Savient Pharmaceuticals, Inc. Q2 2008 Earnings Call Transcript

Savient Pharmaceuticals, Inc. (SVNT)

Q2 2008 Earnings Call

August 7, 2008 10:00 am ET

Executives

Brian Hayden - Chief Financial Officer

Philip Yachmetz - Chief Business Officer

Paul Hamelin - Head of Commercial Operations

Dr. Zeb Horowitz - Chief Medical Officer

Dr. Robert Lamm - Head of Quality & Regulatory Affairs

Christopher Clement - President and Chief Executive Officer

Analysts

Leland Gershell - Cowen and Company

Gene Mack - Lazard Capital Market

Katherine Xu - Credit Suisse

Kim Lee - Pacific Growth

Leah Hartman - CRT Capital

Carol Werther - Summer Street

Eun Yang - Jefferies

Presentation

Operator

Welcome to the Savient Pharmaceuticals 2008, second quarter Financial Results Conference Call. At this time, all participants are in a listen-only mode. Following management’s prepared remarks, we will hold a Q&A session. [Operator Instructions]. As a reminder, this conference is being recorded today August 7, 2008.

I’d now like to turn the conference over to Mr. Brian Hayden, Chief Financial Officer. Please go ahead, sir.

Brian Hayden - Chief Financial Officer

Good morning and thank you for participating in today’s second quarter 2008 financial results conference call. We issued a press release late yesterday providing financial results and highlights for the second quarter ending June 30, 2008. This press release and others are available on our website at www.savient.com.

Before we begin, I would like to read our Safe Harbor statement. Comments made by management during this conference call will contain forward-looking statements that involve risks and uncertainties regarding the operations and future results of Savient Pharmaceuticals.

In particular, we need to stress that when we discuss information regarding the results from our development program for Puricase or pegloticase, which was still being further analyzed with the possibility of obtaining regulatory approval for our products in the United States and outside of the United States, no inference of the overall success of the development program nor guarantee of approval can be implied as these matters are subject to a number of risks and uncertainties.

We encourage you to review the company’s past and future filings with the Securities and Exchange Commission including without limitation the Company’s quarterly reports on form 10-Q and our annual report on form 10-K, which identify important factors that may cause actual results or events to differ materially from those described in the forward-looking statement.

Furthermore, the content of this conference call contains time sensitive information that is accurate only as of the date of the live broadcast, August 7, 2008. We undertake no obligation to revise or update any statements to reflect events or circumstances after the date of this conference call.

Joining us on the call this morning, our other members of our senior management team including Philip Yachmetz, our Chief Business Officer; Paul Hamelin, our Head of Commercial Operations; Dr. Zeb Horowitz, our Chief Medical Officer; and Dr. Robert Lamm, our Head of Quality & Regulatory Affairs.

I would like to now turn the call over to Chris Clement, our President and Chief Executive Officer.

Christopher Clement - President and Chief Executive Officer

Well, thank you, Brian. Good morning and thank you all joining us today. I will begin today’s call with a brief overview of the progress we have been made with our strategic development plans for pegloticase during the second quarter, including the progress on our biologic license application, or BLA, preparations for launching pegloticase in 2009, and progress on our business development activities. I’m going to turn the call over to Brian who will report on the Company’s financial results for the second quarter. And then we will open the call to Q&A.

Much of our attention and focus this quarter has been directed to the completion and assembly of our BLA package. As you know, we reported a successful pre-BLA meeting with FDA on April 17, where we reached alignments and agreements with the FDA on the issues we have discussed related to our submission. Since the data from our clinical program suggested the drug would be used on a longer-term basis, the FDA requested that we provide an adequate sample of data, representing patient exposure to pegloticase for at least 12 months of continuous treatment. To accomplish this, we will include patient data with six-month exposure from the Phase III trial, as well as six months for more exposure of the open label extension, or OLE. In fact, we will have data from 95 patients with at least 12 months of continuous pegloticase exposure, included in the BLA. If you recall, our original plan had been to file the BLA with six months double-blind data from the Phase III program and then provide a safety update from the OLE post submission. I am pleased to report that the key analyses integrating the twelve-month safety and efficacy data of the open label extension study with the Phase III data have been completed. We believe these analyses continue to provide robust evidence of ongoing efficacy and safety in the treatment-failure gout population over the treatment period. In our view, pegloticase represents -- provides a highly favorable risk to benefits profile in patients with treatment-failure gout. Based upon our data, the BLA submission will include strong evidence of uric acid control, which is the primary efficacy endpoint, as well as improvement in clinical endpoints, such as the elimination of tophi, reduction in frequency of gout flares, and improvement in patient reported outcomes, such as bodily pain and physical functioning.

As discussed with FDA during the pre-BLA meeting, we believe the strength of our clinical results in the orphan treatment-failure gout population, which has no treatment options qualify for a priority review once the BLA is filed. We continue to believe that, if approved, pegloticase will prove to be a transformational drug for this treatment-failure gout population. Following the pre BLA meeting in April, we provided guidance that it would require approximately 3 months of additional work to integrate the open label data required by FDA into the BLA submission. By the end of September we’ll announce these and work that will comprise our BLA submission will be completed.

Our BLA is a rich and complex data set with many different analysis and expensive hyperlinks contained therein, and some additional time is required as we published the BLA in electronic format to ensure the highest possible quality of the filing. We estimate that this quality assurance process will acquire approximately three additional weeks to complete and that’s we target to make our BLA filing on or around the end of October, 2008. Assuming the pegloticase submission is granted to priority review and FDA action date and potentially US launch are still targeted for the first half of 2009.

The open label extension protocol is ongoing with 123 patients participating, more than half of those patients have been treated with pegloticase in the extension study for longer than 12 months. Stated in another way, these patients have been treated with pegloticase for longer than 18 months with the start of Phase III.

This high level of ongoing participation continues to support a positive benefit to risk profile. Long term safety and efficacy data derived from this extension protocol will be included in our presentation at the American College of Rheumatology in October. With regard to our previously announced re-exposure study, all eligible patients who are available for participation and study have received at least one dose of pegloticase. The trial was very small with only seven patients participating, but we believe even the small number will be informative about the safety of pegloticase re-exposure after the 4 to 5 year drug free period. As all patients are eligible to receive six months’ treatment we do not expect to have data analyzed and reported until 2009, although a brief safety summary will be shared with FDA as part of the typical post BLA submission safety update.

In May we were the proud sponsors of Gout Awareness Day, the Gout and Uric Acid Education Society, a patient advocacy organization led by Dr. Larry Edwards, a leading US doubt expert and rheumatologist, teamed up with Philadelphia 76ers’ coach, Maurice "Mo" Cheeks, a gout sufferer himself, to raise public awareness of this debilitating disease. In show of our support for increasing public awareness about this debilitating condition, Savient kicked off the day by ringing the bell to open the NASDAQ Stock Exchange. This is the second year that Savient has provided corporate support for Gout Awareness Day.

In June we attended the EULAR conference that is considered to be the premier annual European Rheumatology meeting. We hosted an advisory board meeting with leading European rheumatologists in which we obtained further inside on the perceptions of the management of inadequately controlled gout in the EU. These meeting were highly interactive and these Rheumatologists provided us with the benefit of their expertise with regard to their experience with gout patients.

In addition to the advisory board meetings we also have for the first time and exhibit booth at this important meeting that enabled us to establish a presence and help raise awareness of gout, while providing a forum to engage with leading rheumatologist from around the world. The next few months will be very exciting but not only if we file pegloticase BLA but also as we begin to raise awareness of pegloticase and the benefit that can provide to the treatment failure population.

The American College of Rheumatology or ACR meeting is coming up in mid October. I am very pleased to announce that all six of the scientific abstracts that we have submitted were accepted either for oral presentation or a poster session. We believe the publication of the pegloticase abstract is a reflection of the intense interest by the rheumatology community for this innovated therapy in a field which you will see new successful treatment in more than 40 years. The critical safety and efficacy findings of our pivotal clinical program have been selected by the ACR to be presented from the podium during our primary session. Primary session presentation are selected by the ACR on the basis of what they believe would be of greatest current interest to rheumatologist.

Additionally, the detailed data correlating immune and clinical response to pegloticase will be presented in a separate oral presentation. The full remaining abstract covering improvement in patient reported outcomes, focused response to pegloticase, economic consequences of gout flares and the evidence for the treatment failure gout population as an identifiable patient group will be presented at various poster session. We are also pleased to announce that two research articles from our Phase II study will be published in September or October in the prestigious journal of “Arthritis and Rheumatism.” The availability of these publications and abstracts coupled with the heightened awareness of pegloticase coming from the ACR meeting, will provide a strong educational base and recognition of treatment-failure gout as a debilitating disease as we prepare for the commercial launch of our potential new treatment next year.

Commercial planning activities are accelerating as we prepare for potential launch in the US during the first half of 2009. There are several areas of major focus, these include field force organization. We are working to determine all the elements for our hiring plans for the 60 person sales organization to call on the rheumatology community. Sales reps will be brought on board approximately 30 to 60 days prior to launch.

Product packaging and supply chain activities. Here we are finalizing packaging materials to be submitted with the BLA, and we will begin the contracting process the specialty pharmacy distributors this fall. Marketing and brand management, we’re in the early stages of concept and message testing to create our promotional materials for physicians and patients. We have initiated this phase of launch planning because we have a complete picture of what the twelve-month data demonstrates, and can now anticipate what our life labeling might contain at lunch. We have also accelerated critical marketing research to understand market dynamics with infusion nurses and rheumatologists, as well as the initiation of our quantitative global pricing and reimbursement methods.

The last area of intense commercial preparation for launch is directed to the managed care market. We continue to make excellent progress building the tools and strategies that the private and government payers will need to have in order to evaluate the cost benefit equation for addition to formularies and reimbursements within their system.

On the business development front, we continue to explore strategic partnerships for pegloticase in order to maximize the potential for this important product globally. As previously reported, we have a very systematic and thorough process under way to explore all potential options, and those efforts are ongoing. We continue to be pleased with the high level of interest expressed in commercializing this product.

At this point let me turn the call over to Brian for the financial update.

Brian Hayden - Chief Financial Officer

Thanks, Chris. I’m going to discuss the financial highlights of the second quarter and year-to-date period ended June 30, 2008 that we reported in last night’s press release. The net loss for the second quarter was $24.2 million or $0.45 per share compared with a net loss of $9.6 million or $0.18 per share for the second quarter of 2007. The net loss year-to-date was $41.8 million or $0.78 per share compared with a net loss of $17.5 million or $0.33 per share for the same period in 2007. Total revenues for the second quarter primarily from Oxandrin and oxandrolone were $353,000, a reduction of $2.8 million from the same period in 2007. Year-to-date revenues for $1.5 million or $8 million less than year-to-date 2007.

The cause of the lower revenues is due to generic competition for Oxandrin, our oral synthetic derivative of testosterone used to promote weight gain following involuntary weight loss related to disease or medical condition. We have expected our revenues to decline significantly due to the generic competition, even though we launched our own authorized generic, oxandrolone. Additionally in the second quarter and year-to-date we have increased our Oxandrin product return allowance due to an increase in our actual historical product return rates, which had a negative impact on net sales. The sales of Oxandrin and oxandrolone will continue to become less significant to our overall financial condition as sales continue to decline quarter-over-quarter.

Cost of goods sold for the second quarter was $219,000, a decrease of $426,000 from the same period in 2007, and due to the lower product sales of Oxandrin and oxandrolone. Year-to-date COGS were $552,000, an increase of $263,000 due to a one-time inventory obsolescence reserve that was reversed in the year-to-date 2007 period. Excluding this onetime adjustment in 2007, year-to-date COGS were lower in 2008 from 2007.

Research and development expenses in the second quarter of 2008 were $15.7 million, an increase of $4.5 million from Q2 2007. Year-to-date R&D expenses were $26.9 million, $2.9 million higher than the previous year. These increases in R&D expenses were due principally to development of our secondary source of supply of our active pharmaceutical ingredient for pegloticase, including reservation fees from manufacturing capacity. R&D FAS 123R stock compensation expense was $792,000 and $1.7 million for the second quarter and year-to-date, respectively, compared with $499,000 and $1 million in Q2 and year-to-date 2007, respectively.

Selling, general and administrative expenses were $10.4 million in the second quarter of 2008, an increase of $3.3 million from Q2 2007. Year-to-date SG&A expenses were $19.7 million, $5.2 million higher than the prior year. These increases were primarily due to litigation costs including loss contingency estimates for the settlement of two legal proceedings, one of which was finalized in July 2008, and the second is pending completion of settlement documentation. SG&A FAS 123R stock compensation expense was $1.3 million and $2.9 million in the second quarter and year-to-date 2008, respectively, compared with $1.2 million and $2.1 million in Q2 and year-to-date 2007 respectively.

Our investment income was $411,000 in the second quarter of 2008, a decrease of $1.9 million from Q2 2007. Investment income year-to-date was $1.4 million, a decrease of $3.3 million from the same period in 2007. These decreases were due to reductions in our invested cash balances, as well as a move in investment to the less risky treasury money market funds, which resulted in lower income yields earned from these funds. We ended the second quarter with $121.9 million in cash in short long-term investment down $22.3 million in total from December 31, 2007 year end balances.

As we have previously included a portion of our short and long-term investment investments at June 30, 2008 was invested in the Bank of America’s Columbia Strategic Cash Portfolio. This is represented by $7.3 million of short-term investments and $2 million of long-term investments. The long-term investments are included in other assets on our balance sheet. The Columbia Strategic Cash Portfolio was closed in December 2007 and the fund is in the process of liquidating their assets. We redeemed a portion of our total $20 million investment in December 2007, during the first day of 2008 representing approximately $10.3 million.

We anticipate based on the information received from the Bank of America, that we will redeem an additional $6 million by the end of 2008, for a total of $16.3 million of the $20 million, or 82% of our original investment. The remaining $3.3 million of our investment in the portfolio is expected to be redeemed in 2009. The investment in the Columbia fund is classified as restricted investments, since the redemption of the funds or not at the discretion of the Company. As previously indicated, the remaining portion of our investment was maintained at highly liquid US Treasury funds. Offsetting some of our cash burn in the first half of 2008 was the receipt in April of an $8.6 million US federal income tax refund from the utilization of our 2007 net operating losses to offset taxes previously paid related to 2006 taxable income. That concludes the financial portion of the Conference Call.

I would now like to turn the call back over to Chris.

Christopher Clement - President and Chief Executive Officer

Thanks Brian. As we look forward, the second half of 2008 will be an exciting time for Savient, with the filing of our BLA, our presence at ACR meeting in October, and the presentation of our Phase III and longer-term clinical results. Our business development activities will take shape during this time frame, as we prepared for the commercialization in the US, and prepare for a regulatory filing in Europe.

With that being said, let me now open the lines to Q&A.

Question-and-Answer Session

Operator

[Operator instructions]. And your first question is from Leland Gershell from Cowen and Company.

Leland Gershell

Hi, good morning. Thanks for taking my questions. With those seven patients treated with a dose in the re-exposure trial, any safety observations you can share with us from those dosing today?

Dr. Zeb Horowitz

Leland this is Zeb. The only thing that we can say at this point is that there is nothing really to report here. We will give a full analysis when it is finally complete. So, we have all the patients available to us enrolled, and they have all received at least one dose, some of them multiple doses. And it is just nothing, as we expected, there is just nothing to say about it at this point.

Leland Gershell

With the plan to submit some of that safety data to the FDA during your BLA review, could you remind us as to what the requirements of that data is from the agency and the interplay with the ultimate label for Puricase?

Dr. Zeb Horowitz

As I believe we said before in a number of settings, that this re-exposure study was really set up by the Company in response to demand by patients previously treated in the early trials and by their investigators, where these patients might have volunteered for a single dose Phase I study or the limited three-month Phase II. And since we reported the favorable data from the longer Phase III study, and they know we have the open label extension, they felt as early volunteers they were being denied access to a drug when they had no other effective treatment. Really that is the reason we set it up. Obviously, of course, it does hope to begin to address the question about is there any risk of safety risk to re-exposing patients to a long multi-year drug-free interval. This never came up at the FDA. It was not discussed when we were planning the studies. It did not come up as a topic at the pre-BLA meeting. And I anticipate it is not going to come up as a topic during the review. But the reason we are submitting it in the post submission safety update is there is a requirement for any clinical program if there are ongoing studies of any kind or ongoing safety information coming, even from a marketed product, the sponsor is obligated to report that according to an FDA-specified schedule. And the rules are very clear and they are not drug specific. But it is nothing to do with a specific request from FDA. That is the whole story.

Leland Gershell

Okay. And then one more question, this time on the strategic front. Previously you had guided to some sort of update regarding your strategic activities for Puricase in the third quarter. Is there any change in expectation there, particularly in light of the BLA filing timeline having move somewhat down toward October?

Christopher Clement

No, we were -- this is Chris. I still, we guided to giving an update on the status of our partnering activities by the end of third quarter, and we will still provide that update.

Leland Gershell

Okay, great. Thanks for taking the questions.

Operator

Your next question is from Gene Mack from Lazard Capital Market.

Gene Mack

Hi, thanks fro taking the question. I guess, Zeb, is there any -- can you give us any sort of characterization, the seven patients that you have dosed, where their uric acid levels were relative to maybe prior to receiving Puricase the first time around?

Dr. Zeb Horowitz

Let me try and answer it. The entry criteria for the re-exposure study were identical to the Phase III entry criteria, with one exception. Phase III specifically excluded any patient with prior exposure to the drug. So, in terms of uric acid, the entry requirement for the re-exposure study was the uric acid in the serum no less than 8 milligram per dl.

Gene Mack

So these are all patients that had sort of a slow rebound of uric acid level?

Dr. Zeb Horowitz

No, there’s no, I don’t understand your question about rebound, what do you need?

Gene Mack

In other words, after having been treated the first time with Puricase their levels have come back?

Dr. Zeb Horowitz

Yeah, I think there may be a misunderstanding. We’re accepting patients in the re-exposure study who may have had only dose of pegloticase in Phase I. And that dose might have been as low as 0.5 milligram. It is not that they had control -- they had a treatment and were controlled and then several years later come back in the study. That is why I don’t call it re-treatment, I call it re-exposure. They may have had only one dose of half a milligram. So, you can’t, its not appropriate to think of it that way.

Gene Mack

Okay, I understand. Thanks. And Chris, could you just give us an update on just remind us what the strategy is for MAA filing per Europe, what the timing is?

Christopher Clement

The MAA filing in Europe will not be in the first quarter of 2009.

Gene Mack

And then, just lastly, in terms of what you think you might need to go forward launch in US in term of -- well, it is two parts. First, bringing on senior marketing personnel, are you thinking about prior to the salesforce, but how soon -- it just seems like the timeline is real tight there between filing the BLA, getting senior sales management on board, and then ramping up the headcount. And meanwhile everybody get comfortable with the marketing material.

Christopher Clement

I will take a stab at it, and then I will turn it over to Paul Hamelin. We have a small internal group now that has been doing a lot of the preliminary planning and a lot of the foundation work that will go into putting together the commercial plan. However, we don’t want to spend resources until we have pretty good clarity around the approval date and those kinds of things. So, we will begin to really accelerate some of our hiring practices once our BLA gets accepted. So, that will give us time to get the appropriate sales management people in place, and then to move forward to get the sales reps in place, as I said, somewhere between 30 to 60 days prior to launch itself. I will let Paul give a little bit further color on that.

Paul Hamelin

Let me try to approach it from this standpoint. If you exclude the sales force, the 60 sales representatives that we will hire 30 to 60 days before the launch, if you exclude that, and then exclude the six district managers that lead that group, we have -- again, excluding those 60 to 66 people, we probably already have 60% to 70% of the critical people in marketing, in the sales operation area and our infrastructure already in place. Some of it is a carryover from when we were actively promoting and managing Oxandrin in the market. And the other portion of the team, are people that we’ve added to the organization over the last year, year and a half gearing ourselves up to launch. Between now and year end we will round out a few more of the internal people we need, and then also leaving the 66 people for the field management and field organization for 2009 hires, as we get much closer to the existing launch. Then within the internal team that we’ve already got, we’ve got a number of people who have launch experiences and experience in the different functional areas. That has allowed us to be very efficient and to prepare for the launch to this point in time. I think we’re in very good shape right now.

Gene Mack

That’s very helpful.

Operator

Your next question is from Katherine Xu from Credit Suisse.

Katherine Xu

Good morning everyone.

Brian Hayden

Good morning Katherine.

Katherine Xu

So sorry, my line was spotty the first few minutes. I just want to confirm a few things, if you don’t mind. So you said 95 patients with twelve months continuous treatment, that data has been cut and included in the BLA is that how it was?

Zeb Horowitz

Remember that data was cut in April. So while the study is ongoing -- so those patients are accumulating more and more exposure, but the data analysis that was integrated for safety and efficacy includes those 95 out to 12 months, and whatever patients may had been 95 and others.

Katherine Xu

Then for the 127 patients that are remaining on ORE at this moment, and that is out of the 150 some that rolled over to the open label, ORE?

Zeb Horowitz

I’m sorry. I don’t quite understand.

Katherine Xu

Could you remind us of the number of patients that rolled over to the open label at?

Zeb Horowitz

Originally there were 151 patients entered the open label, and there are 123 still ongoing today.

Katherine Xu

Okay, 123. All right. Then for the filing slippage into end of October, could you elaborate a little more on the specific reasons attributing to that?

Zeb Horowitz

I will try and elaborate that, sure. When the request came in from the agency at the pre-BLA meeting to include the twelve-month continuous exposure data, and we agreed to that, that meant that not only did we than have to go back into the field, collect the CRF, clean the CRF, lock a database and verify that data, but it required new statistical programming, running that programming with mock data, then real data, then the quality control of the output, correcting any deficiencies, going back and reprogramming. So it has taken a while to reach the point where, as Chris said, all the key analyses have been done. Then, of course, in reviewing all of these data you see opportunities for new analyses that hadn’t been programmed to understand various correlations, because you want to get the best possible labeling. Since it is a rich data set and very favorable to us, we took the time to do the new programming. That means that our writing the actual creation of all the text for the BLA is going to be finished towards late September instead of early September. And you must do this extensive hyperlink checking and quality checking of all of electronically published materials, and that just takes a number of weeks. So, I think it is really because of this opportunity and requirement actually, to include the 12-month data. But for us, although it is another three weeks, it is gives us a very strong BLA in my opinion.

Katherine Xu

With regard to the open label data, what kind of -- just given what you have seen to date, what do you envision that the treatment pattern for Puricase going forward, especially chronically? One notion is that it is not very clear whether the patients need frequent treatment after let’s stay a year or so on a two week regiment let’s say, When at the end of it, they are already achieved some sort of state close to remission. What kind of open label data you have right now that would support ongoing treatments, and what kind of patient sentiment you’ve got to date to support longer-term treatment? And also what other kind of benefits in other organs to support long-term treatment?

Zeb Horowitz

Well Katherine. You are identifying the central question that can only be partially answered with the dataset we have. As I have said before, patients in the open label extension seen to be doing quite well. And we haven’t given details about the open label and I’m not going to do that here. All of the detailed data, or I should say, the relevant portions of the detailed data, will be included in our ACR presentation. But overall patients continue to be doing quite well. As I have said before, I have been unsuccessful in convincing patients or physicians to stop using the drug, whether they are on the every two-week or the every four-week regiment, regardless of their status of gout at this point. So patients who appear to be in remission insist on continuing taking the drug. And ultimately on the market I do not expect any limitation to the duration of treatment. It will be a medical decision, a therapeutic decision, made by the physician, together with his -- with the patient. That is how I think the labeling will describe that. I think our dataset will be adequate to support chronic dosing without a limitation. I think we will describe in the label what the results of the clinical trials show. In my opinion, I think in the US, anyway, the open label data will be included in descriptive labeling. But ultimately this will have to be a therapeutic decision by the physician together with his patient. We’re not going to have data on the durability of the remission after patients stop taking the drug, because frankly I don’t have a cohort of patients who have been willing to stop taking the drug. That is about where it stands. Is that getting to the answer you’re looking for?

Katherine Xu

Yes, to some extent. Thank you. One last question for Chris and Brian though in terms of the strategic process. So previously there was a notion that there is going to be some kind of deal announced in Q3. Is that incorrect at this moment?

Brain Hayden

That a deal would be announced in Q3? I believe we’ve always given the guidance that our planning and timing or a partnership growth in the Q3 period, and that we would give an update by the end of Q3.

Katherine Xu

You have been commenting, Chris, that there has been a broad and robust level of interest. I am just curious, do you mind commenting, or just give us a ballpark, how many parties are involved in the process and what kind of companies they are?

Christopher Clement

I can’t really go into to the details, but what I can tell you is that there have been a broad range of participation. And it has been very robust, as I said before. So I think as I mentioned on the call, we are very pleased with the level of enthusiasm and interest in commercializing this drug. We will have to leave it at that for the time being.

Katherine Xu

Thank you.

Operator

Your next question comes from Kim Lee from Pacific Growth.

Kim Lee

Good morning. A couple of questions for you. First, on the open label extension trial. Of the 123 patients who are currently still in the trial, can you delineate how many patients are opting for the two-week versus the four-week regiment and how many are on observation?

Zeb Horowitz

Initially out of 151 who enrolled -- it was somewhat equal -- a little more in the Q2 growth. Only two patients enrolled in observation from the beginning. In January I had a series of conference calls with the investigators, appealing to them to stop treating patients if anybody had from the placebo patients who crossed over, might have been having infusion reactions or whatever. I appealed to physicians to stop treating patients if they were aware that uric acid was controlled or if they were having any infusion reactions. Because at that point, frankly, I didn’t have any of the OLE data to look at, and we haven’t even analyzed all of Phase III. And I could not offer any benefit to patients in those categories. But the investigators pushed back, and said, no, they thought the patients were benefiting regardless of uric acid, or regardless of whether they had infusion reactions. Over since then, I believe, only a total of 12 patients have switched from treatment to observation. So at this time, the 123 who continue in the study, I think there are 14 patients on observation and the others are on drug. It is roughly 80/60 split or 70/50 split across -- I’m getting confused here, about tow-thirds on Q2 and one-third on Q4 approximately. They seem to favor Q4.

We did allow patients to switch in the open label from treatment arm to treatment arm or to observation at six months. Not a lot have switched, but the switch tends to be towards the Q2.

Kim Lee

Okay, to reiterate, you said about two-thirds are on Q2, one-third on Q4.

Dr. Zeb Horowitz

That’s roughly. It may not be quite to that level but it’s approximate. I don’t have the numbers off the top of my head.

Kim Lee

Okay, great. And the additional small re-exposure study, your previous guidance is that you were planning to enroll about 15 to 20 patients and now you have seven. What are you doing to try and get additional patients?

Dr. Zeb Horowitz

We’re actually -- we have cut off enrollment at this point. Here’s the story. Our total universe of patients available to us was the Phase I/IV with 24 patients, and the Phase II study with 41. Of those patients who didn’t have any problems that would preclude them from enrolling in Phase III. It turned out -- and the total number of investigators that would have been available to us was eight. It turns out that four of the investigators out of that group of eight said that they had patients from the former trials who wanted to participate. And that total number was about 20 out of those 65 possible patients. When we applied the Phase III entry criteria to those -- when the investigators applied the Phase III entry criteria to those 20 patients, we really only thought there was about 10 who might qualify on the basis of having an elevated uric acid or sufficient symptomatology to enter the study. That is they had a symptomatic gout accompanied by uncontrolled hyperuricemia.

Actually when we did the enrollment over June and July, only seven of those patients actually qualified and went through the process. And I wanted to limit the enrollment to not leave it without a time limit, because the drug would be -- they are expecting will be on the market next year. And I wanted to have some control over the way these patients are dosed and all that so they can get may six-month period of treatment that allows some historical comparison. So, I cut it off. There might have been one or two more who might have come in if I said had let enrollment continue into August. But fundamentally, we always knew it would be a small number. But it does turn out to be half of what we thought might actually come in. And the main reason was they simply didn’t have enough symptoms, or their uric acid wasn’t high enough at this point to get into this study. This drug is only for the treatment-failure population that needs a certain degree of symptomatology or hyperuricemia.

Kim Lee

Okay. And can you remind us if you are trying to include this data in your BLA filing.

Dr. Zeb Horowitz

No, it would not be with the submission that’s never been our plan because the data is ongoing and interim. But as I said in answer to another question, there is an FDA requirement for reporting any ongoing data, or even if the drug is marketed, significant information from the market in term of safety. So, as part of the required safety update post submission, and the FDA will tell us what time period that has to cover, depending on whether we get a priority review or not, we will include safety information from this small cohort as part of that typical safety update. Just as we will include additional safety data from the open label extension in that safety update.

Kim Lee

One last question, this is a financial question here. Do you expect R&D, basically operating expenses to be higher from Q2, reported Q2 and should we use this as a good base to model forward and also if you expect Oxandrin sales to continue to decrease at this pace? Thanks.

Brian Hayden

As we look through the rest of the year, keep in mind that in Q2 we had some fairly significant development expenses that occurred from one type of expenses. So, I think as you think about the plan going forward that the levels in Q2 were a little bit higher than what we might estimate for the rest of the -- at least for the next quarter. For the fourth quarter, depending upon how aggressive we are with starting to buildout and getting ready for commercialization, we might start to see some expenses -- some operating expenses start to increase within that period. But in the second quarter we had, between the settlement of some litigation and the development expenses around our secondary sources of manufacturing, and our reservation fees, there was a fairly significant amount of money, somewhere in the neighborhood of $3 million to $4 million that was included in that quarter that you could look at as a onetime expense.

Kim Lee

And that was then under R&D?

Brian Hayden

In the R&D expenditures and yes, the R&D expenditures and the litigation expenses would have been in the SG&A expenses.

Kim Lee

Okay, great. As far as Oxandrin sales go, is this a good base to have these sales at?

Brian Hayden

We were hit a little bit in the quarter, as I mentioned because of the product return adjustment so I think, one would expect that the revenue line might be a little bit stronger than what we saw in Q2 because unless we continue to seek product returns -- historical product return rates going up. But I think the reason those revenues were down had a lot to do with the increase in our reserves in the second quarter. So, I would hope that going forward in Q3 and Q4 that you might see a little stronger revenue line, albeit, it is still relatively insignificant to our overall P&L.

Kim Lee

Thanks a lot.

Operator

Our next question is from Leah Hartman from CRT Capital.

Leah Hartman

Good morning, everyone. Several of my questions have been answered so far, thank you in particular for that business development and the commercialization strategy with the ramp up in Q1 expected. Just a final question. I think, Brian, with respect to the litigation settlements, can you give us a dollar amount with respect to cash flows in the Q3, if the settlements are already in place?

Brian Hayden

The settlements were right around a $1 million in total.

Leah Hartman

Okay. So, pretty nominal and congratulations to everyone on the abstracts for ACR in October. That is great pre-BLA filing. So we wish you good luck at the meeting.

Brian Hayden

Thank you very much.

Operator

[Operator Instructions]. And your next question is from Carol Werther from Summer Street.

Carol Werther

Do you know if the Phase III results would be at the plenary session at ACR?

Zeb Horowitz

Yeah, this is Zeb. Hi, Carol. It is our expectation -- yes, that the abstract that is presented will include some of the open label data, because it has been integrated into safety and efficacy. So, you will see the whole thing.

Carol Werther

Great. And should -- are we still thinking that you may need an FDA advisory committee panel meeting? And should we think of that probably in Q1 of next year?

Dr. Zeb Horowitz

We have discussed this with the FDA briefly at the pre-BLA meeting. The FDA said that no formal decision had been taken yet and they had to wait until they got our submission. They also said that should we get a priority review that holding an advisory panel would not extend the timeline for that review period. They would do everything -- they would expect to stick to a six-month review time. So, I would have to say that if we got an advisory panel, it would have to fit within the review timing. That probably put it in the late end of this year or early next year in order to give the FDA the opportunity to meet a six-month review timing. If we don’t get a priority review, which we do expect to get, but if we don’t get a priority review, then the FDA has plenty of time to schedule an advisory meeting.

Carol Werther

Okay. Are you planning on starting any other Puricase trials in the second half of this year?

Dr. Zeb Horowitz

No, we are not planning to now.

Carol Werther

Okay. I was just wondering, and I don’t know if you have this information, but after a patient comes off Puricase, does it -- about how long might it take for the uric acid to build up again? Would you expect it to take years? Would it vary by patient?

Dr. Zeb Horowitz

Well, if I could answer this question in two parts. First, you have got to think about the blood uric acid, both the uric acid that is carried by the blood, differently then the uric acid that is carried in the tissues throughout the body. You’ll remember that it is really the tissue stores of uric acid that drive the disease signs and symptoms. Patients don’t feel anything when the uric acid is high or low in the blood. So, our Phase I and our Phase II data, I believe, which would be published in abstract form, and will now be published in peer-reviewed journal articles in the next couple of months, I think that data is very clear that within about six weeks just about every patient who has stopped using pegloticase, who had excellent control of uric acid, that uric acid has returned towards baseline. It maybe a few milligrams per dl lower than it was before they were treated with Puricase. What I don’t have is any information on the tissue pools of Puricase being depleted with the drug and then patients stopping. Because, as I pointed out, although we expected in the open label that half the patients would enter on observation, and many of the patients would have stopped using the drug by now. I really don’t have any patients available to me who had good control of uric acid who stopped using the drug. So I can’t say anything about signs and symptoms after you stop taking the drug, except for Phase II where we did have patients who anecdotally reported improvements. We certainly saw that in the photographs of the gout tophi. And I can say with a good deal of confidence there is no rebound effect, if you will, in signs or symptoms, even though the uric acid goes back up. It probably takes a while of elevated uric acid before signs and symptoms would return. But I’m quite confident there is no early rebound in signs and symptoms, even with the uric acid going back up. But I don’t have data from Phase III on long-term durability in remission.

Carol Werther

Okay, great. Thanks very much.

Dr. Zeb Horowitz

Sure.

Operator

Your final question is from Eun Yang from Jefferies.

Eun Yang

If I might, one quick question. Given the fact that in the Phase III study that you have seen infusion related -- infusion data related actions, was there any kind of preventive measures in this study, including steroid use?

Dr. Zeb Horowitz

Sure. If you go on clintrials.gov you will see the design of the study. As we have said that in public many times, I think it is important for people to understand. At the request of the FDA, we gave an infusion reaction prophylaxis regimen that consisted of a non-sedating antihistamine the night prior to dosing and the morning of dosing, along with acetaminophen the morning of dosing. And 200 milligrams of hydrocortisone intravenously immediately prior to the dosing. And the beauty of the design of the Phase III program is because we have six months of placebo-control, we have, and I believe the FDA will have, a very high degree of confidence that with that placebo- control any possible effect of the infusion reaction, prophylaxis, the gout flare prophylaxis, is well-controlled, because the differences we see between treated patients and placebo patients will take into account any of these concomitant medications. So, I think the design of the study was very ethical, because we did our best to mitigate gout flares, and to mitigate infusion reactions, but at the same time provide the highest possible level of scientific evidence to safety and efficacy, by using the placebo-control. So, I think it is a very important question, a very good question. Of course, in the open label we had to continue those forms of prophylaxis. And there we can see the effect of the placebo patients in part crossing over onto treatment. So I think there is another good level of control, even for the open label extension.

Eun Yan

Okay, thanks very much.

Operator

And at this time, there are no further questions in queue.

Christopher Clement

Okay, thank you, operator. I can tell you that our organization is focused and energized to complete the work necessary to bring our novel drug to the market. There is still a great deal of work required to get to the endpoint, and we look forward to reporting on our progress during the course of the upcoming months. Thank you for joining us on this call today.

Operator

Ladies and gentlemen that concludes your conference call for today. We thank you for your participation, and ask that you please disconnect your lines. Thank you.

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