Indevus Pharmaceuticals, Inc. F3Q08 (Qtr End 06/30/08) Earnings Call Transcript

Sep.14.08 | About: Indevus Pharmaceuticals (IDEV)

Indevus Pharmaceuticals, Inc. (IDEV) F3Q08 (Qtr End 06/30/08) Earnings Call Transcript August 5, 2008 9:00 AM ET

Executives

Robin DeCarlo – Director of Corporate Communications and IR

Michael Rogers – EVP, CFO and Treasurer

Glenn Cooper – Chairman and CEO

Analysts

Annabel Samimy – UBS

Gary Nachman – Leerink & Swann

Andy Schopick – Nutmeg Securities

Kevin DeGeeter – Oppenheimer

Charles Duncan – JMP

Patti Bank – Pacific Growth

Wayne Rothbaum – Quogue Capital

Michael Higgins – Rodman & Renshaw

Operator

Good day, ladies and gentlemen, and welcome Indevus Pharmaceuticals third quarter 2008 earnings conference call. My name is Jahida [ph], and I’ll be your coordinator for today. At this time, all participants are in a listen-only mode and we will be facilitating a question-and-answer session towards the end of this conference. (Operator instructions) As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the presentation over to your host for today’s call Ms. Robin DeCarlo, Director of Corporate Communications and Investor Relations. Please proceed.

Robin DeCarlo

Thank you. Good morning everyone. Thank you for joining us on the call this morning to discuss the results of our third fiscal quarter. Opening the call today will be Michael Rogers, Executive Vice President and Chief Financial Officer who will review the financial results for the quarter. After Mike’s comments, Dr. Glenn Cooper, Chairman and Chief Executive Officer of Indevus will make a few remarks and then we will take questions.

Before Mike begins, I must inform you that today’s call is being recorded and a replay will be available on our website at www.indevus.com as well as by dialing 888-286-8010 in the U.S. and Canada or 617-801-6888 from international locations. If you dial in the pass code is 72001555. The replay should be available by 11:00 AM Eastern this morning and will remain available until September 7th.

I must also remind everyone that the remarks during this conference call regarding stands and prospects of the company as well as future expectations in general constitute forward-looking statements for purposes of the Safe Harbor Provisions under Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements. These risks and uncertainties are set forth in the company’s securities filings, which we encourage you to read including our form 10-Q, and from 10-K filings. Thank you for your attention and at this point, I will turn things over to Mike.

Michael Rogers

Okay, thank you, Robin, and good morning everyone. Thanks for participating in the call.

I would like to start today by reviewing the third quarter financial results and then provide an update on our outlook for 2008 and 2009. Today we reported third quarter of fiscal 2008 revenue of 20.4 million up approximately 67% over fiscal 2007 third quarter revenue of 12.2 million. Our net loss for the third quarter was 19 million or $0.25 per share. In the third quarter we recorded a one-time charge of approximately $3.5 million relating to our restructuring announced in late June on the heels of the delay for NEBIDO. This compares to a net loss of 72.3 million or $1.02 per share in the third quarter of fiscal 2007. In the third quarter of fiscal 2007, we recorded one-time charges related to the acquisition of Valera Pharmaceuticals of 53.3 million.

So, on a non-GAAP basis, eliminating the one-time charges in both the third quarter this year and last year, we had a net loss of 15.4 million versus 19 million last year. Overall a very good quarter with revenues up 67% and net loss down 24%.

Let me walk you through the key components of our income statement and I will begin with revenue. In the third quarter, revenue for the SANCTURA franchise totaled 11.2 million up from 10.4 million last quarter. In a few minutes, Glenn will update you on the progress of SANCTURA and SANCTURA XR in the market.

Product revenue from sales of VANTAS totaled 4.4 million. This represents a 29% increase in units over last year’s third quarter. We have continued to see strong demand in the first month of this quarter. For SUPPRELIN LA product revenue was 3.5 million, an increase of 17% versus the second fiscal quarter. Glenn will update you on the progress, on the launch momentarily but again like VANTAS we continue to see strong demand for SUPPRELIN.

Other revenues totaled 1.4 million comprised of sales of DELATESTRYL and from the recording of the upfront payment we received on the outlicense for IP 751.

Moving to the expense side, cost of product revenues for the quarter was 7.8 million, consisting primarily of three items; the cost to produce SANCTURA and SANCTURA XR that were passed through to Allergan upon the sale of product to them; two, royalty payments that are owed to our licensors, Rottapharm (inaudible), which are also paid by Allergan; and finally three, the cost of products related to sale of VANTAS, SUPPRELIN and DELATESTRYL.

Research and development costs were 5.2 million for the third quarter, an approximately 50% decrease from the third quarter of last year. The decrease is primarily a result of lower clinical expenses related to SANCTURA, NEBIDO and pagoclone. In the past 2 quarters R&D expense has been 6.3 million and 5.2 million. This is in the range of what we expect to see going forward over the next year. We expect to begin our phase III trial for octreotide, with octreotide for acromegaly shortly followed by the start of our carcinoid syndrome program, we will also continue to support the PRO 2000 trials, which are being conducted by the NIH and MRC. However, I should note the cost associated with additional work for NEBIDO are not in this estimate and we will update you on our outlook for R&D expenses when the NEBIDO plan is complete.

Marketing, general and administrative expenses were 20.7 million in the third quarter, an increase of approximately 5% from the 19.8 million we recorded in the third quarter last year. As a result of the recently announced revision to our operating plan or restructuring, we reduced our marketing, general, and administrative costs going forward by approximately 3 million to 4 million per quarter. Due to this restructuring, we took an approximately $3.5 million non-cash charge in the third fiscal quarter. The charge is primarily for severance as we reduced overall company head count by approximately 12%. We are not anticipating any additional material restructuring charges going forward.

On the balance sheet, our cash and cash equivalents balance at June 30 was 52.6 million down 8.1 million from March 31st. Our operating burn of just over 20 million for the quarter was significantly offset by net cash inflows of 13 million from two outlicensing deals, one with Orion for European rights to VANTAS and the other with Allergan for the Canadian rights to SANCTURA XR.

Moving to the outlook for the future, first with the P&L, we continue to be comfortable with guidance that we have provided regarding revenues for 2008 and 2009. For fiscal 2008 we expect revenues to be approximately 70 million. For SANCTURA, we expect full year revenues of approximately 42 million.

Due to the strong demand for VANTAS, we our comfortable increasing our guidance to 15 million for the year up from 13 million and similarly demand for SUPPRELIN LA has been quite strong and we are comfortable increasing our forecast for the full year revenues to 12 million up from 10 million.

For fiscal 2009, we expect revenues to be 88 to 95 million, which we expect to include robust growth in VANTAS and SUPPRELIN sales as well as the addition of VALSTAR to our portfolio of marketed products.

As most of you know, we recently announced a revised operating plans that we believe more appropriately aligns the company’s cost structure to our revenue projections and development opportunities. Based on this restructuring, we expect our quarterly cash burn to fall from the current $18 million to $20 million to an average of about 10 million per quarter for fiscal 2009. In addition to the substantial reduction in our burn rate we continue to look at non-dilutive ways to strengthen our balance sheet.

As we have mentioned previously, we are engaged in discussions on a number of potential licensing transactions for both our partnerable development products and for our core products in territories outside of the United States. In addition, we are actively exploring opportunities for the monetization of our SANCTURA royalties. Our number one financial goal remains to secure sufficient non-dilutive capital to fund the company’s operations for the foreseeable future and to be in a position to retire our outstanding convertible notes which matures in July of next year.

In conclusion, we are quite happy with our financial performance over the past quarter with strong growth in demand for both VANTAS and SUPPRELIN. We have implemented a restructuring plan that will significantly cut our burn rate in the coming year and we are working diligently to strengthen the company’s balance sheet by raising non-dilutive financing.

I will turn the call over to Glenn at this point and I will happy to answer any questions during the Q&A.

Glenn Cooper

Thank you, Mike. Good morning everyone and thanks for joining us. We are three quarters of the way through fiscal 2008, and while I am extremely disappointed with the FDA’s decision regarding NEBIDO, I am pleased with the progress we are making on each of the other components of our business. In addition we are working to get NEBIDO back on track. At this point, I would like to review the significant events of the last few months.

As you know, the FDA decided not to approve NEBIDO and issued an approvable letter instead that certainly wasn’t the decision we were expecting. We stand by the safety and efficacy of the product, which is the market leader in many countries around the world for testosterone therapy. The injection related cough issue is one we felt would be addressed in proper labeling as it is in Europe. This is a rare transient phenomenon related to injection technique and all patients who had this side effect recovered quickly without sequela. We saw a single very mild case in our 750 mg clinical trial database and the patient received subsequent injections without incident. The approvable letter contained helpful guidance on what kinds of data FDA will require to get comfortable with the incidents and severity of the cough reaction. We have been advised to submit all ongoing European post-marketing studies with analysis of their safety data.

Our partner, Bayer Schering has some large ongoing trials, which is very helpful. These trials are scheduled to be completed within the next 6 months or so. We will be meeting with the FDA in a month or two to determine if the data from ongoing European studies could suffice to address their concerns. If not, as we previously said we would need to do a separate US trial, which would take about 18 months to complete. We should have a clear vision as to what our plan will look like after our meeting with the FDA at which time we will able to articulate them publicly.

Let us move on to SANCTURA franchise for OAB or overactive bladder. The brand is doing very well. (inaudible) of urologists and high prescribing OAB doctors we have about a 7.4% market share for new Rsx [ph], while overall we have a 4% market share. On its recent earnings call, Allergan reiterated its guidance for calendar ’08 at approximately $70 million. Allergan continues to put a tremendous amount of energy and investment into the brand. On the managed care front the brand has achieved the combined tier 2, tier 3 formula coverage of 75% of lives in both commercial and Part D plans. Importantly, Allergan has stated that their intention is to increase the brand’s reach in the primary care and indicated they are pursing talks with several large pharmaceutical companies as well as contract sales organizations and we look forward to those developments. We will continue to copromote the product with Allergan with our urology sales force through at least March of 2009. Afterwards, we will continue to receive a royalty on net sales of 12.5%.

VANTAS for advanced prostate cancer had an outstanding quarter, which reflects successful marketing initiatives and Bayers withdrawal of Viadur from the market making VANTAS the only once yearly therapy on the market. We recognized revenue on 3351 units in the third quarter. This is an increase of 22% of units compared to second quarter of fiscal 2008, and increase of 29% over the corresponding third quarter of 2007. So far these positive trends are continuing into the fourth quarter. In fact, July was the strongest month we have had since the Valera merger.

Internationally, Orion is planning on launching VANTAS in early 2009, which means European doctors will have access to the only approved 12 month plan to treat advanced prostate cancer. Orion has an aggressive launch and commercialization plan and we expect our increased production of VANTAS to meet worldwide demand. We will have significantly positive impact on the unit production cost and profitability of the products for Indevus.

SUPPRELIN LA for precocious puberty continues to dramatically exceed our launch year expectations and improve the lives of these patients and their families. In the third quarter, we recognized revenue on 256 implants with a selling price in excess of $14,000 per implant. In the month of June alone, we shipped 112 units, the product’s best month to date. Overall, Q3 results showed a 19% increase in units over Q2 and as with VANTAS, the performance so far for SUPPRELIN LA in Q4 is looking strong. Since the launch of the product late last summer we have shipped 759 units. Of the approximately 450 pediatric endocrinologists in the country about 320 have used SUPPRELIN LA at least once.

To give you an idea of the pace of uptake 65 new physicians began using the product during the last quarter. Going forward, we are very optimistic about the performance of the product in its upcoming second year of launch.

We continue to plan for the approval and launch of VALSTAR for bladder cancer. We have been informed that both the State of California and the FDA will reinspect our third party manufacturing plant at the end of this month. If the facility passes its inspections we anticipate launching VALSTAR this fall through our urology sales force. The market place is eagerly awaiting the reintroduction of this unique product which is the only drug approved for bladder cancer patients who have failed BCG and are not candidates for bladder removal.

Beyond NEBIDO our most important development stage program is our octreotide implant for the six-month therapy of acromegaly and carcinoid syndrome. The current market leader for these conditions, once monthly Sandostatin LAR is a billion dollar product worldwide. We will shortly begin enrollment on our Phase III international registration study for agromegaly. We are also planning a Phase III trial on carcinoid syndrome, which we hope to begin early next year. The octreotide implant has the potential to be a major product for us and we are working towards the market introduction by late 2010.

For PRO 2000 of prevention of sexual transmission of HIV, enrollment in the NIH sponsored Phase III trial is complete and the 12-month follow-up is just about wrapped up. We expect the results in the NIH trial should be available in early 2009. Enrollment in the larger MRC sponsored trial should be completed this summer with approximately one additional year of follow-up. We remain encouraged that both trials have been regularly reviewed by their respective data safety monitoring boards and the sponsors have consistently been advised to continue the trials. That tells us there have been no significant safety concerns with the 0.5% dose of PRO 2000 and further that there is a statistical possibility that the trials can show treatment benefits.

On the business development side, we are continuing pagoclone partnering negotiations with companies with significant interest in CNS therapeutics. I can’t provide more detail on the timing of the deal but I am hopeful this unique product discovery will find a partner shortly and resume its clinical program. We are also focused on finding partners for international territories for the octreotide implant and for VALSTAR. We remain very active in exploring strategic in licensing or acquisitions of late stage and marketed products appropriate for our urology and endocrinology sales forces. The delay in NEBIDO introduction gives us the bandwidth to take on additional products in the interim and there are interesting opportunities we are exploring through due diligence.

Finally, we recently announced a corporate restructuring to better align our expense structure with the realties of the NEBIDO delay. While it is also possibly to grow our operating plan provides for the aggressive support and top line growth of VANTAS and SUPPRELIN LA, aggressive support for the launch of VALSTAR, continued copromotion with Allergan and SANCTURA and SANCTURA XR through March 2009, initiation of Phase III trials for the octreotide implant for acromegaly and significant reduction in operating expenses through a combination of head count reductions primarily at the corporate administrial levels at our Massachusetts headquarters and a reduction of other operating expenses.

We have made a difficult by necessary decision to reduce the operating expenses and cash burn of the company and intend to be vigilant in managing expenses through this difficult period. Under our revised plan in fiscal ’09 we expect our operating cash burn will fall to approximately $10 million per quarter and total revenues for the year of approximately 88 to 95 million as Mike said. This is a significant improvement compared to our recent average operating cash burn of approximately of $18 to $20 million per quarter. Our current revised plan again as Mike said does not give effect to additional NEBIDO studies as their size, duration, and in fact their necessity are not yet final.

As Mike said, we are also moving forward to strengthen our balance sheet in addition to potential outlicensing transactions for our partnerable products. We are also exploring opportunities for the monetization of the royalties we receive from sales of SANCTURA and SANCTURA XR. Our financial goals are to secure adequate non-dilutive capital to fund the company’s operations for the foreseeable future and to manage the company’s outstanding convertible debt, which matures in July ’09.

As previously announced, I put my retirement on hold until we have accomplished our near term goals, which include strengthening our balance sheet and working through the NEBIDO regulatory path. There is no fixed time line at this point. The board and I will have an active dialog going forward about the right time to resume the search for my successor.

Okay. Operator, you can answer questions now.

Question-and-Answer Session

Operator

(Operator instructions) And your first question comes from the line of Annabel Samimy with UBS. Please proceed.

Annabel Samimy – UBS

Hi. Thanks for taking my question. I had a question regarding NEBIDO, can you give us an idea of what the Bayer Schering trials for NEBIDO are – how well they are designed right now and what is the likelihood that you can use them to supplement the FDA with some safety data and when might we see some timing on that and what timing would be fair enough?

Glenn Cooper

Sure, I think currently several thousand patients are being treated in a variety of Phase IV trails, which have different kinds of endpoints both efficacy and in safety endpoints and in all of these trials side effects related to injections are actively monitored. So, the safety data from these trials involving upwards of 10,000 or more injections are certainly going to be relevant and remain and in fact the FDA’s approvable letter cited the existence of those trials and asked us to provide data on injection reactions from those trials. So, we will be talking to the FDA about those studies, which as I mentioned should be completed in about 6 months or so, and we will be asking whether those trials alone and the data from them can form the basis for the resubmission. If that doesn’t suffice us, as I said we would have to do another US trial specifically aimed at this question. When we meet with the FDA, we will publicly disclose what the outcomes are and the meeting should happen within a month or so.

Annabel Samimy – UBS

And so Bayer in the endpoint, are they specifically looking at these cost issues or is there just safety overall?

Glenn Cooper

Safety overall. They are not trials designed specifically to look at the cost reaction but they are trials that certainly capture that kind of a data.

Operator

Your next question comes from the line of Gary Nachman of Leerink & Swann. Please proceed.

Gary Nachman – Leerink & Swann

Hi, good morning.

Glenn Cooper

Good morning.

Gary Nachman – Leerink & Swann

Glenn is the only issue on NEBIDO. Is the only issue the FDA raised in the approvable letter related to cost. Is there any thing else in terms of efficacy or safety that they brought up?

Glenn Cooper

No efficacy parameters at all. The only other issue and I think we talked about this in our press release on the approval letter. They questioned whether 4 of the cough reactions in the post marketing surveillance could have had an anaphylactoid or allergic component and we will be addressing that as well in a resubmission, in fact Bayer is endeavoring to track those 4 patients down and do allergy skin testing and things like that to exclude the allergic components. Our reading of the cases was that these were same kind of cough reactions and – but FDA questioned whether they might be an allergic component. Those are the two issues that are on the table right now, the cough reaction and ruling out an rare allergic component.

Operator

Your next question comes from the line of Andy Schopick with Nutmeg Securities. Please proceed.

Andy Schopick – Nutmeg Securities

Good morning. Michael I have a couple of questions for you, financially related. Of the current deferred revenue, could you just kind of review the composition of it and how much of the deferred will be recognized approximately over the next say 5 quarters, fourth quarter of this year and fiscal ’09?

Michael Rogers

Okay, well a couple of things. I will just talk generally for a second Andy. We have our deferred revenue coming from all of our milestones that is on our balance sheet and gets amortized over a period, which was a 5-year period starting in September 2007 through September of 2012. So, we recognize saying generally ratably over that period of time. However, new revenues that come in get an accelerated portion and then ratably over the remainder of the term. So, right now are running at about $12 million per quarter. That number should grow a little bit quarter-over-quarter as we move through the period ending again in September of 2012. So, the balance currently sitting on our balance sheet is about 180 million.

Operator

Your next question comes from the line of Kevin DeGeeter with Oppenheimer. Please proceed.

Kevin DeGeeter – Oppenheimer

Hi. Good morning guys. Quickly could you provide us little more detail on the Phase III octreotide implant study, you know specifically when we may see some data and just a little bit more parameters with regard to study size and kind of expected completion of enrollment?

Glenn Cooper

Yes, thanks. It is about a one-year trial. We will be enrolling patients both in US and Europe. Approximately 300 patients and the patients will receive either the implants or Sandostatin LAR. There will be a comparative trial which I think will be helpful for both regulatory purposes and for proposed closed marketing purposes and our output will be control of hormone levels, growth hormone in IGF-1 at 6 months time point. So, about a year from start from finish to have that data. We think that there is – although there aren’t so many of these patients they tend to be seen in specialist centers that have quite active rosters of acromegaly patients. So, we think that the approval [ph] of study will be relatively fast.

Operator

You have another question from the line of Charles Duncan with JMP. Please proceed.

Charles Duncan – JMP

Hi guys. Thanks for taking my question and congratulations on a good quarter of corporate business development activities.

Glenn Cooper

Thank you.

Michael Rogers

Thanks Charles.

Charles Duncan – JMP

I am not sure if I missed this. I had to hop on the call late, but did you give an update on pagoclone activities and if not could you provide more color on that?

Glenn Cooper

Yes, we mentioned that we are in active negotiations with companies that have a substantial interest in CNS therapeutics. We are not giving timing as to the deal completion, but we remain optimistic that there will be a deal and that the compound will get back in the clinic where it belongs.

Operator

You have a question from the line of Gary Nachman with Leerink & Swann. Please proceed.

Gary Nachman – Leerink & Swann

Hi guys, a couple of follow-ups. First, before when I asked the question about potential safety issues, you mentioned the allergic reactions. In the European studies would they be checking for those potential allergic reactions and then if you guys do decide to do a study yourself, at this point how big do you think that study would have to be, and are you definitely committed to doing it at this point?

Glenn Cooper

So, we don’t know what the size of the study would be until we talk to the FDA. You know, I think we were pleasantly surprised on 2 things, first of all that Bayer Schering has so many patients under clinical study right now in Europe. The numbers were actually higher than we initially thought. They really have very active post-marketing programs going on around Europe. And we were also pleasantly surprised that FDA made specific reference to that database. When we – we let FDA know relatively late in the game after they – after they informed us on a conference call that they had a significant concern over cough. Surely thereafter we let them know that there was this European database that was available. That was very helpful bringing that together for us and FDA specifically cited that new information in the approvable letter and asked for data from those studies. So, when we meet with the FDA we are going to try to find out whether that database is sufficient and if not what – how many additional patient’s injection, study design, et cetera would it take to get them comfortable. The most conservative view and the view that we initially expressed I think publically when we got the verbal expression from the FDA that they had concerns was that we would study somewhere around 15,000 to 20,000 injections involving 3,000 or 4,000 or 5,000 patients, which would take about 18 months to complete. So, I think that you could – anyone could use that as the worse case scenario right now. The best-case scenario would be that the existing European data would suffice and until we have our meeting with the FDA we won’t really know whether it is one pole or the other or somewhere in-between.

Operator

You have a question from the line of Patti Bank with Pacific Growth. Please proceed.

Patti Bank – Pacific Growth

Hi, good morning. You talked about on the business development side bringing in new products. Can you just talk about you know the types of deals that you are (inaudible) presuming that you don’t want to use your cash to bring those in, whether that would be copromotion or that would be potentially looking at doing something with NEBIDO with a partner?

Glenn Cooper

Yes, everything is on the table. Copromotion is extremely interesting for us right now. As I mentioned, assuming there is a delay in NEBIDO of one year or two years we have the capacity to take on another product in the urology, endocrinology space. So that is really where we are focusing our efforts right now and we are having you know very productive discussions and we are doing active due diligence on compounds that are relevant for the near term. What was the other part of the question?

Michael Rogers

Preserving cash and so forth?

Glenn Cooper

Yes, preserving cash. Yes, certainly we – if we saw an acquisition kind of a candidate we would be looking for non-dilutive ways of funding an acquisition without using our existing cash reserve.

Operator

And you have a follow-up question from the line of Annabel Samimy with UBS. Please proceed.

Annabel Samimy – UBS

Hi, thanks a lot. Just wanted to turn to SANCTURA for a minute, Allergan had essentially restated their guidance but more at the lower end of the range that they gave previously at 70 million and they are also – they are focused on in the specialty area and trying to outlicense the PCP, can you talk a little bit about that of how they have been focusing on PCPs little before and do you have any concerns of their guidance at the lower end of the range? And if they do outlicense to (inaudible) does this have any impact on your royalty stream not only in the minimum but the potential royalty stream of 12.5 royalty stream on total sales?

Glenn Cooper

Let me take the last part of the question first. No, our royalties are on net sales. So, from whatever source those sales are derived from. So, we are certainly in the best position if Allergan achieves overall the highest market share in any and all segments. Look, we are very pleased with Allergan’s approach. We are pleased with their results. They have complete control and discretion about how they address this market place beyond our copromotion and we think they have done a good – a very good job and we are very encouraged as I said by their commitment to expanding now that we have got a terrific base within the urology prescribing universe to expand the base, the next frontier which is primary care, and it is through their recent statements it is quite clear that they view the best way of doing that for their corporation to do a partnership with large companies that already have primary care capacity or see a source that can be strategically deployed into the primary care environment and we are very supportive of their efforts in that regard.

Operator

You have a question from the line of Wayne Rothbaum with Quogue Capital. Please proceed.

Wayne Rothbaum – Quogue Capital

Hi, good morning guys.

Glenn Cooper

Good morning.

Michael Rogers

Good morning.

Wayne Rothbaum – Quogue Capital

Just in terms of monetizing the SANCTURA franchise, can you just give us a little more color on that, the timing on when you think you can obviously not the specific dates, but just the timing of when we can expect to see something, or when to like to have something done and maybe varying scenarios of structures we can look to?

Glenn Cooper

Sure Wayne. You know it is all difficult to predict, just like a sort of a business development deal, when we would conclude that, but I would say we are quite active and I would consider it sort of a near-term type of event if it is successful, probably in the coming couple of months. As far as structure, as you know we have this royalty stream of 12.5%. It has a foundation of minimum royalties, which in the aggregate are about 100 million. We have a $20 million milestone in 2013. So, they become an even more attractive element to this financing given that they are minimum royalties from Allergan. So, the structure typically in deals like this and many of you have probably seen some other companies you follow or invest in have done this type of thing, but let’s say it could be a straight sale of the royalties entirely, it could be a partial sale of the royalties, let us say we give up 50% of the royalties and maintain the other 50. A more common structure recently has been to do a non recourse debt facility. So, it would be a debt facility paid back solely by the royalties that come in once the debt is paid back, all the royalties revert to in our case would revert to us. So, there are number of structures that the market has been receptive to over the past couple of years and we are exploring a couple of those right now. So, again we are very active and hope to be able to do something over the relatively near term to even strengthen our balance sheet.

Michael Rogers

(inaudible) and I forgot to answer part of Gary Nachman’s previous question on allergic reactions in European studies. Let me pick that up right now. Bayer has not specifically been looking at allergic reactions in Phase IV trials. We don’t actually believe the compound produces allergic reactions, but certainly when you capture data on injection experiences if someone was going to have an allergic reaction, it would be captured in the safety database. So, we will be summarizing that experience as well with the FDA.

Operator

You have a follow-up question from the line of Andy Schopick with Nutmeg Securities. Please proceed.

Andy Schopick – Nutmeg Securities

Thank you. My question on the monetization of SANCTURA was just asked or answered, but I did want to ask about the other assets on the balance sheet Mike as well, that 41 million, you know what is the principal component of that now is and I assume it is all intangibles not subject to any amortization?

Michael Rogers

Yes, we have goodwill on the balance sheet; we have intangibles on the balance sheet, intangibles –

Andy Schopick – Nutmeg Securities

Other assets, just other assets.

Michael Rogers

Yes, other assets okay. Now generally not subject to amortization, but I am not sure and if your question is about other assets that could be monetized in some way or just whether that would result in additional expense for the company but I think there aren’t any other hard assets that would be monetized outside of the SANCTURA royalty. Certainly we have our core assets, VANTAS, SUPPRELIN, VALSTAR, DELATESTRYL that we sell, and we could conceivably do something with that. Certainly the market would be receptive to it but we have no interest in effecting the rest of our core business and then there are no other assets other than our partnerable products that we would monetize.

Operator

You have another follow-up from the line of Gary Nachman with Leerink & Swann. Please proceed.

Gary Nachman – Leerink & Swann

Hi Glenn. Thanks for taking up that other part of the NEBIDO question. Just wanted to ask you a couple more, what happens when you copromote with Allergan expires in March ’09, do you keep all your sales reps on board. How are you thinking about that? And then for Mike, what are the different options you have with the convertible debt, could you potentially extend maturity there? Thanks.

Glenn Cooper

Okay, so post March ’09 assuming that we didn’t extend with Allergan, their sales force is certainly very active in expanding VANTAS and SUPPRELIN and we think additional time and effort that they put into those parts will bear fruit, but we also I think have the capacity to take another product on especially in a copromotion mode to at least bridge the gap to NEBIDO’s introduction. So, a combination of increased detailing of market parts including VALSTAR and the only possible thing I could say about the NEBIDO delay is that VALSTAR won’t be as much of a stepchild. It will have considerable capacity behind it and I think the brand as a result will achieve its potential faster than if NEBIDO was sucking the oxygen out of the system. So, a combination of VANTAS, SUPPRELIN LA, VALSTAR and possibly an additional product to be copromoted.

Michael Rogers

Gary as it relates to the second part of your question, we have I think a very good relationship with the holders of the majority of the notes and they have been, and they have also been strong supporters of the company at various times along a substantial number of shares as well. So, we keep an open dialog with that group but I would say our first and primary goal would be to be in a position to be able to comfortably retire that note in some way, either through a tender offer or just retiring at the time of maturity. I would say the both we and the note holders are aware that the terms of an extension would probably not be like they were last time given our stock price and the fact that we are still far below the conversion price. So, that as you recall last year we did an exchange right around this time last year and it was basically a straight extension for the existing notes. I think this time it would be – it would look a little different given that again the stock prices is where it is. So, and we are both aware of that. So we haven’t really engaged in a dialog around an extension or exchange and again we feel very good about the possibility of being able to raise non-dilutive financing to make that issue.

Glenn Cooper

Okay. Operator, we have time for one more question.

Operator

Yes, and you have a question from the line of Michael Higgins. Please proceed.

Michael Higgins – Rodman & Renshaw

Good morning, thank you. Just a follow-up to your commentary Glenn about the 4 reactions for cough, sounds like you are reaching out to those patients, assuming that you can reach them, should you find an allergic reaction in the skin test what would be the response at that point, when might that response – when might that information become available. Are you able to make some small changes in the delivery of the testosterone agent or whether it is due for your NDA submission?

Glenn Cooper

I think the issue is really definition of finding whether there possibly is an allergic component and if there is it is addressed by proper labeling. Really, this is – the key thing is a physician being able to understand an adverse reaction to any drug and to be able to tackle it approximately and the treatment paradigms for the oily cough reaction are purely tincture of time and reassurance and the thing goes away after seconds to minutes and whereas the therapy for an allergic reaction would be antihistamines, steroids, et cetera. So, I think we have to – if we find out that any patients do have an allergic component to testosterone or any of the oils in the formulation then it is – we would able to label is appropriately and warn our physicians of the rare possibility of an allergic anaphylactic reaction. But as I say, our reading of the case is we actually don’t think that these are allergic reactions. So, I think I would be personally surprised if clinically these wind up to be allergies versus the oily cough.

Operator

At this time we don’t have any more questions. Thank you and I like to turn the presentation back to Dr. Cooper for closing remarks.

Glenn Cooper

Okay, thanks everyone for your participation on the call and give us a call today anytime for a follow-up. Bye-bye.

Operator

Thank you for your participation in today’s conference. This concludes the presentation and you may now disconnect. Good day.

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