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Executives

Sylvia Wheeler - Vice President of Corporate Communications

John A. Orwin - Chief Executive Officer and Director

Jeffrey H. Knapp - Chief Commercial Officer

Herbert C. Cross - Chief Financial Officer

Anne-Marie Duliege - Chief Medical Officer

Analysts

Michael G. King - Rodman & Renshaw, LLC, Research Division

Matthew W. Luchini - Piper Jaffray Companies, Research Division

Joel D. Sendek - Stifel, Nicolaus & Co., Inc., Research Division

Christopher J. Raymond - Robert W. Baird & Co. Incorporated, Research Division

William Tanner - Lazard Capital Markets LLC, Research Division

Affymax (OTCQB:AFFY) Q2 2012 Earnings Call August 8, 2012 4:30 PM ET

Operator

Thank you for your patience, ladies and gentlemen. At this time, I'd like to turn the call over to the Vice President of Corporate Communications for Affymax, Ms. Wheeler. Ma'am, you may begin.

Sylvia Wheeler

Thank you very much. Good afternoon, everybody. Welcome to our Second Quarter 2012 Financial Results Call. Leading today's call is John Orwin, Chief Executive Officer of Affymax. And joining us on the call today are Jeff Knapp, our Chief Commercial Officer; and Herb Cross, our Chief Financial Officer.

Before turning the call over to John, I remind you that we will be making forward-looking statements. Our actual results may differ materially from the results described, in particular, regarding our financial forecast, our timelines, our commercial expectations and collaboration with Takeda. We also include non-GAAP financial measures in our call and encourage you to review our press release and the risk factors in our most recent quarterly report on Form 10-Q.

I will now turn the call over to John.

John A. Orwin

Thank you, Sylvia. Good afternoon, everyone, and thank you for joining us today, as we share our excitement around the recent launch and commercialization of OMONTYS. We believe once monthly OMONTYS represents a very attractive ESA alternative, and we're excited by the opportunity to bring this new treatment option to dialysis providers, and importantly, their patients.

I'd like to take a moment to highlight our significant accomplishments in the first half of this momentous year. At the end of the first quarter, on March 27, the FDA-approved OMONTYS within a first cycle review for the treatment of anemia and adult chronic kidney patients on dialysis. This approval marked Affymax's transition from a development stage company to a commercial stage enterprise. And we expanded with the hiring of our highly experienced field sales and medical affairs teams.

On April 24, approximately a month post-approval, OMONTYS was made available through distribution channels. A little over a month ago, on July 1, the product specific Q-code for OMONTYS went into effect, making reimbursement timelier for dialysis centers deciding to use OMONTYS. Also about a month ago, we completed the training and deployment of our field-based sales team of approximately 80 sales professionals. Over this last month, they've been calling on the pool of nephrologists and supporting staff that work within dialysis organizations.

As Jeff will expand on later, prior to sales force deployment and an effective Q-code, sales in the second quarter were not significant. However, as of today, we have sold product in each segment of the dialysis provider market, and to date, have spoken with essentially all large, medium and small dialysis providers through combinations of teams including account management, field sales, medical affairs and our executive team.

Specifically, we are pleased to have secured contracts with key customers across all dialysis segments. As we reported, our agreement with Fresenius Medical Care North America, the largest dialysis provider in the U.S., will allow the organization to broaden its experience with OMONTYS before a potential long-term contract might be established.

And we just announced today that we've executed an agreement with U.S. Renal Care. We also have agreements in place with several other customers across the medium and small dialysis organizations. We believe these relationships underscore the significant community interest and excitement in OMONTYS. Jeff will provide further details on our progress.

But before turning the call over to Jeff, I would like to recognize our employees, as well as our partners at Takeda, for the significant strides they have made in laying the foundation for OMONTYS' commercial success in just these few short months since approval.

Jeff?

Jeffrey H. Knapp

Thank you, John, and good afternoon, everyone. As you can imagine, we are very pleased with the progress we have made on the commercial front, including establishing commercial relationships with several key customers.

As John mentioned, our field sales and medical affairs teams completed their training in the last few weeks of June, and they are now fully deployed and engaged in product discussions with nephrologists, nurses and the dialysis provider executive teams. As a reminder, we made a conscious decision to take a financially prudent approach to building out our sales team, and the field reps were hired only after the approval of OMONTYS. Following onboarding, training and an orchestrated launch effort with Takeda, the sales organization was fully deployed into the field at the end of June.

On July 1, our product specific Q-code went into effect. Prior to July 1, claims needed to be processed under a miscellaneous J-code, which would typically require some form of a manual adjudication before reimbursement, which could delay payments to dialysis providers by 60 days or more. Now with the Q-code in place, centers can receive more timely reimbursement when using OMONTYS, facilitating payment in the more standardized 14-day timeframe.

Turning specifically to progress in the marketplace, in the LDO segment, as many of you know, we have executed a supply agreement with Fresenius Medical Care North America for the sourcing and supply of OMONTYS through April of 2013. As John mentioned, Fresenius is the largest dialysis organization in the U.S., with approximately 2,000 dialysis centers nationwide, which collectively treat over 150,000 patients a year.

We are excited to partner with one of the world's leading dialysis providers to offer a new therapeutic option for the treatment of anemia and their chronic kidney disease patients on dialysis. Although the overall agreement terms were within the range we had expected, we did not disclose the contract details.

Fresenius' initial plans are to adopt the product into more than 100 dialysis centers, and then based on this experience, evaluate the potential to expand to additional centers. We have deployed our conversion teams to assist the designated centers in integrating OMONTYS into their operations. The first phase of this conversion process began as planned at the end of July. Already close to 50 Fresenius centers across the nation have begun utilizing OMONTYS to date, and Fresenius stated that it expects to have 10,000 patients on OMONTYS by the end of September.

Over the coming weeks and months, Fresenius will begin to evaluate its experience with OMONTYS including cost, productivity of staff and consistency of OMONTYS dosing. Throughout this process, we and Takeda, will continue our discussions with Fresenius and we'll explore possible ways to expand the relationship, including both expanded utilization and a longer-term agreement.

Additionally, with the medium size dialysis organizations, we have executed a supply agreement with U.S. Renal Care, as John mentioned. We have also signed an agreement with a second MDO recently. These agreements allow the organizations to purchase OMONTYS and provide for discounts and rebates on the product subject to certain requirements. Together, these MDOs treat more than 10,000 patients collectively. They have both indicated that they plan to initially evaluate OMONTYS in selected centers and then, based on the experience, evaluate the potential to expand to additional centers. Financial terms weren't disclosed, however, the overall terms for each of the contracts were within the range we had expected for this segment.

Therefore, in addition to Fresenius, we have now established agreements with 2 of the 6 medium dot [ph] sized dialysis organizations, which we define as those treating over 4,000 patients a year. And lastly, with the sales force fully deployed, we are making great progress with other medium dialysis organizations, as well as the small and independent dialysis centers and are beginning to see new customers in various regions across the nation. Although still in the early stages of product launch, we expect to see the impact of the recently executed contracts and fully deployed sales force in a more meaningful way over these next 2 quarters as more centers convert to OMONTYS.

Going forward, we intend to highlight the total number of dialysis centers that are using OMONTYS, as well as how many of those are new customers for the quarter. Now it's important to remind everyone that despite our early success, we anticipate a certain amount of unevenness to product adoption. This is due to the nature of this market where whole chain conversions, or large consolidated orders, can translate into meaningful movement and product sales. And therefore, our trajectory will not likely follow the traditional farm up product curve that represents a more steady build of weekly scripts.

At this early stage of launch, we are only seeing the leading edge of the successes we believe are still to come. We continue to be very encouraged by our ongoing discussions and progress within the nephrology community, including many of the key decision-makers within the dialysis organizations themselves.

With that, I'll turn the call over to Herb to review our financial performance. Herb?

Herbert C. Cross

Thanks, Jeff. Since we have now begun to generate OMONTYS sales with early net product sales of approximately 50,000 during the second quarter, I would like to remind everyone on the mechanics of our 50-50 profit split with Takeda.

Takeda books comp line product sales and will also capture the majority of the cost of goods, in addition to their own commercialization expenses on their P&L. Affymax's financial statements will reflect our own development and commercialization expenses. The net of all these elements will be utilized to calculate the profit or loss on the product during each quarter, and the resulting profit equalization payment due from Takeda will be reflected as collaboration revenue on our income statement each period.

While the impact of OMONTYS product sales will be reflected in this line item, we will not be breaking that component out separately in our financials. However, we will continue to provide quarterly OMONTYS net product sales on our earnings calls to help investors understand our progress in the marketplace.

As to our results for the second quarter, we reported collaboration revenue of $2.8 million, which was primarily comprised of reimbursement of commercial expenses given the launch of OMONTYS during the quarter. Total operating expenses for the second quarter, excluding $2.9 million of stock-based compensation, were $31.2 million. Research and development expenses, excluding stock-based compensation, were $11.8 million for the quarter, as we continue to support regulatory and API manufacturing activities, as well as our ongoing Phase IIIb trial.

Selling, general and administrative expenses in the second quarter, excluding stock-based compensation, increased to $19.5 million due almost entirely to the build out of our commercial infrastructure in this launch period for OMONTYS. The overall increase in our operating expenses in the second quarter was consistent with our expectations, as we invested in the launch and commercialization of OMONTYS.

In the aggregate, we reported a net loss of $31.8 million in the second quarter of this year compared to a net loss of $12.5 million for the same period in 2011.

Moving to the balance sheet, we received $53 million in milestone payments from Takeda during the second quarter related to milestones earned during Q1. As a result, cash, cash equivalents and investments totaled $119.2 million as of June 30, 2012.

I will now turn the call back over to John.

John A. Orwin

Thank you, Herb. We are keenly focused on the successful commercial launch of OMONTYS. We are supporting existing relationships by facilitating a smooth conversion process and a positive experience with OMONTYS. Also, we and our partner, Takeda, are continuing our ongoing discussions with additional customers in the dialysis community, while preliminary discussions had focused on the strong scientific data and differentiated product attributes supporting OMONTYS, outstanding questions from potential customers are now centered more around better understanding our pricing relative to their existing ESA costs and how OMONTYS might serve as an overall cost lowering solution for their centers.

This is a very exciting time in the company's history as we make inroads into an approximately $2 billion net ESA market in the United States. Thanks to an experienced, well-trained sales and marketing organization and an attractive product offering in what was previously a monopoly market, we have already established relationships with multiple sizable dialysis organizations. Together, these organizations treat a significant portion of the dialysis patient population.

Importantly, we are pleased with the traction we are gaining in the marketplace as sales ramp. The progress we highlighted with new customer contracts is translating into more meaningful sales growth in the third quarter as customers gain more experience with OMONTYS.

With the goal of becoming a leader in the nephrology and specialty care space, we are also looking for ways to leverage our expanded capabilities beyond OMONTYS, as such we're evaluating thoughtful and prudent approaches to building our pipeline in order to realize our vision for the company. Please stay tuned for what we believe will be an exciting second half of the year.

I will now open the call to questions, and I will also welcome Dr. Anne-Marie Duliege, our Chief Medical Officer, who will also be available for questions. Operator?

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Mike King of Rodman & Renshaw.

Michael G. King - Rodman & Renshaw, LLC, Research Division

I just wondered if we could get a little more color on the Fresenius agreement. They did say -- we were on the call the other day and did hear them say that they want to put 10,000 patients on drug by the end of September. Can you talk anything about commercial terms? Was it -- how close to your WAC price did -- were you able to achieve? How long will these patients be on the drug? Any other color that you can provide us with so we can get some idea what to -- how this is going to translate into revenue to AFFY?

John A. Orwin

Sure. Thanks, Mike. I appreciate the question. Yes, of course, we're very pleased with the relationship that's been struck with Fresenius and their progress to date. As far as pricing is concerned, obviously for competitive reasons, that's not something that we'll be able to disclose. I think the way we have characterized it, however, is that the pricing was in line with what our expectations were going in. And as far as -- what was the other part of your question?

Michael G. King - Rodman & Renshaw, LLC, Research Division

Just how -- will these patients remain on therapy, or are they going to go on for a limited period of time? How is it going to work?

John A. Orwin

Well there's no indication that it is for a limited period of time. This is not considered a pilot, this is considered a conversion for those centers. Obviously between now and then we need to continue to evaluate how their patients do in aggregate and come to an agreement on ongoing commercial terms. But it was not proposed to us, or by us, as a temporary period for those patients.

Michael G. King - Rodman & Renshaw, LLC, Research Division

Okay. And if I could just follow up, the -- just as far as the other ESAs available at those particular sites, was there -- were they still on, or were they still available, or were they substituting OMONTYS for EPOGEN or the other -- any other ESA that was available at that site?

John A. Orwin

Yes, our understanding is that both products are available, but as for the second part of your question, most of these patients are, in fact, converting from EPOGEN to OMONTYS, and the decision about whether and in what situation do that is really left to the Medical Director at the site.

Operator

Our next question comes from Ian Somaiya of Piper Jaffray.

Matthew W. Luchini - Piper Jaffray Companies, Research Division

This is Matthew, actually, on for Ian. I wanted to sort of follow that same line of questioning thinking about Fresenius. Sort of 2 related questions. The first one is, when you talk about the 10,000 patients in the centers, is there a cap in the number of dialysis units and patients that Fresenius will use OMONTYS in? Are those hard numbers or is it more of a guideline figure? And then I guess the other question is what criteria has Fresenius outlined during this trial phase? What are they specifically looking to see before they might consider expanding to a larger base of units?

John A. Orwin

Thanks for the question, Matt. As far as the 10,000 patients, there's no cap that we're aware of on the number of sites. And obviously, depending on how many patients Fresenius converts at each site, that will largely determine the number of sites that are included in this initial phase as they have stated that they're targeting 10,000 patients. As far as the criteria for those sites or for those patients and what they're looking to achieve, their criteria for site selection was really proprietary, but I believe was intended to get a broad understanding of how the product works in the marketplace. And what they're looking for, obviously, will follow safety and efficacy, but I think the primary intent is really to understand, from an operational perspective, how the product performs in their hands, including their consumption of OMONTYS as compared with EPOGEN and whether or not it's delivering the value that we're targeting in a future agreement. Again, you'll recall that the dose conversion for OMONTYS from EPOGEN is nonlinear, so even at the same price, the cost to the provider could vary based on their particular patient population. So a full evaluation of that is also a major goal for this initial period.

Operator

Our next question comes from Joel Sendek of Stifel, Nicolaus.

Joel D. Sendek - Stifel, Nicolaus & Co., Inc., Research Division

Three questions if I can. You said that all the negotiations you've done is in line with your expectations. Have you ever laid out what those expectations are in any way? I can't remember.

John A. Orwin

We have not.

Joel D. Sendek - Stifel, Nicolaus & Co., Inc., Research Division

Okay. All right, so we're going to be left to our own. That's fine. The second thing is, I'm wondering on the deals with Fresenius and the 2 MDOs as you describe them in answering the previous 2 questions, is there a risk that any of them might convert back? I mean you're characterizing them as conversions, not pilot programs and I'm wondering if there's a risk that they might find something that they -- that raises a read flag and they might convert back as opposed to going forward with moving or purchasing more OMONTYS. How should we think about that?

John A. Orwin

Sure. Well they've been characterized to us as conversions rather than as pilots and that's based on what we believe is their intent. Of course, there's always the risk that if there was a problem with the product, the patients could convert back to EPOGEN. At this point, that's not something that we anticipate. As you know the drug was very well studied in Phase III and their approach to actually initiating patients and centers, we think, makes a lot of sense, and we're supporting that conversion very closely. So I -- barring any unforeseen circumstances, I think it is unlikely that they would make the decision to convert their patients back again, particularly once they're stable on once monthly OMONTYS.

Joel D. Sendek - Stifel, Nicolaus & Co., Inc., Research Division

Okay, so more than likely, it's going to be the opposite that they get comfortable and then they expand further and the question is, how much they will expand? I think you mentioned previously that this is a situation, especially for the smaller, as you get to the smaller scale, where it only makes sense to have one or the other, correct? So I guess I'm just struggling with trying to figure out over what timeframe, if I'm correct, on potentially predicting a full conversion, over what timeframe those full conversions might take place. Can you help us at all try to figure that out?

John A. Orwin

Sure, I think, since Jeff has been directly party to those discussions and negotiations, I'll ask him to comment.

Jeffrey H. Knapp

Sure, Joel, this is Jeff. As it relates to your first question, how do we know how far they'll go, all I can say is that the way that we design our contract as it relates to discounts and rebates, the incentives will be put in place in such a way that we will want to encourage what I would consider to be a majority of the utilization within that chain. I'm not -- obviously I won't go into the specific details or the levels of what majority means, but it's in part tied to how we do our contract. And then that's not inconsistent with the way the market has worked for years now. In terms of timeframe, I think we're obviously interested in seeing these conversions happen as quickly as possible, in so far as we're confident that the conversions will go smoothly and safely for the patients. And I think it's interesting because I would say each dialysis chain has a little bit of a different culture associated with them and some are more aggressive than others, some are more of a let's wait and see as it relates to experience. I think that at the end of the day, we have to be able to fulfill all of their needs not just as it relates to safety and efficacy, which as you heard John say, we're confident about, but also we have to meet the expectations of when they went into these pilots, they were expecting one thing in terms of utilization. And if for some reason we missed that because they either used less or more, then we will do what we need to do to adjust it, help them continue with that conversion. And again, that will be different across each one of these dialysis chains. So that's probably the most I can say, just because as John alluded to before, it's a pretty confidential subject matter as you can imagine, given the competitive nature of the market.

John A. Orwin

I would maybe just add to that, that the discussions have moved more toward operational issues and how patients can be converted and what that means in terms of consumption of OMONTYS and cost relative to EPO rather than questions of safety or efficacy. As for sort of how far we can go, what I would say just on top of what Jeff said, is we're very determined to gain meaningful share in each of the segments: LDO, MDO and SDO and independents.

Operator

Our next question comes from Chris Raymond of Robert Baird.

Christopher J. Raymond - Robert W. Baird & Co. Incorporated, Research Division

Just a couple of questions. So you disclosed one MDO here and one of them, you explained that you'd signed a contract and hadn't yet disclosed until now. Can you maybe walk through what the threshold for materiality is or maybe the trigger to disclose these? Will we see other updates as they happen, or is this something that you plan to sort of announce as you give your quarterly updates?

John A. Orwin

Thanks, Chris, for the question and the answer is that both are likely in the sense that, in some cases, we may have the ability to issue a release and make that disclosure, pending the customers interest in seeing that happen. In other cases, they may prefer not to see an announcement. Obviously, if it is material and we have an affirmative disclosure obligation, you will hear about it in that manner. If not and if the customer chooses not to be identified or highlighted, if you will, then you are more likely to hear about it on earnings calls. Again, our goal is to work with them and try to be as transparent as we can be and provide as much information as we possibly can to the investor community. But ultimately, it's the customer and Takeda and Affymax who have to make that determination, unless it's material, in which case, our obligations are very clear.

Christopher J. Raymond - Robert W. Baird & Co. Incorporated, Research Division

And can you maybe walk us through how you plan to recognize revenue when we start to see bigger numbers sort of come through next quarter or this coming quarter? Will it be -- will you recognize that when it's received by the distributors or will it be something where it's actually infused into the patient or received by the end users, is there some way we should be thinking about how that should show up?

John A. Orwin

Thanks. I'll ask Herb to comment on that.

Herbert C. Cross

With regards to rev rec, I mean, obviously, first thing I would clarify is Takeda will be booking product sales, so ultimately the initial rev rec decision will lie with Takeda. That being said, given that this product is used relatively just in time, it's not something that's stocked copiously at the centers. Once we get through, I think, the initial channel filling as far as getting product into the distribution, I would expect, and I think what we've heard from Takeda is, rev rec will be pretty immediate. So I think you would expect to see revenues or IMS sales moving into revenue pretty consistently within the period. And again, obviously then from our rev rec perspective, that has to flow through the whole 50-50 profit split mechanics and how that flows through to us, which I walked through earlier.

Christopher J. Raymond - Robert W. Baird & Co. Incorporated, Research Division

Okay, so just to be clear then, you are not blocking the script services, is that correct?

Herbert C. Cross

We'll we're not. But again I think -- recall, this product is actually used specifically in the dialysis organizations, not distributed through a pharmacy, so it's not so much of a script setting, but we have not blocked IMS data, if that's what you're asking. We have not.

John A. Orwin

And our intent as a practice is to provide actual net product sales in each quarter, independent of how that translates into our equalization payment from Takeda.

Operator

Our next question comes from Bill Tanner of Lazard Capital Markets.

William Tanner - Lazard Capital Markets LLC, Research Division

Jeff, I had one for you. Just as it relates to the Fresenius deal, I think you mentioned or John mentioned, it's going to expire in April. Is it contemplated that the same terms would be in effect if an agreement was re-upped? And just wondering why there isn't an option or is there an option or is this something that both Affymax and Fresenius felt was in both parties best interest, just to assess?

Jeffrey H. Knapp

Sure, Bill. So it's hard for me to kind of speculate on what the next contract might be. I would say that both parties are interested in seeing the results from the initiatives that they have underway and I think ultimately, what they learn from that may dictate some of the terms of what could be that next phase of the contract. So I think that an important piece of it is seeing how -- what their experience unfolds like. Beyond that, I think John maybe has said before, while this contract runs until the end of April 2013, Affymax and Takeda are obviously motivated to begin the discussions as soon as it makes sense as to what that potential next phase might look like. And really the only way we could start to do that is when we start to have some experience -- they have, they start to have some experience under their belts, which as we described before, they're well underway in getting right now.

William Tanner - Lazard Capital Markets LLC, Research Division

And Jeff, would you think that Fresenius would be willing to share anything, any metrics about their experience or you'll just kind of go back into this negotiating from a new starting point and they may know how much better or different it is for them versus what they thought the first time around.

John A. Orwin

This is John, maybe I'll comment on that aspect. First, I would say that the 2 parties, actually 3 parties because ultimately Takeda controls price, but the 3 parties together, I think, had broad agreement about the level of value or savings that Fresenius wanted to achieve. And again, that was sort of in line with what our expectations were. The key issue is, as Jeff pointed out, how does the product actually perform in their patients and at the pricing that we've offered, does it deliver that level of value or are there adjustments that need to be made before Fresenius makes further consideration of expanding the use beyond these first 10,000 patients. As you know, the agreement that we signed was signed expeditiously, and I think in good faith, and while it could take until sometime in the first quarter to resolve, I would think that it would be in everybody's interest to have it resolved as quickly as we can. But that is pending the analyses that the companies need to do, and both companies, actually all 3 companies, will be performing those analyses. So we'll have good visibility, and they'll have good visibility, we'll share data. We want them to have a good outcome and we want to be sure that if we agreed on a level of value that we are going to provide, that in fact, it does get provided.

William Tanner - Lazard Capital Markets LLC, Research Division

Okay. And then just one more, John, maybe you mentioned it and Jeff mentioned it as well, but it sounds like most of the questions coming in are really related to the discounting, not so much about the safety and the efficacy, you've got 1 LDO, 2 of the 6 MDOs, so is that a fairly uniform comfort across the dialysis clinic universe that OMONTYS is viewed as a suitable replacement for an ESA and its really just going to come down to the number crunching?

John A. Orwin

I think it's a fair characterization that customers look at the safety and efficacy as it was demonstrated in the Phase III trials and as its described in our package inserts. So the focus of the discussions at this point has been more around the cost, but obviously, they'll be looking at their clinical results including in safety and efficacy as we go along as well.

William Tanner - Lazard Capital Markets LLC, Research Division

And maybe just one last one, as it relates to the patient selection at Fresenius, or how this is actually being rolled out, any comments or any insight there, apologies, as to how it's being offered to the patients or how the patients are being either counseled or selected to convert?

John A. Orwin

I'll ask Anne-Marie to comment.

Anne-Marie Duliege

No selection of patients per se, the sites are being trained by Fresenius, and we have also the medical [indiscernible] liaison -- the medical affairs for us to support them. They are offering OMONTYS to the majority of the patients and going to have as much exposure within a center and providing medication guides to patients as per regulations.

William Tanner - Lazard Capital Markets LLC, Research Division

And do you have any visibility as to how difficult this "sell" is to the patients to convincing them to try a different ESA?

Anne-Marie Duliege

No, we haven't heard anything of concern back. It's continued to progress as planned, so nothing specific that way.

Operator

[Operator Instructions] Our next question comes from Mike King of Rodman & Renshaw.

Michael G. King - Rodman & Renshaw, LLC, Research Division

Just kind of taking off where Bill kind of left of. Just wondering if you have the right to conduct cost-benefit analyses, or any other kind of time and motion studies that would then be available for publication, let's say at Renal Week or something like that, that you could use as a selling tool when you're at a peer review meeting?

John A. Orwin

It's possible now that the product is commercially available, that investigators might want to make those assessments. At this point, I think it's less about cost-effectiveness and less about the time savings, although those are things that certainly could be evaluated, and more about how much OMONTYS is used relative to EPO and what the cost difference is given their relative costs. That's really -- that's the main question. That, and how do you safely convert a center from one product to the other are the main objectives that I think the 3 companies -- well, Affymax, Takeda and the our customers are focused on.

Michael G. King - Rodman & Renshaw, LLC, Research Division

Right. But I guess the question is, who owns that data? Do you have rights into that data? Or does it depend on the contract where the customer might want confidentiality protection or something like that?

John A. Orwin

I'll ask Anne-Marie to comment.

Anne-Marie Duliege

So, if these customers, such as Fresenius, have extremely large database of information and they constantly analyze their own data. We will be collaborating with them on their evaluation. This will be something that ultimately remains in the rights of the customer that gives Fresenius to discuss and publish.

Operator

Our next question comes from Bill Tanner of Lazard Capital Markets.

William Tanner - Lazard Capital Markets LLC, Research Division

Maybe John or Jeff, just thinking about Amgen obviously with DaVita, they sort of preemptively struck. I'm curious if you have any visibility as to how they are responding or you would care to comment on that as to whether they are being aggressive in trying to maintain market share or maintaining the status quo?

Jeffrey H. Knapp

Bill, this is Jeff. The question you asked is something that I spend a lot of time thinking about, as you can imagine. I think the way that we view it is that with the announcement that they've made with DaVita at the end of, I guess, the end of last year, it really comes down to how -- how much more can they do than they have already done for one of the biggest customers in the market in order to hold onto the rest of it. At the end of the day, we're a company that's starting at 0 and we're fairly motivated to build our business. And I think that you can imagine there's probably a fair amount of messaging that's going on in the field, but quite frankly, there's not a whole lot that I haven't heard of and my team hasn't heard of that we didn't already anticipate, and in many cases, have already prepared for messaging around. So we feel very good about what's happening, I would say, down at the individual nephrologist level, as well as all the way up through the executive team levels at the dialysis chains as well.

Operator

We have a follow-up question from Joel Sendek of Stifel, Nicolaus.

Joel D. Sendek - Stifel, Nicolaus & Co., Inc., Research Division

Two quick ones. I'm wondering how much you've detailed the small dialysis providers. Have you had really much time to go out into the field? And if not, when you intend to step that up? And then the second, can you provide any expense guidance for the rest of the year?

John A. Orwin

So I'll ask Jeff to take the first of your questions, Joel, and Herb will take the second question. Jeff?

Jeffrey H. Knapp

Joel, this is Jeff. As it relates to the small dialysis providers, we, like other companies, have incentive systems in place to help kind of steer the field organization where we think our greatest potential is early on. And I would say that I feel pretty good about the total universe that we've covered right now relative to the targets that we had and those targets do frankly include the small dialysis organizations. You have to remember that when you talk to a nephrologist, that nephrologist may hold privileges at a one dialysis center that is a nonprofit, for example, but they also may hold privileges at 2 other dialysis centers, which are completely different. So while there's a lot of dialysis centers out there, you can get a fair amount of coverage fairly quickly with the size of the sales organization. I couldn't tell you to date exactly what that penetration has been, but I can tell you that it's very consistent with the direction that we've given in terms of where we want them to focus.

Herbert C. Cross

And with regards to expense guidance, this is Herb, as I kind of noted on the call, I think the increase in Q2 is very consistent with our expectations. And so I don’t -- we don't have any to reason to update our guidance at this point. So I mean, I would stay with the 1 35 to 1 45 for the year that we've previously provided, excluding stock comp.

Operator

And this concludes the Q&A portion of today's call. I would now turn the call over to Mr. John Orwin.

John A. Orwin

Thanks for joining us today, everyone. And we look forward to our next quarterly update with a full quarter of launch activity for OMONTYS. And we look forward to speaking with you all soon.

Operator

Thank you, sir. Ladies and gentlemen, that does conclude your program. You may disconnect your lines at this time.

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