – Credit Suisse
Hi, good morning guys. Thank you for taking my question. Perhaps a first follow-up to what you just talked about – can you give us any idea what percentage of those 30% discontinuations are actually caused by death versus just coming off the drug? But my main question is about diagnosis paradigms – can you give us an indication how many patients how utilized HRCT versus surgical lung biopsies as a primary diagnostic tool to identify IPF? Thank you.
Sure. So I’ll answer the first question, Ravi, on what is the makeup of the discontinuations, particularly in those severe or advanced patients and progressing patients; and then I’ll ask Markus Leyck Dieken to talk about what is the typical diagnostic approach in Germany, HRCT versus biopsy.
So on the dropout discontinuations, it’s both – a fair number of these patients are dying because they are late in therapy and they are progressing, and then there are others who have continued progression of their disease and they or their doctor view it as perhaps not a miracle—a miracle is not going to happen with Esbriet, and then plus there are side effects. So it’s really everything – it’s disease progression, it’s adverse experience, and death. So I don’t think we actually know the answer to your question, but we do know that it’s all those. We don’t know the proportion of each of those.
Dr. Markus Leyck Dieken
Okay Dan, shall I go to the diagnosis?
Yes, please Markus.
Dr. Markus Leyck Dieken
Ravi, thanks for the question. So HRCT is the primary point according to guidelines, also, execute in Germany to really diagnose IPF. The density of CT scanners in Germany is as high as in all the rest of western Europe together, so the availability of CT scans is actually very high and radiologists are getting offered master classes, actually, by InterMune to see the patterns of IPF in the imaging technology and recognize IPF correctly.
I would say at least 90% of all the IPF diagnosed patients are carrying HRCT and obviously will have to carry that in the future also to ensure proper therapy. The biopsy standards depend on the centers. There is an average number in Germany, which is 16% of all IPF patients get biopsies. You must take into consideration, though, that major care-well schools did work on their bronchial alveolar lavage as an alternative therapeutic step and have published big atlases and handbooks of that, which is a common diagnostic supportive tool at least to diagnose IPF correctly.
Some IPF centers do have a very high standard on biopsies and carry a higher percentage number, but it certainly the HRCT which is the hallmark of the diagnosing and the radiologist, together with the other two pathologists and clinicians, do make the interdisciplinary conference required nowadays for the correct diagnosis of IPF in Germany.
Our next question is from the line of Katherine Xu with William Blair.
Katherine Xu – William Blair
Hi, good morning. My question is regarding the other, about Europe big four. Can you provide some color on the processes in Spain, France and Italy, and why you’re confident to get pricing reimbursement done there by fourth quarter? And also in the U.K., what are your expectations? Do you think you will get reimbursed there, and if so, would the price be a lot lower? What are your expectations on those?
Hi Katherine, thanks for the questions. So France, Italy, Spain – so our guidance is fourth quarter to complete discussions there, and if we are successful launch as soon as we can thereafter. We’re in the middle of all of those conversations. The month of August is approaching, which is typically a slow time as you all know in Europe; but there is progress in each of those countries, and at this time as we sit, the fourth quarter is the guidance we’re still comfortable with.
We all know on this call that unlike Germany, where there is a calendar – and we love this very much because we can count on and we can work within a calendar and a system – in neither France, Italy nor Spain is there a calendar. It is a fluid event and we don’t control it. We tried to lobby and push and cajole and encourage motion on the dossier, but we do not control the timeline. So this is our best guess at this time.
In terms of the U.K., I think our guidance of Q1 is still right. They have not given—they at NICE have not given us the feedback yet on our health technology assessment, and that won’t come until the fall sometime. But as a general statement, I do like to share with the investors and the analysts – and it’s no news to any of you – that the NICE is the toughest pricing body in Europe. Germany is catching up, but NICE is very tough. And so of all the countries we talk about, our Top 15, the U.K. is the toughest and we may or may not get a price in the U.K. that we can accept, and so that one I just wanted to remind everybody of the situation there. And Ireland, while a small country, they recently essentially piggybacked onto the NICE system, a very, very similar system; so the U.K. and Ireland, then, are in the same basket of degree of difficulty, if you will.
Our next question is from the line of Stephen Willey from Stifel Nicolaus. Stephen Willey, your line is open.
Stephen Willey – Stifel Nicolaus
Yeah, sorry about that. Thanks for fitting me in. On the side effect side, can you talk to maybe the percentage of patients that are being dose-reduced for GI issues versus, say, other things like photosensitivity? And then maybe just elaborate a little bit on what you’re doing along those lines to keep those patients on drug. And then just quickly, can you provide just a little bit of an update on the Shionogi litigation and kind of where the next steps in the process lie? Thanks.
Sure. On the GI photo-tox dose adjustments, of all of the AE’s we see, GI is the first one. Photosensitivity is much less of an issue. Of course, during the summer time we have extra promotional educational efforts to make sure doctors and patients are reminded to wear sunscreen and clothing and hats and such. In terms of GI being the most common side effects, what we’re doing is dose-adjusting downward, instead of three pills three times a day, going to two pills three times a day to see if that works. And if they adjust, then we can try to push them back up to three pills three times a day. That will be a major and continuing effort of all the things we do forever with Esbriet in every country, and that is to share with them the very positive results we saw in the capacity studies where a very, very high proportion of patients can be maintained on therapy by dosage adjustment, titrating down, even holiday periods but coming back up. Because remember in the so-called 004 study, there was a low dose of Esbriet which separated well from placebo, meaning a lower dose gives benefit. So during a period of lower dose, a patient is benefiting and then we can most of the time get them back up to a higher dose. Taking the drug with food also helps, and also the titration schedule that we have in our label helps.
In terms of Shionogi, the status of that is a lawsuit was filed. They have a point of view about the royalties. We strongly disagree. As we’ve previously said, we did not use Shionogi’s patient level data in the marketing authorization application, nor did we use any of their other data in any way that would obligate us to pay a royalty. So this is our strong view as we have always held it, and it’s unfortunate that a lawsuit has been filed; but we will deal with it in a very vigorous way and we are very comfortable as we sit today.
Mr. Welch, there are no further questions at this time, sir. I would turn the call back to you.
Thank you, Operator. We are very pleased with our progress on all aspects of our business. Our launch of Esbriet in Germany is among the most successful orphan product launches in Germany ever in terms of revenues and patients on therapy after nine months of launch. Our Q2 revenue growth in Germany was affected by some headwinds, notably the unsupportive IQWiG recommendation and the resulting ambiguity surrounding the reimbursement of Esbriet. These headwinds have now been lightened with the successful conclusion of pricing and reimbursement discussions that we talked about today.
We’re implementing concrete plans to educate our audience on the selection of the appropriate patients for Esbriet and on maintaining patients on the medicine through active dosage modification. Our sales force expansion planned for September is well timed to take advantage of the recent or pending news, notably the May publication of the dangers of the triple therapy regimen, the positive news regarding the Esbriet pricing and its full reimbursement, and the expected fourth quarter publication of German IPF prescribing guidelines supporting Esbriet as the only proven and evidence-based product for use in patients with mild to moderate IPF. We’re confident that with consistent execution and some time, Esbriet will become a very substantial product in Germany as did our analog product, Tracleer.
Beyond Germany, we made very meaningful progress in our efforts to secure pricing and reimbursement for Esbriet in Europe, and our product is now reimbursed in seven EU countries. We remain very optimistic for a successful outcome of our ASCEND Phase III study due to our confidence in the study design and because we are enrolling in the study exactly the type of patient that we believe will help us demonstrate once again the positive treatment effect of pirfenidone in patients with IPF.
We look forward to visiting with your on our next conference call and we thank you for joining us today. Goodbye.
Ladies and gentlemen, this does conclude the conference call for today. We thank you all for your participation and kindly ask that you please disconnect your lines. Have a great day, everyone.
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