Idenix Pharmaceuticals' CEO Presents Restructuring of Development and Commercialization Collaboration With Novartis Pharma AG Call (Transcript)

Aug. 1.12 | About: Idenix Pharmaceuticals, (IDIX)

Idenix Pharmaceuticals, Inc. (NASDAQ:IDIX)

Restructuring of Development and Commercialization Collaboration With Novartis Pharma AG Call

July 31, 2012 8:00 AM ET

Executives

Daniella Beckman – SVP, CFO and Treasurer

Ron Renaud – President and CEO

David Standring – Chief Scientific Officer

Analysts

Geoff Meacham – JP Morgan

Rachel McMinn – Bank of America/Merrill Lynch

Howard Liang – Leerink Swann

Katherine Xu – William Blair

Liisa Bayko – JMP Securities

Akiva Felt – Wedbush Securities

Matt Roden – UBS

David Friedman – Morgan Stanley

Brian Skorney – Brean Murray

Ying Huang – Barclays

Stephen Willey – Stifel Nicolaus

Operator

Good day, ladies and gentlemen, and welcome to the Idenix Pharmaceuticals Announces Restructuring of Development and Commercialization Collaboration with Novartis Pharma. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session with instructions following at that time. (Operator Instructions) As a reminder, this conference is being recorded.

Now I’ll turn the conference over to Daniella Beckman. Please begin.

Daniella Beckman

Thank you. Good morning and welcome to Idenix Pharmaceuticals conference call to discuss the restructuring of our collaboration with Novartis Pharma.

With me today is Ron Renaud, President and Chief Executive Officer. Before we begin, I’ll review our Safe Harbor statements. Today’s discussion contains estimates and other statements that are forward-looking under the Private Securities Litigation Reform Act of 1995. Such estimates and statements are based on current expectations and assumptions that are subject to risks and uncertainties and involve a number of factors that could cause actual results to differ materially.

Additional information concerning these factors is contained in our filings with the SEC, which are available on our investor section of our website. While we may elect to update forward-looking statements in the future, we specifically disclaim any obligation to do so even if our estimates or assumptions change. You should not rely on these forward-looking statements as representing our estimates as of any date subsequent to today.

On our call today, Ron will walk through the key terms of the termination and revised relationship agreement with Novartis and we will then open the call for Q&A.

I will now turn the call over to Ron.

Ron Renaud

Thanks a lot, Daniella, and again good morning. I want to take this opportunity today to review with you the details of the announcement made this morning related to the restructuring of our collaboration with Novartis.

We believe that the termination and revised relationship agreement enhances our ability to advance our internal HCV candidates in future all-oral direct-acting antiviral combination treatments. As many of you are aware, Novartis previously had an exclusive right to license, co-develop, and co-commercialize development stage drug candidates from our pipeline in any therapeutic area including HCV. Under this restructured agreement, this exclusive right has terminated and therefore we have regained the worldwide rights to develop, commercialize, and license IDX719, IDX19368, and any of our future drug candidates – any of our other future drug candidates.

If any of our HCV drug candidates are commercialized, Novartis will receive a royalty from us based on worldwide product sales of our HCV drugs unless they are used in combination with drugs from Novartis, which I will discuss in more detail in a minute. The royalty percentage owed to Novartis will vary based on the Idenix HCV product that is commercialized.

Furthermore, these royalties are structured such that Idenix compounds, if commercialized, will maintain attractive small molecule pharmaceutical margins. Under the restructured agreement, Novartis has a non-exclusive right to conduct combination clinical trials evaluating any of Idenix’s and Novartis’ HCV drug candidates after our drug candidate has completed a dose ranging study.

The drug candidates must meet several specific criteria related to safety prior to the initiation of a combination trial including, but not limited to, first, the Novartis HCV compound cannot be subject to any clinical hold, full or partial. Second, a drug-drug interaction study of Novartis and our HCV drug candidate must be conducted. And third, if the two parties cannot agree to the initiation of a combination trial, an independent data safety monitoring board will determine whether a combination trial should be initiated based on the safety profile of each HCV drug candidate.

Novartis’ ability to initiate combination trial expires on the seven-year anniversary of the execution of this restructured agreement. Following the initiation of one or more non-exclusive combination trials, the parties may negotiate a future agreement for the development and commercialization of such combination.

Additionally, we will no longer receive royalty or milestone payments from Novartis based upon product sales of Tyzeka/Sebivo. However, Novartis is committed to reimburse us for payments to third parties in connection with intellectual property related to Tyzeka/Sebivo. As a reminder, the royalty payments to us for Tyzeka/Sebivo in 2011 were approximately $1 million per quarter.

Furthermore, under the restructured agreement, Novartis will retain the right to designate one member of the Idenix board of directors, reduced from two members, so long as it continues to hold at least 15% equity ownership in the company. Novartis will no longer retain any other corporate governance rights, including approval rights over the authorization or issuance of additional shares of capital stock as well as significant acquisitions and dispositions.

Novartis currently holds a 31% equity position and continues to have the right to maintain or right to participate in future public or private offerings of Idenix securities in order to maintain its ownership. When we look back to 2003 when the Novartis collaboration was established, the original agreement gave Idenix the resources necessary to support a worldwide launch of our first product, Tyzeka/Sebivo, a nucleoside analog for the treatment of Hepatitis B.

We believe now is the ideal time to restructure our collaboration with Novartis. The restructured agreement now will afford Idenix increased flexibility and independence to optimize the value of our pipeline, which is especially important as we develop pan-genotypic all-oral direct-acting antiviral combination treatments for patients infected with HCV.

We believe this additional strategic flexibility will provide significant internal advantages with respect to combining our product candidates as well as with the developmental assets of potential collaborators. In fact, we have also recently filed the IND for IDX19368, and by the end of the third quarter, we expect to have three clinical stage HCV programs for IDX184, IDX719, and IDX19368. We believe regaining the rights to all of our drug candidates will benefit our shareholders and ultimately HCV patients. We look forward to the next steps in the advancement of our internal drug candidates and updating you on our progress.

With that, I’ll now turn the call back to the operator to open the Q&A. And with me also today I’ll tell you I have our Chief Medical Officer, Dr. Doug Mayers; and our Chief Scientific Officer, Dr. David Standring, if there are any questions about our discovery efforts or the pipeline. Operator, any questions?

Question-and-Answer Session

Operator

(Operator Instructions) First question is from Geoff Meacham of JPMorgan. Your line is open.

Geoff Meacham – JP Morgan

Good morning, guys, and congrats on the restructuring, and thanks for taking the questions.

Ron Renaud

Thanks, Geoff.

Geoff Meacham – JP Morgan

So just wanted to, in the context of the restructuring, maybe Ron, if you could go over your priorities for say the end of the year and the first half of next year. I know you have your NS5A data in hand. So what does this do to your priorities of doing say a 184 protease combo versus a 719-184 combo?

Ron Renaud

So Geoff, our priorities have not changed. I think what this change to the collaboration affords us is the flexibility to have discussions that we couldn’t have otherwise. As you know under the way the collaboration was originally structured, we would have to wait until 719 went through a process with Novartis whereby they would make a decision on whether or not to exercise their right to opt-in for that compound or not. And as we were going through a number of our discussions with potential collaborators on the protease inhibitor front, a lot of those discussions started to center around how could we also get the protease – a protease inhibitor in combination with both 184 and 719 for maybe a more fulsome or more robust collaboration.

This now allows us greater flexibility to have those discussions and we’ll continue to have those discussions, and I think there’s some hope that we may be able to accelerate some of those discussions. At the same time, our goal with 184 and 719 is to get that study up and running before the end of this year, and our priority for getting that done has not changed one bit.

Geoff Meacham – JP Morgan

Got you. And just a follow up, what are the gating factors that are in your control in starting the 719-184 combo? Have you completed a DDI? What are the steps sort of from a clinical perspective that you have to do to get that started by year-end?

Ron Renaud

Yeah. I think for us, the biggest step is the healthy volunteer and proof-of-concept study went very, very quickly, and in fact, it outpaced our ability to actually scale up the clinical trial supply for 719. So really, what we have right now in front of us is just getting the clinical trial supply up to a point where we can run those trials and also where we’re working through final stages of formulation for a commercially viable formulation for 719.

Geoff Meacham – JP Morgan

Got you. Okay. Thanks.

Ron Renaud

Thanks, Geoff.

Operator

Thank you. Our next question is from Rachel McMinn of Bank of America/Merrill Lynch. Your line is open.

Rachel McMinn – Bank of America/Merrill Lynch

Yeah. Thanks for taking the question. I might have missed this, I missed the first couple of minutes. Ron, did you talk about the royalty rate? Can you give us a little bit more color on what that is, and any details around Novartis, is there a requirement for an equity stake? Thanks very much.

Ron Renaud

Sure. So Rachel, what we did say about the royalty percentage that we would owe to Novartis is it will vary based on the Idenix HCV product that could be commercialized. I would characterize these as ranging from high single-digits to low double-digits, and we’re not going to go into any more granularity than that. The second question, on the equity stake, there’s not a hard fact equity stake except the fact that Novartis wanted to have the ability to participate in future public or private offerings in order to maintain its ownership position.

Rachel McMinn – Bank of America/Merrill Lynch

And then just to follow-up on Geoff’s question about the discussions, I guess I’m still a little bit confused what you were unable to do. I mean, is this just really at the beginning? Once Novartis opts out of any partnership discussions, for example with 184, you’re free and clear. So this just allows you to initiate those discussions earlier. I just want to make sure I understand that.

Ron Renaud

Yeah. So if you remember, Rachel, the way the agreement originally works. So for 184, Novartis had already waived their right to opt-in on 184. But for 719, this was a process that we would have started and would have finished by the end of this year, but it’s still a process that would have taken a considerable amount of time, and this is a process that would be in place for any compound we develop in the HCV space. So what this allows us now is the flexibility to have those discussions immediately. And at any time for any compound that we have, we have the worldwide rights for these compounds. So we no longer have to wait for any decision from Novartis to have very full business development discussions around collaborations for our compound.

Rachel McMinn – Bank of America/Merrill Lynch

Okay, perfect. Thank you very much.

Ron Renaud

You bet.

Operator

Thank you. Our next question is from Howard Liang of Leerink Swann. Your line is open.

Howard Liang – Leerink Swann

Oh, thanks very much. So what I just wanted to better understand is the, in terms of genesis and the impetus of the restructuring. I have thought that Novartis was unlikely to have rights to 719 due to another partnership and also to the next new 368 because of I think you already passed on 184. So first, was that understanding correct? And also if you can elaborate on, is this due to – it sounds like it’s due to discussions you had with other companies that led you to the restructuring, can you just maybe elaborate on that? Thanks.

Ron Renaud

So to be clear, Howard. On 719, which is our NS5A inhibitor, we would have to go through the standard process with Novartis for them to weigh in and make a decision on whether or not they were going to exercise their option on that. So that process was very much in place for IDX719. For IDX368, we’ve never disclosed what that compound looks like, whether it’s a son or daughter of 184 or otherwise and where that would have been in the process so we’ll just leave that one – we’ll leave that one at that.

I think the genesis of these discussions are that we needed to have the flexibility to advance our pipeline forward with as much flexibility as possible so that we can explore all possible collaboration that may include 719, 184, 368, other compounds that are in late stage preclinical development over on – over in David’s side of the business without having to wait for Novartis to make a decision on that. So I think we’re all – everybody on this call is very well aware of how rapidly the space is moving here, and we needed to have the maximum flexibility to be able to take advantage of that.

Howard Liang – Leerink Swann

Great. Can you – just I want to ask about 368, whatever you can tell us about whether what types of the news it is. I think it is a nucleotide, and you’ve said that has a very high level of triphosphate level. Can you talk about any additional information that you have on that?

Ron Renaud

Yeah. So IDX19368, we recently filed the IND for. It is a compound that preclinically appears to be quite potent. What I’ll do is I’ll hand this over to David and let him give you some of his thoughts on it.

David Standring

Yeah. I mean, this is a nucleotide prodrug, we have not disclosed the structure, but it does give very, very high triphosphate levels in vivo, higher than any other compound really that we’ve looked at, and certainly higher than anything we know about currently in clinical development, at least the compounds that we know the structure of. Very good liver targeting for this molecule, I think sort of high levels in the liver compared to anywhere else. And it’s a molecule we’re very excited about and happy to look forward to certainly results in the clinic.

Howard Liang – Leerink Swann

Thanks very much.

Operator

Thank you. The next question is from Katherine Xu of William Blair. Your line is open.

Katherine Xu – William Blair

Great. Good morning. I’m just curious, do you guys have any update on the 184 plus peg/riba study and also any updates on the planned combination studies of 184 with various PIs?

Ron Renaud

Yeah. So Katherine, with regard to 184 peg/riba study, as we’ve been saying, we’ll get an update from that study probably right around AASLD. That’s one where we had already discussed the data from the first 31 patients, and it’s our preference now not to keep piecemealing it, but to wait for the study is done before we disclose the rest of the data. So we’re still blinded on the second half. We haven’t seen any safety issues emerge with that, and that – the patients that were on the original 12-weeks, the 184 plus peg/riba, they’ve all completed that so they’re out into the peg/riba part of the program.

With regard to our plans for PI studies, we’re still in discussions with folks. We’re having those discussions. We’ve looked at a very, very broad swath of protease inhibitors that are out there. For some PIs, some of them just aren’t – we’ve looked at aren’t right for 184, and for the ones that are, we’re having those discussions. And again as I mentioned, some of those discussions have evolved into how to potentially fold IDX719 into the mix given the ability to combine two or maybe even three different distinct mechanisms of action. So we continue to have those discussions, and we’ll keep you posted as we move along.

Operator

Thank you. Our next question is from Liisa Bayko of JMP Securities. Your line is open.

Liisa Bayko – JMP Securities

Congratulations on the deal, and actually my questions have been answered.

Ron Renaud

Thanks, Liisa.

Operator

Thank you. Our next question is from Akiva Felt of Wedbush Securities. Your line is open.

Akiva Felt – Wedbush Securities

Thanks. Good morning, and thank you for taking the questions. You mentioned the potential for collaborators that were looking at 184 were also interested in 719. About how long you think it would take to get a trial up and running with three direct-acting antivirals?

Ron Renaud

I mean I think it’s a study if we could reach the design and it was in the best interest of all that we could move very quickly on that. I mean direct supply from my perspective for 184 is not an issue as I just mentioned. We are scaling up the supply and the formulation for 719. So to be in a triple therapy at some point, if necessary in 2013, is not out of reach.

Akiva Felt – Wedbush Securities

Okay. And then just to circle back on the revised agreement, just to ask this in a different way. Should we think that it’s more likely to see a collaboration announced sooner than the prior Novartis opt-in decision on 719?

Ron Renaud

Well, you know what, Akiva, I don’t want to discuss or detail any kind of discussions that we may be having or the timing around those discussions. But I think the spirit of what we’ve done here is to accelerate those kind of discussions. I mean I think first and foremost it’s to give us the maximum amount of flexibility, but given how quickly this space is moving, we wanted to have that flexibility in order to move fast. So stay posted on that and we’ll keep you guys informed as we move along.

Akiva Felt – Wedbush Securities

Okay. Thank you.

Operator

Thank you. Our next question is from Matt Roden of UBS. Your line is open.

Matt Roden – UBS

Thanks very much for taking the question. Can you hear me, okay?

Ron Renaud

Yes, we can, Matt.

Matt Roden – UBS

Okay, great. So Ron, you talked about the increased flexibility that this restructured deal gives you. Can you talk a little bit about the inclusion of 719 as opposed to ongoing discussions you’ve had, is that a push or is that a pull or is both? And can you talk about whether or not the potential sort of encumbering 719 is a sticky point with parties in discussions?

Ron Renaud

Yeah, it’s a great question, Matt, and I wouldn’t say it’s a push or a pull. I think what it does is it gives us a significant amount of leverage. We have what we believe is a – could be a best-in-class NS5A. And if you remember, that data – the proof-of-concept data in genotype 1 patients didn’t even become available until right around the EASL timeframe and then we updated with genotypes 1, 2, 3 and 4 back in the May or June timeframe, I don’t remember exactly when it was.

So this is still very much new data not only to us, but for the folks that we’re talking to and it will afford us I think some leverage as we have these discussions about how to move forward and what might be the right pathway for 719, for 184, both of them in combination. Again no matter what happens, our goal is to get 184 and 719 together by the end of this year, but to have a third asset in the mix in the way of a – or in the shape of a protease inhibitor would be great.

Matt Roden – UBS

Okay, great. And then regarding the Novartis clinical trial options, did it make it easier for you guys to starting to feel knowing that Novartis actually doesn’t have any some of its huge assets at this point in hepatitis C? And then in the event that they ever did, can you help us get what that structure would be – look like in terms of the clinical trial collaboration? Would the funding burden be on you or Novartis or split and how do you think about the potential drug in that field and not only from a funding perspective, but also from a management time and effort perspective?

Ron Renaud

Yes. So those are good questions, Matt. With regard to the Novartis HCV pipeline, I’m not going to comment on that, you can talk to Novartis on that one. But with regard to if there was a non-exclusive collaboration that was to kick off somewhere down the road, Novartis would be responsible for paying for those trials. In fact, even though the supply/demand, we would have obviously made the Idenix structure supply for that, but they would be paying for that fully so it would be no burden to us on that.

Matt Roden – UBS

Great. Thanks very much for taking the questions and congrats.

Ron Renaud

Thanks.

Operator

Thank you. Our next question is from David Friedman of Morgan Stanley. Your line is open.

David Friedman – Morgan Stanley

Hi. Thanks for taking the questions, just two quick ones. The first is can you just clarify what maturity the 184 peg/riba study would be for the November Vivo meeting, whether full data would be available? I certainly appreciate that you want to wait until it’s all said and done. And then the other question is just can you describe how the beginnings of this discussion with Novartis happened and whether it was you guys approaching them or them approaching you and maybe just any detail you can give on the early part of why this started?

Ron Renaud

Yeah. So David, with regard to the 184 trial, even by the AASLD it won’t be fully done because remember we have some patients that were randomized out to get an additional 36 weeks. So some of those patients won’t actually finish up until the first part of next year, but we’ll try to give as a full of an update as we can at the AASLD time slot.

David Friedman – Morgan Stanley

Okay.

Ron Renaud

With regard to genesis of the discussion with Novartis, you got to keep in mind that this a relationship that’s coming up on ten years old and it’s gone through a number of twists and turns. I think the biggest twist prior to what we’ve announced today was back in 2007 when we restructured the agreement and you have to remember, we were actually at one point a commercial organization where we had co-developed and co-launched Tyzeka/Sebivo in the United States and in the EU Big Five with Novartis. And we had a sales force and we were working hand in hand with the team there. And that was all going very well until we realized that for a company of our size, it probably wasn’t the right thing and we changed the agreement back in 2007 to eliminate the commercial group here and focus on what we do best in that step discovery and development and we exchanged that back for a royalty to Novartis.

They’ve had two seats on the board, on occasion they’ve had three seats on the board. We’ve had very good discussions with them and I think they’ve watched the HCV space of all, they participated in the HCV space almost as well as anybody else has and they’ve seen how quickly things have moved and how difficult it is to develop a HCV clinical candidate. And I think they understand the importance of Idenix having the maximum amount of flexibility with the kind of assets that we have with the nucleotide prodrug with a potential best-in-class NS5A.

And remember, they continue to be our largest shareholder. So the benefit to them is on a number of different levels from a shareholder value perspective if we do well, they do well. If the compound is commercialized and do well, they get a royalty so they do well on that front as well and quite frankly, they have the ability to do a non-exclusive combination to see potentially what a Novartis HCV compound might look like in combination with an Idenix HCV compound. So I think you can tell that these are discussions that didn’t just happen overnight, we’ve been thinking about this for quite some time.

David Friedman – Morgan Stanley

Great. Thanks a lot.

Ron Renaud

You bet.

Operator

Thank you. Our next question is from Brian Skorney of Brean Murray. Your line is open.

Brian Skorney – Brean Murray

Two questions. One quick one and one just maybe kind of theoretical on the space. Just reading on the revised agreement, does the new royalty rate that you pay on HCV product sales to Novartis, is that inclusive of IDX184 too and is that a change?

Ron Renaud

Yes, IDX-184 would be included in that and so it’s not a change. We didn’t have any kind of a royalty structure, this is all brand new, there wasn’t any kind of royalty structure before. I think the question is okay, they had already waived their option on IDX-184, but you have to remember it’s part of the overall HCV pipeline and the relationship with Novartis was more than just any of the individual compound. There were governance rights that were associated with this, a lot of other technicalities that were associated with the original collaboration. So I think for us to do this in a good fulsome way that benefited both Idenix and Novartis all of the HCV pipeline rolled into the royalty structure.

Brian Skorney – Brean Murray

Got you. And then if I can, I just wanted to kind of get your thoughts on the accelerating combo with 184. I mean Vertex announced that they’re progressing their nucleotide into a combo study with telaprevir last night. So I’m just wondering how that kind of positions you guys in terms of the option of doing a 184 plus telaprevir study and getting that started ASAP versus continuing down the road of trying to find a collaboration with a PI. Has this changed that thinking at all? Obviously, it’s pretty new information, but I just wanted to get your thoughts after last night.

Ron Renaud

Yeah. Brian, it’s a good question. I will tell you that we’ve had a number of discussions across the landscape. As I mentioned here on this call, we are still very much focused on doing a PI collaboration and to that end are in the midst of a number of different discussions. And as I said, we would like to see if it’s possible to figure out how strategically we could roll 719 into some of those discussions. Also with the recent filing the IND for 368, we’ll have proof-of-concept data from that program by the end of this year. So we’re really trying to figure out how to strategically place all of our options. There are protease inhibitors out there that we really like we think could be good for Idenix and we’ll keep you posted as we move those discussions along.

Brian Skorney – Brean Murray

Okay, great. Thanks a lot.

Operator

Thank you. Our next question is from Ying Huang of Barclays. Your line is open.

Ying Huang – Barclays

Hey, good morning, guys. Thanks for taking my questions. So Ron, first question, can you give us an update on your patent dispute with Gilead? And then secondly, can you remind us the detailed timeline for the combo study for 184 plus 719 like in the quickest time – I mean timeframe, when can you start a pivotal study? And then lastly, are you guys willing to partner your assets a la carte? Let’s say someone just loans access to a 719, the NS5A, would you be willing to do that? Thanks.

Ron Renaud

So, the first question was on the interferon, we’re not going to comment on that. It’s progressing and you can follow that pretty closely on the US PCO website. I think the second question how quickly we could move to a 719-184 combination study, as we’ve said, we’d like to get that study up and running by the end of this year so that’s still a goal of ours.

You have to keep in mind on this one we’re moving as quickly as possible. That’s a study where we dosed the first healthy volunteer back in January. We’ve already completed a robust proof-of-concept study and moving forward to get that into a Phase II combination study by the end of this year is moving as fast as we can so that’s what I would say on that, I don’t want to give any more granularity around that.

In terms of a la carte around our pipeline, I think if we were probably a year or two years ago, a la carte might be a decent way to do things and kind of see how things work and look at all the different permutations, but speed is of the essence right now. I mean right now we need to move quickly, the industry needs to move quickly. If you look at where a lot of these players are we are talking about new all-oral regimens that could hit the market in the 2015, 20116 timeframe.

So I think it’s important to make sure strategically we do the right things and look at as many possibilities as we can for our pipeline, but I also don’t want to get too diluted and too spread out. I think we have some very strong ideas on the right way to move our pipeline forward and the discussions we’re having with potential collaborators I think will get us to some of those places we need to be, to be in that same timeframe as everybody else.

Ying Huang – Barclays

That’s helpful. Thank you, Ron.

Ron Renaud

Okay.

Operator

Thank you. (Operator Instructions) Our next question is from Stephen Willey of Stifel Nicolaus. Your line is open.

Stephen Willey – Stifel Nicolaus

Yeah, good morning. Thanks for taking the question. I know you mentioned, Ron, in a previous answer that the Novartis agreement kind of extended beyond just drug specific rights. And could you maybe comment about their ability I guess going back to 2003 to kind of claim anything on the IP front that may have been developed just during the time they had the collaboration ongoing?

Ron Renaud

Yes. The IP related to our HCV pipeline is our IP, wholly owned by Idenix, it’s nothing where we have licenses from universities. The IP related to our HCV pipeline is fully ours.

Stephen Willey – Stifel Nicolaus

And so I guess any patents that would be issued out of the collaboration during the collaboration are still yours as well, correct?

Ron Renaud

All prosecuted by Idenix.

Stephen Willey – Stifel Nicolaus

Okay. And then just with respect to presumably if you enter into a collaboration and you’re kind of teed up to get a royalty rate than the royalty rate you characterized previously and that would be then reset I’m guessing just to reflect kind of what the percentages as a – on a relative basis, if you kind of understand that long winded question?

Ron Renaud

No, I’m not following.

Stephen Willey – Stifel Nicolaus

So I mean if you enter into say a collaboration and say you’re teed up to get a 30% royalty rate, the royalty rate that you’re now characterizing as being kind of high single-digit to low double digit, would that been reset to be reflective of the same percentage of absolute economics that are getting paid out?

Ron Renaud

No, the royalties are – the royalties are going to be firm, Steve, so those won’t reset.

Stephen Willey – Stifel Nicolaus

So those don’t reset. So whether or not you’re getting a 100% economics or whether or not you’re getting 30% economics, those royalty – that royalty rate doesn’t change?

Ron Renaud

Yeah. So whatever – if we were to do some and this is definitely not a preference of ours, but for the sake your example. If there was to be an exclusive license where we would have licensed one of our compounds, Novartis would still be entitled to that royalty that would have to become part of whatever the new license was.

Stephen Willey – Stifel Nicolaus

Okay. So that absolute number of royalties that are paid out to Novartis on a percentage basis does not change regardless of the arrangement that you guys establish?

Ron Renaud

It’s a – it’s pretty simple, right, it’s just the royalty rate applies to the net sales of Idenix compound. I guess at some point it doesn’t matter who’s selling it, Novartis is going to want their royalty on that compound. I think like any collaboration or any agreement I propose anything could be negotiated in the future just as this whole agreement has been, but for now that would be a firm royalty rate.

Stephen Willey – Stifel Nicolaus

Understood. And then just lastly, should we just expect all this Novartis related deferred revenue to be stripped off in 3Q?

Daniella Beckman

This is Daniella. So we’re still working through the accounting implications, but the deferred revenue will definitely be impacted, but at this point we’re not saying how much.

Stephen Willey – Stifel Nicolaus

Great. Thanks, guys.

Operator

Thank you. There are no further questions in the queue right now. I’d like to turn the call over to management for any closing remarks.

Daniella Beckman

Thank you for your time today and your interest in Idenix. Please feel free to call us if you have any questions.

Operator

Ladies and gentlemen, thank you for your participation in today’s conference. This concludes the program. You may now disconnect. Have a wonderful day.

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