InterMune (ITMN) CEO Dan Welch on Q2 2014 Results - Earnings Call Transcript

| About: InterMune, Inc. (ITMN)

InterMune, Inc. (NASDAQ:ITMN) Q2 2014 Results Earnings Conference Call August 6, 2014 4:30 PM ET


Jim Goff - Vice President, Investor Relations

Dan Welch - Chairman, President and CEO

Sean Nolan - Executive Vice President and CBO

John Hodgman - Executive Vice President and CFO

Dr. Jonathan Leff - EVP, Research and Development


Brian Abrahams - Wells Fargo Securities

Michael Ulz - J.P. Morgan

Michael Yee - RBC Capital Markets

Katherine Xu - William Blair

Andrew Peters - UBS

Howard Liang - Leerink

Brian Skorney - Robert Baird

Breanne Kruger - Morgan Stanley

Ravi Mehrotra - Credit Suisse


Ladies and gentlemen, thank you for standing by. Welcome to the Second Quarter Earnings Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. (Operator Instructions)

As a reminder, this conference is being recorded, Wednesday, August 6, 2014. I would now like to turn the conference over to Jim Goff, Vice President, Investor Relations. Please go ahead, sir.

Jim Goff

Thank you, Operator. Good afternoon and welcome to this InterMune conference call. This afternoon we issued a press release that provides details of the company’s unaudited financial results for the second quarter ended June 30, 2014. The press release is available on our website at

During the course of this conference call, we will state our beliefs and make projections and other forward-looking statements regarding future events and the future financial performance of InterMune. We wish to caution you that such statements are predictions and expectations, and actual events or results may differ materially.

We refer you to the company’s publicly filed SEC disclosure documents for a detailed description of the risk factors affecting our business, including those discussed in our Form 10-K filed with the SEC on February 24, 2014.

These documents identify important factors that could cause our actual results to differ materially from our projections and other forward-looking statements. These risk factors include regulatory, revenue, intellectual property, clinical development, capital resources and other risks relating to our business.

On the call today are Dan Welch, InterMune’s Chairman, Chief Executive Officer and President; Sean Nolan, EVP and Chief Business Officer; and John Hodgman, EVP and Chief Financial Officer. Dr. Jonathan Leff, EVP, Research and Development will join us for questions and answers.

Since the ATS meeting, we’ve been receiving many questions from investors and analysts about how to think about and model the revenue opportunity for Esbriet in the United States. While we, of course, won’t provide guidance for U.S. revenue, we will provide what we hope will be some observations and information that will help you, for this reason our prepared remarks will be somewhat longer than usual and we ask for your patience.

I will now turn the call over to Dan Welch.

Dan Welch

Thanks, Jim, and thank you, everyone for joining us. We’re very pleased to summarize and report today what was without exaggeration a transformational quarter for InterMune. We made remarkable progress in virtually every aspect of our business.

As many of you know in terms of the number, importance and breadth of scientific presentations by InterMune, we had an unprecedented presence at the ATS meeting in May, largest gathering of U.S. pulmonologists.

Among our scientific presentations, of course, the ASCEND Phase 3 data were presented in two highly attended sessions and were simultaneously published in the New England Journal of Medicine.

Shortly after the ATS, we resubmitted the pirfenidone NDA which has been accepted by the FDA and been assigned a target PDUFA date of November 23rd. In mid-July the FDA assigned breakthrough therapy designation status to pirfenidone.

In the second quarter, we accelerated our preparations for the potential U.S. launch of pirfenidone, so that we’ll be prepared to launch in the fourth quarter of this year versus our previous plan of first quarter next year.

In terms of revenues, in the second quarter of 2014, we achieved continued and solid Esbriet revenue growth in both Europe and Canada. Our pirfenidone life cycle management programs and our anti-fibrotic research programs are also making very good progress and last but not least we optimized our balance sheet by exchanging $112.9 million of convertible notes for InterMune shares.

Many of you attended the ATS Meeting in May and saw that it was perhaps the most important Medical Congress ever for IPF patients in the IPF community. To briefly summarize the ASCEND data presented at ATS, treatment with pirfenidone for 52 weeks significantly reduced disease progression as measured by change and percent predicted forced vital capacity.

The proportion of patients who had the recognized clinically important 10% decline in FVC was significantly reduced by about 50% and the proportion of patients with no FVC decline was significantly increased by more than 100% when compared with placebo. Both key secondary endpoints were met. Change in six minute walk test distance and progression free survival.

Treatment with pirfenidone was associated with lower rates of all cause mortality and treatment emergent IPF related mortality in pre-specified pooled analysis with the capacity studies at week 52.

Additionally, the data ASCEND demonstrated a favorable safety and tolerability profile of pirfenidone that was generally consistent with observations from the previous Phase 3 capacity studies, the open label extension studies and extensive post-marketing experience.

Since presentation of the ASCEND data at ATS meeting in May, we’ve made important regulatory progress both in the U.S. and Europe. As already mentioned pirfenidone was granted breakthrough therapy designation by the FDA.

According to the FDA fact sheet, “if a drug is designated a breakthrough therapy FDA will expedite the development and review of such drug.” Of course, we can’t assure you that our NDA will be acted on by the FDA before the PDUFA date. And importantly, we reported today that FDA has indicated to us that they do not plan to conduct an advisory panel at this time.

Regarding Europe on July 10th, we submitted to the European Medicines Agency the ASCEND variation to the Esbriet marketing authorization. The purpose of this variation is to update the label in Europe known as the Summary of Product Characteristics or SMPC to include the ASCEND clinical data. We currently anticipate receiving a decision on the proposed variation from the EMA in early 2015.

In addition to these regulatory milestones, we’ve made significant progress, in preparing for what we hope will be the launch of pirfenidone in the United States should we receive an NDA -- an FDA approval later this year.

I’ll now turn the call over to Sean Noland, EVP and Chief Business Officer to describe the U.S. market and to share with you our recent progress.

Sean Nolan

Thanks, Dan, and good afternoon, everyone. As you would expect, we’ve been very focused and hard at work with our U.S. launch preparations. As part of our planning, we’ve analyzed successful launches in U.S. orphan and specialty products, and have gathered some interesting insights. Insights that I will share with you now, as they address some of the questions, we have been receiving from investors and analysts during the last few months.

Notably, we studied successful orphan or specialty product launches and examined how revenues were realized in each of the first four quarters during the first year of launch. We’ve also identified the typical factors that affect market access and penetration in year one for any new product. To help us put in place measures to manage these factors as effectively as possible.

Finally, we studied the types and scale of investments required in commercial resources, market development and life cycle management that are required to successfully launch first to market brands and steadily grow the markets for these brands in the years after launch. Before we review our findings, we should mention that no analog is perfect. However, we believe these analysis offer helpful insights.

On this chart are what few would argue, our four successful orphan and specialty products. Revlimid, Gleevec, Namenda, Tracleer. They share many common characteristics with pirfenidone.

For example, first-in-class oral dosage form, a treatment for chronic disease, most are orphan drugs and have relatively small physician prescriber universes and most have disease prevalence roughly in the range of that of IPF.

In looking at these analogs we asked the question, how were first year revenues for these successful products realized on a quarter-by-quarter basis or put differently, what was the revenue ramp up?

What we found is that for all but one of these analogs there was a stair step pattern of revenues in year one. On average, only about 10% of the first year revenues were realized in the first quarter on the market, about 20% in the second quarter, 30% in the third quarter and the largest portion about 40% was realized in the fourth quarter of the year one launch. In other words, 70% of year-one revenue was achieved in the second half of the year.

Why were not more revenue -- why were there not more revenues in the early quarters of these analog launches when unmet need and pent-up demand were apparent? Many of you know exactly why. There are four main factors that can affect the rate of reimbursement and uptake in year one of any successful new product launch.

First is market access. This can take approximately six to nine months to create access and efficient reimbursement of the new product for the vast majority of patients. The most common reasons are the length of time payers take to familiarize themselves with the new disease, such as IPF, then convene a P&T committee and develop and implement a prior authorization system. During this period, prescriptions are written but physicians and patients have to navigate an exception process. This introduces delays and frustrations.

Second, is the patient mix, as is typical with many new products that treat serious diseases, during the first four to six months of launch, there is often a higher proportion of patients put on the new medicine who have more advanced symptoms of the disease and question when compared to subsequent years. These patients tend to be sicker and as a result, have lower compliance and persistence rates during the initial launch period than those who are less sick.

The third is patient cycle time. In other words, how often patients see their physicians? Based on our market research, IPF patients see their doctors on average every four months.

So what will take time for patients to schedule their appointment? See their doctor and then potentially receive treatment with the new product.

And finally, we note it takes a sales force two to three months to call on and reach each target physician, as with any new information it can take time for people to digest the data and feel comfortable.

Lastly, launching into the IPF market will require ongoing market development and education so the sales force frequency to these physicians is another important factor and consideration in product launch uptake. In our case, we intend to target approximately 6,000 pulmonologists, about 80% of whom are community-based. So it will take some time for us to make the rounds.

In summary, we expect all of these typical factors for successful new product launches to be operative in the U.S. launch of Esbriet. Of course, we plan to implement programs and resources to address them as much as possible and deliver a very successful launch year for Esbriet.

Now let’s discuss some important considerations for sizing the U.S. marketplace. Starting with disease prevalence, we know that there are approximately 70,000 diagnosed IPF patients for whom a physician has submitted a reimbursement claim for IPF care. It is important to note that this figure is not based on epidemiology studies but is derived from claims data.

We believe that our estimate of 70,000 patients may prove over time and with continued education and outreach to the IPF community to be conservative, as it is lower than several epidemiology studies indicate.

We also estimate that approximately 30,000 to 50,000 IPF patients have mild to moderate lung impairment. We estimate that these patients, about 6% will not be appropriate for treatment due to severe liver disease or dialysis.

Importantly, after the first year of launch, we expect the number of IPF diagnosis to meaningfully and steadily increase in post launch years, 2016, 2017 and beyond. As it is very often observed, the prevalence of a disease for which there was no treatment increases when one or more new medicines for that disease are commercialized.

Meaningful and sustained investments by industry in the promotion and education of IPF will raise awareness, increase the urgency to treat, foster earlier diagnosis and increase the number of patients being diagnosed.

Specific to InterMune’s launch preparations, we have recently completed a comprehensive staff sizing analysis and we have accelerated our efforts to build our commercial infrastructure.

We will be prepared to launch pirfenidone in the United States in the fourth quarter of 2014, previously targeted for the first quarter of 2015. Of course, this assumes we’ve received approval from the FDA during the fourth quarter of 2014.

We currently anticipate that the U.S. commercial organization will consist of approximately 175 employees. Of these 175, 140 will be field based and focused to reach the 6,000 pulmonologists we need to target to realize the full potential of Esbriet. A fully loaded rate of $300,000 per year can be assumed for these FTEs.

In addition to the FTE related commercial expenses, we anticipate that non-FTE related commercial expenses will roughly be similar in scale to those of the FTE costs. We currently expect that the build-out of the U.S. commercial organization will be substantially completed by the end of the third quarter of 2014.

We currently expect our U.S. Medical Affairs staff to consist of approximately 35 personnel, including field based medical science directors and staff and professionals managing medical education, medical information, scientific communications and publications, clinical trials and patient registries.

And finally, we will of course need some incremental G&A resources to support our growing commercial organization.

This slide summarizes what we just covered and addresses many of the questions, we’ve been fielding from investors and analysts regarding how to think about the U.S. launch for Esbriet.

For prevalence and eligibility, our research based on claims data suggests that today, there are approximately 70,000 U.S. patients with IPF of whom 30,000 to 50,000 have mild to moderate impairment of their lung function and about 94% of those are treatment eligible. The currently diagnosed prevalence rate may prove to be conservative. Time will tell.

We expect to witness significant and sustained market expansion that will begin in year two. We expect to see an increase in number of IPF diagnosis, earlier IPF diagnosis and higher physician willingness to treat IPF patients as a result of market building investments.

In terms of the quarterly ramp up in year one, factors such as the timing of reimbursement, patients disease severity, patient cycle time and time to educate the target physician audience, all affect product uptake in the first year on market and it translates to approximately 70% of first year revenue being realized in quarters three and four.

For the compliance rate, which is the percentage of the prescribed medicine that the patient actually consumes, our expectation is in the range of 70% to 75%. The persistency rate in the launch year will be influenced by patient disease severity and the physicians experience with the drug.

Pirfenidone’s persistence rates over 12 months range from 50% to 70% in IPF centers, in EU and Canada. The rates are higher in this range where we are able to provide support directly to patients and physicians. As an aspirational goal, we achieved an annual persistency rate of around 80% in our clinical trials.

U.S. price is obviously not yet determined and will be one of the final commercial decisions we will make prior to launch. In thinking about price, we encourage you to remember to adjust for a gross to net discount. We expect an approximately 12% to 15% rate, which includes commercial co-pay assistance.

One last factor to consider, as you think about modeling the U.S. revenues, is our portfolio of patents that extend significantly beyond the period of orphan protection. On this slide you see that we have a large U.S. patent portfolio with various expiration dates ranging from 2015 to 2033, 18 of these patents extend beyond the period of orphan drug designation, which would end late in 2021 based on our PDUFA date.

An important concept to keep in mind is that for a company to legally commercialize a generic form of a branded medicine, they have to successfully challenge or avoid each and every claim of every patent that the innovator has. The innovator only needs to prevail on one claim of one patent to maintain patent protection.

Historically, method of use patents like ours have been upheld in U.S. courts in the majority of cases when challenged by generic companies. In InterMune’s case, we have 18 use patents issued or allowed in the U.S. for pirfenidone and we believe that the odds stack well for us.

Additionally, many of our patents relate to the safe and/or effective use of the product. This is important as it will make it difficult for a generic company to write a so-called skinny label in an attempt to avoid these patents.

This would be difficult, because removing language from a package insert that relates to instructions to doctors on the safe or effective use of a product is against one of the fundamental missions of regulators and that is to ensure the safe and effective use of medicines.

We believe our strategy will provide patent protection for pirfenidone in the U.S. and EU for a period that is substantially beyond the orphan exclusivity period and possibly into the early 2030s.

Now turning to Europe and Canada. As you are aware, the launches in Europe and Canada have been staggered over time. Due to the time required to secure reimbursement in each country. This is illustrated for the five largest markets where Esbriet is currently launched.

As you’ll recall, we launched in Germany in Q4 of 2011, in France in Q4 2012, in Canada Q1 2013 and in Italy and the U.K., just 12 months ago. Therefore, on average, Esbriet is 20 months post-launch today and will begin its third year of launch in roughly January 2015.

We have done analog studies for specialty product launches in ex-U.S. markets. Again, no analog is perfect. In this case, one must take into account that unlike some of the analogs shown here, Esbriet is not commercialized by InterMune and many ex-U.S. markets including Japan and Latin America, which typically take place in years two and three of launch for most global brands.

The typical range for year-over-year growth in year two which for Esbriet is 2014 is approximately 50% to 100% based on our study of analogs. And you can see the Esbriet guidance bar on the right side of the chart in red. If we achieve our revenue guidance we will be at the top end of the range achieved by successful analog products in their second year of launch.

Now let’s look at launch year three which is 2015 for Esbriet. Based on the analysis of successful analog products the typical range for year-over-year growth in year three is approximately 30 to 50%.

In summary, here is our view of some of the key factors that will influence EU and Canada revenues this year and in launch year three or in our case 2015. In terms of prevalence, we estimate there are 40,000 to 60,000 mild to moderate patients in our 15 target markets in Europe plus Canada.

The public price in Europe weighted by population and net of mandatory national discounts is approximately $40,000 U.S. per patient per year. Successful EU product analogs achieved average year three revenue growth of 30% to 50% over year two. However, a number of those included Asia and Latin America, which are not territories where Esbriet is marketed.

Among other factors that could affect 2015 revenues in Europe and Canada, we recommend that you model a typical third quarter summer effect for Europe as patient and physician visits tend to be lower in the summer months.

As we have stated before, we expect that most of the effect of the ASCEND data on revenue will be seen in 2015 after the label in Europe is updated. That’s when the sales force can fully promote based on the new data.

In Canada, we remind you that we are currently marketing in roughly one-third of the market, IPF patients who are covered by private insurance. We anticipate that reimbursement from a public plans, the provincial and territory systems could begin in early 2015.

Another factor is that we will see the presence of imatinib in the form of a compassionate use program in Europe and potentially launches of imatinib in early launch countries such as Germany.

I will now turn the call over to John Hodgman for the financial discussion.

John Hodgman

Thank you, Sean. We today reported that Esbriet revenue in the second quarter of 2014 were $35.7 million, compared with $14.4 million in the second quarter of 2013, an increase of 148%.

Sequentially, Esbriet revenue in the second quarter of 2014 increased 18% from $30.3 million in the first quarter of 2014. Total revenue for the first six months of 2014 was $66 million, compared with $24.9 million in the first six months of 2013, an increase of 165%.

R&D expenses in the second quarter of 2014 were $39.7 million, compared with $27.5 million in the second quarter of 2013, an increase of 44%. R&D expenses of $71.8 million were 34% higher in the first six months of 2014.

Higher R&D expenses in the three and six months periods reflect activities to complete and report the ASCEND Phase 3 trial, a higher number of patients in the recap extension study, compared to the year earlier periods and activities related to the pirfenidone NDA resubmission.

R&D expenses in the second quarter of 2014 also reflect increased product development activities, primarily the conduct of LOTUSS, PANORAMA and PASSPORT studies, our anti-fibrotic research programs, our initiation and conduct of an expanded access program for pirfenidone in the United States.

SG&A expenses were 41% higher in the second quarter and 44% higher in the first six months compared to the -- comparable periods of 2013. The increased spending in the three and six-month periods is predominantly attributed to increasing investments in pre-launch preparation for pirfenidone in the United States.

We reported a net loss for the second quarter of 2014 of $71.2 million or $0.72 per share, compared with a net loss of $62.9 million or $0.77 per share in the second quarter of 2013. As of June 30 2014, InterMune had cash, cash equivalents and marketable securities of $560.2 million.

As noted in today’s press release, we recently completed the exchange of approximately $112.9 million of convertible notes due in 2015 and 2017. We today updated our forward-looking financial guidance for Esbriet revenue and operating expenses in 2014 from that provided on May 1, 2014.

Regarding Esbriet revenue, we currently expect 2014 revenue to be toward the upper end of the increased projection of $130 million to $140 million that we provided in May of 2014.

If the pirfenidone NDA is approved in 2014 we would expect to recognize only very modest Esbriet revenues in 2014, given that the PDUFA date of the pirfenidone NDA is November 23rd, which is immediately prior to the November and December holiday periods and will affect patient doctor appointments.

Our closed direct distribution system, which will be managed by a relatively small number of specialty pharmacy distributors, who traditionally keep very close control of inventory levels and the typical time required to gain meaningful reimbursement for newly launched medicines during the first months of launch.

SG&A expenses is currently expected to be in the range of $250 million to $260 million, previously $210 million to $225 million. The updated SG&A range primarily reflects decisions in the second quarter to accelerate the building of the U.S. SG&A infrastructure to be substantially completed by the end of the third quarter of 2014 and to significantly increase the size and scope of this infrastructure versus our prior estimates. This is to position us to fully capitalize on the promising opportunity of pirfenidone in the attractive U.S. market

SG&A expenses guidance also reflects the full year effect of 2014 expenses of commercial organizations that were established in the summer of 2013 in Italy and the U.K. and additional infrastructure to support the marketing Esbriet in European countries beyond the company’s 15 initial top priority targeted U.S. markets. We today provided guidance for SG&A expenses for the fourth quarter of 2014, which we anticipate will be in the range of approximately $85 million to $90 million.

Before turning to our R&D guidance, we remind you that our R&D programs are aligned with our strategic plan to grow InterMune and to grow beyond the Esbriet and beyond IPF. Our R&D pipeline includes Esbriet life cycle management programs. Among these are the PANORAMA and LOTUSS trials, and new formulations of pirfenidone.

Our internal pipeline includes the pirfenidone analog program, which is anticipated to reach the clinic in the first half of 2015. The analog appears to be 10 times more potent than pirfenidone, dosed twice or possibly once per day, appears to be better tolerated regarding the GI tract in animal models and we have reason to be hopeful that it may not have a photosensitivity aspect. We also have early but potentially very interesting anti-fibrotic programs in evolving inhibition of LPA1 and LOXL2.

R&D expense is currently anticipated to be in the range of $130 million to $140 million, previously $110 million to $120 million. The updated range primarily reflects our strong progress on Esbriet life cycle programs and our decision in the second quarter to accelerate various investments and our promising R&D programs, including but not limited to the pirfenidone analog and the [LAP1] (ph) inhibitor programs.

We today provide guidance for R&D expenses for the fourth quarter of 2014, which is anticipated will be in the range of approximately $30 million to $35 million. Total operating expenses or R&D plus SG&A are currently anticipated to be in the range of $280 million to $400 million -- $380 million to $400 million in 2014, previously $320 million to $345 million.

The SG&A increase will be driven primarily by U.S. commercial launch preparation and the newly accelerated timeline, which calls for build-out to be substantially completed by the end of third quarter of this year.

In addition, the U.S. commercial team will be upsized based on our excitement about our opportunity for pirfenidone in the U.S. The enlarged target physician list and the results of our salesforce sizing exercise.

The updated expense guidance also includes G&A support for the above programs and staffing. As noted a moment ago, the increased R&D investment is to fund our promising pipeline and to continue to build InterMune’s future.

That concludes the financial discussion. Operator, you may now open the line to questions.

Question-and-Answer Session


Thank you. (Operator Instructions) Our first question comes from the line of Brian Abrahams with Wells Fargo Securities. Please go ahead.

Brian Abrahams - Wells Fargo Securities

Hey, thanks for taking my question. You mentioned expanding your target physician group, many of whom are community physicians. I was wondering if you could talk a little bit how the degree to which accelerating your launch efforts might help you in that regard, particularly in reaching those community docs? And maybe talk a little more about the types of patients that these physicians see, what their treatment patterns typically are, whether they see a lot of patients who maybe misdiagnosed but actually have IPF? Thanks.

Sean Nolan

Thanks, Brian. This is Sean. Good question. So we’re going to be calling on approximately 6,000 pulmonologists, 80% of which are in the community and based on our research I want to say a couple of things. Number one, in the U.S., what we know is those physicians are not likely to refer their patients.

Those community physicians are likely to treat the IPF patients that they have. And so they are going to have the full range from mildly impaired patients to severe patients, just like you would see potentially in an ILD center. Obviously the number of patients per doctor is going to be different than what you would see at a physician whose affiliated with an ILD center is one topic.

The other thing is that by pulling things forward to your point about the reach and the frequency and obviously the sooner that we’re able to launch the drug the sooner we’re able to get out and initially reach those physicians and then follow-up with them with the most optimal frequency we possibly can. Does that answer your question?

Dan Welch

He might be muted.

John Hodgman

So I’ll just add on to Sean’s answer, which is right on the money. The expanded sales force that we’ve announced today gets to a broader audience, as Sean said. We think there’s tremendous opportunity out in the community where IPF is diagnosed today somewhat later than it should be and doctors out in the community. They are the first ones to see the early symptoms of IPF.

And so we believe that by reaching out to these doctors who are already willing and able to prescribe right now, they are also crucial to the market development that we believe will be apparent in 2016, 2017 and beyond. So it’s part of a market building, market expansion strategy. But also a today strategy because these are prescribers that are out there in large numbers and have large numbers of patients.


Our next question comes from the line of Terence Flynn with Goldman Sachs. Please go ahead.

Unidentified Analyst

Hi. Thanks for taking the questions. This is (indiscernible) for Terence. Just wondering, are you starting to have the preliminary conversations with payers in the U.S. And if so, do you have any feedback that you can share today and how important is the mortality data for payers? Thanks.

Dan Welch

We’ve had a number of interaction with payers over the last 18 months or so. And so we have good insight into how they’re viewing the IPF market and what their plans are. Specifically answering your question about the mortality data, certainly the mortality data is very compelling to those physicians -- to those payers. But they also have commented that it really again is the total package of efficacy, both FEC, six-minute walk, progression free survival and the mortality data combined with the safety profile of years on the market and the tolerability profile that we’ve seen with this product really are the reasons why they view the product very, very favorably.

And the last thing is you have to put all that against the backdrop of how severe IPF is and what the clinical prognosis which we all know is extremely poor. So given the significant unmet need and given the compelling product profile that we’re bringing forward with Esbriet, the payers have been very favorably predisposed to the product.


The next question comes from the line of Geoff Meacham with J.P. Morgan. Please proceed with your question.

Michael Ulz - J.P. Morgan

Hi. It’s actually Mike in for Geoff. Congrats on the progress and thanks for taking the question. Just with respect to the expanded access program in the U.S., can you maybe give us a sense of how that’s enrolling compared to what your prior expectations were? Thanks.

Dan Welch

Sure, thanks, Mike, thanks for the question. I think first we should start off by saying we’re very pleased by the interest among doctors and patients in getting early access to pirfenidone as soon as possible. So our suppositions that there is unmet need out there and Esbriet can be a very important drug in America as reinforced.

Now the thing we need to start off by saying is that everybody understands the expanded access program is the way we’ve done it is more like a clinical study than anything else. Meaning the site has to be initiated and IRB or ethics committee has to convene. There is a study protocol. There are inclusion/exclusion criteria. The sites have to be trained in terms of how to receive patients. The patients have to meet certain criteria. And so you need to think about we launched this program in May, the EAP.

And as you know you track other companies, clinical studies take time to get sites initiated. And -- but what we’re pleased is that we announced that we expected to enroll around 80 centers by September. And we’re happy to say that we’re three quarters enrolled already ahead of our expectations, which we think underscores the interest and enthusiasm that doctors and patients have for pirfenidone.

And so you have site initiation and then patients start rolling through. I think I should encourage everyone that in terms of how many patients could come through the EAP, I’d encourage you to think of in the hundreds of patients. And for example, not in the thousands of patients because our PDUFA date is only a few months away. And we have these sites and centers being initiated.

So I think to sum it all up, the enthusiasm is strong. The excitement out there is strong. And it’s shows itself in the speed of site initiations. And once sites are opened, patients are flowing through in a very, very encouraging way. So -- but there are some kind of natural rate limiters of just site initiation and on the back end, registration or approval, which will stop the program. So that’s -- I’m very pleased by the early signs over the last few months.


Our next question comes from the line of Michael Yee with RBC Capital Markets. Please proceed.

Michael Yee - RBC Capital Markets

Hey, thanks, good afternoon. Two quick questions. You spoke a little bit about your conversation with payers. But as you’ve digested all your data and come away from ATS, have you thought a little bit more about the comparables for pricing? I know you can’t be specific, but obviously there’s other pulmonology drugs out there, some with mortality, morbidity data recently in the patient attending and then others even without it. So are those the types of profiles that we should be thinking about?

And the second question was on a different topic, which was you mentioned nearing completion of your sclerosis-related IS, interstitial lung disease study and you mentioned that that could be data in late next year. Is that something you could actually file on? How should we be thinking about that program? Thanks.

Dan Welch

Sure, thanks for the questions. The first on pricing comps. We’re doing a lot of work right now as you can imagine. And of course we’re looking at, what we think our analogs were looking at the value that pirfenidone can bring to a patient to the healthcare system and moving through all of those. It’s the totality of the evidence as Sean mentioned. The totality of the product profile, including mortality but beyond that.

So we’re not going to make a comment on our pricing expectations at this time. You all do a great job at that, but it’s premature for us to comment on it. We believe Esbriet brings great value as a heck of a good product for patients and is a huge need out there.

In terms of the scleroderma program, it’s a Phase 2 study, which is really a safety study and it’s only 65 patients more or less, for four months of treatment. And it’s really designed to make sure that these patients can take pirfenidone on top of standard-of-care. Scleroderma patients often have esophageal problems, problems swallowing pills and such. And we wanted to make sure that, that would not be a problem and that’s why this study is done.

We don’t anticipate this will be a problem with pirfenidone, for example. But we wanted to make sure it then once swallowed the drug can be well tolerated by the patients taking on top of standard-of-care. So with four months therapy only 60 some odd patients, we wouldn’t expect this would lead to a registration package. What it could lead to depending upon how we see the results, it could lead to a strong encouragement for us to develop a program towards the registration for scleroderma in the form of a Phase III study.

Keep in mind, that the need for new therapies for scleroderma patients with interstitial lung disease is as large as the unmet need or the need for patients who have IPF. So the need is huge, the numbers are huge, and like IPF today, there are no medicines for scleroderma ILD. Huge unmet need, big opportunity for Esbriet and -- but we’re at the very early stages and we’re encouraged. There are early anecdotal evidence out of Japan that pirfenidone helps these patients. So obviously we’re pursuing it with the first step. And we’re hopeful it can lead to a second step to help more patients in dire need of therapy.


Our next question comes from the line of Katherine Xu with William Blair. Please go ahead.

Katherine Xu - William Blair

Good afternoon. Can you hear me?

Dan Welch

Hi, Katherine, yes.

Katherine Xu - William Blair

Great. Thank you. And I’m just curious to Dan and Sean, what kind of key lessons have you learned from the European commercial launch and do you want to apply in the U.S. launch? And the second question is on the treatment duration. Understand that from the studies, it looks like it’s 2.6 years, should we use that as a average duration in our model or do you see any deviations from there?

Dan Welch

Thanks for the question, Katherine. So lessons learned in Europe. So we’ve learned a lot of lessons with each launch we’ve had, starting with Germany. I truly believe we did better in each and every one and then in Canada as well. And that’s a great training season for the big game which will be the U.S. launch. So we’re very fortunate to have had a couple years of really great experience in Europe and in Canada.

Lessons learned there, I’ll start with some and Sean can speak to Canada. But for example, in Europe, it’s very important to really make sure doctors understand the efficacy message. It will be somewhat easier because we have a much stronger efficacy message in this totality now that we have the ASCEND data which is different than how we launched pirfenidone or Esbriet in Europe where we had only the two capacity studies in essence.

So promoting hard or properly positioning the efficacy message is really important. So the safety and tolerability message, of course, is important. We’ve learned that doctors really appreciate the fact that pirfenidone has been on the market for over six years starting in Japan rolling through Europe and in Canada and other countries as well. So reminding doctors that this is a drug that’s tried and true, really resonates with doctors and gives them confidence to start that first prescription.

The other topic is dose titration and what’s really good, I mean -- there are good aspects of having a drug that is several pills a few times a day. The number -- the permutations and combinations you can put together for a patient to find just the right dose that they can tolerate. It’s almost endless and so the way to fine tune that patient in terms of how many pills each time a day is also working with the patient.

That’s been helpful, because keep in mind when we did our capacity study a low dose of pirfenidone did deliver a better efficacy profile than placebo. So lower dose than full dose is better than no dose. So these are some of the key messages that we’ve learned and there are some other messages around how to manage persistence that Sean can speak to.

Sean Nolan

Yeah. The three things, I would say, from Canadian perspective are I’ll start with what Dan pointed out, which is the persistency. We’ve learned that the more frequently and the earlier on that you can consistently communicate with physicians and patients, the higher the likelihood of continued and better persistence.

So in Canada, we have a hub distribution system, very high touchset of services for patients and for physicians as they began their Esbriet journey. And what we have seen are the persistency rates in Canada being significantly higher than what we’ve seen in other countries. And we attribute a lot of that to the model itself and then to the innovative programs that we’ve put forward there.

Secondly, it is critically important to emphasize the efficacy message with physicians. And what we’ve learned is it’s a very powerful combination and constellation of efficacy data when you can put together the FVC data with combined with progression free survival, six minute walk, and mortality data once we get that label updated.

My point is with the efficacy, we’ve seen the more we stress that as hard as we possibly can with those physicians, the more likely they are to prescribe. And having that ASCEND data to augment our efforts in Europe and Canada, we will launch with it certainly in the U.S. bodes well for us.

And last piece similar to the U.S., Canada primarily physicians treating IPF are in the community. And again, as Dan mentioned earlier, that has been an opportunity for us with increased education, with increased outreach to these physicians. They are, they have the opportunity to diagnose earlier. It’s more top of mind. Their awareness has increased and really instilling the urgency for them to treat. And so over the course of time, we’re seeing more and more of that in the community and maybe a good harbinger of things here in the U.S.

Dan Welch


Dr. Jonathan Leff

Hi, Katherine. The 2.6 median duration of therapy that you’re referring to is our published data from our open label extension study. So it’s important to note that that’s really a very unique and bias population, a very motivated clinical trial patients who in general have pretty few co-morbidities. And have also by definition shown that they are already tolerating the drug long term hence their continued presence in the study. So it’s a very bias population likely not to be representative of IPF patients in the community, might have more advanced disease and co-morbidities.


Our next question comes from the line of Andrew Peters with UBS.

Andrew Peters - UBS

Hey, guys. Congrats on the progress and thanks for taking my question. A follow-up to Brian’s question earlier in terms of, kind of, the 6,000 pulmonologists that you’ve identified. Is there a group of major treaters that you plan on initially focusing on kind of the top decile type docs. And if so, how many patients, give or take, do you think that population represents as kind of a low-hanging fruit? And then just a quick kind of unrelated one. John, can you give the shares outstanding at the end of July kind of post the convert buybacks? Thanks.

Dan Welch

I’ll have Sean handle the sales force question.

Sean Nolan

So, Andrew, good question. The way that I would think about this is because of the claims analysis that we have, we can essentially determine which physicians have the most IPF patients. And so what we’re going to do is certainly make sure that as we put them, we will decile those physicians so we know where the most productive physicians are.

Those physicians would receive the most attention, if you will, from InterMune by a variety of means including sales force visits with great frequency, making sure that they have any support that they need, making sure the medical science liaisons are available for any questions that they may have. But we definitely do know who those most -- the physicians are who see the most patients. And we will allocate resources and activities commensurate with their potential.

Dan Welch

And the question on the shares outstanding?

John Hodgman

Yeah. At the end of June 2014, the number of shares outstanding was almost 103 million shares. And as of July 31st, it will be just short of 108 million after the exchange of convertible debt.


Our next question comes from the line of Howard Liang with Leerink. Please go ahead.

Howard Liang - Leerink

Thanks very much. Just a follow-up on the EAP. Can you talk about how the two programs differ in scope and the type of patients that are included? And I know that for the PI program they are including patients with bleeding risk and cardiac, history of cardiac disease. Can you talk about what percent of patients those represent among IPF patients?

Dan Welch

Sure. Thanks for the question. So we estimate that -- for example, we estimate around 20% to 25% of IPF patient have the cardiac liability, cardiac background. When you add bleeding on top of that, it’s maybe another 5%. So let’s say 20% to 30% of IPF patients have a history of bleeding or history of heart attack, both of which were exclusions for the impulsive study of Boehringer Ingelheim. So I don’t want to comment on how one should think about that, but patients who had that burden were excluded in impulses and well, I’ll stop there. In terms of -- and I think I answered the question. Did I?

Dr. Jonathan Leff

In comparison to the two programs. I think other than that, they are relatively similar and broad, a little more relaxed criteria than the Phase III inclusion criteria.


Our next question comes from the line of Brian Skorney with Robert Baird. Please go ahead.

Brian Skorney - Robert Baird

Hey, good afternoon guys. Thanks for taking the question. I guess I was wondering can you review with us how the interaction between your issued patents and the label could come into play when it comes to retaining exclusivity? And specifically what points do you expect to be addressed in the label that would set up a hurdle to prevent the generic substitute from getting around some of your used patents?

Dan Welch

Sure, good question. So speaking broadly, so our patents have to do with many things including formulation, granulation patents but then they also have to do with methods of use, having to do with how do you safely administer pirfenidone, how do you tie trait if a patient has liver function test abnormalities. In other words, how can you keep them on the medicine and have them benefit from pirfenidone and if they experience LFT elevations, how should you dose it to begin with?

What’s the titration schedule which can manage GI upset, for example, or dizziness? And what should one do if a patient smokes? That interacts with the PK of pirfenidone in a fairly substantial way. What advice should the doctor be giving to the patient about smoking in this regard? Not in general but specifically to pirfenidone. What choice of anti-depressant they should take because of drug-drug interactions, patients who have IPF suffer from depression.

So that’s real, which other medicines should they take and if they take them what guidance should the doctor be given in terms of keeping the patient safe while they are on this other medicine and pirfenidone. And I’ve just listed a few. We have a total of 18. These are very real, very important safety observations made in the clinical studies that in the normal course will be listed in our package insert because they are essential elements of guiding a patient -- a doctor on the safe, not only the safe, but the effective use of pirfenidone.

And we believe that these will naturally find themselves into the label. And they are naturally attached to our patents. And so the practical aspect of that is a generic company, we believe, will have a very difficult time convincing the FDA to approve what is called a skinny label, which if you imagine, it is like is excising language, in words, that would implicate patents. And if all of those were done to our package insert, I think it would look like Swiss cheese with the amount of holes in it.

And so that’s the concept here that a skinny label approach because of the importance of the safety and efficacy claims and observations in our package insert, that’s part of the essence . The other part of the essence of our exclusivity strategy is numbers. We have 18.

The other aspect is that at least in the past, when challenged, method of use patents have been defended by the proprietor in the majority of cases. And so these are the elements, it’s numbers, it’s types, it’s relevance and importance to the safe and effective use. And collectively we believe that this approach will lead to an exclusivity for pirfenidone in the United States and Europe, substantially beyond the warfarin drug period that one would expect.


Our next question comes from the line of David Friedman with Morgan Stanley. Please proceed.

Breanne Kruger - Morgan Stanley

Hi. This is Breanne Kruger calling in for Dave. Thanks for taking the question. Just wondering if we will be able to track Esbriet prescriptions through prescription services like IMS? Thanks.

Dan Welch

You’re welcome. The answer is no. We’re going to be distributing Esbriet through a specialty pharmacy distribution system that will be a closed system. And for that reason -- and we do not plan to provide that to IMS, at least in the early part of the launch, downstream perhaps. But we would encourage you not to expect IMS prescription data on Esbriet in the United States.


Our next question comes from the line of Ravi Mehrotra from Credit Suisse. Please go ahead.

Ravi Mehrotra - Credit Suisse

Hi. Thanks for taking my question and thanks for all of the granularity, really great job. You’re focusing on the analogies you gave with similar drugs at the beginning of your presentation. I was really thinking about percent and especially the hurdles back in 2001 when it was launched. And obviously one of the biggest hurdles was making docs simply aware of the disease and also identify and diagnose it. Could you provide us with any color on how to compare and contrast PAH awareness and diagnosis paradigms back in 2001 versus IPF awareness and diagnosis paradigms in 2014 in the U.S.? Thank you.

Dan Welch

Hi. Thanks for the excellent question. I think there are a lot of similarities but of course there are differences. I’ve been with the company now for -- with InterMune for over 10 years, it’s hard to believe. But I’ve seen a dramatic improvement over that time in terms of the awareness of IPF, the recognition of it, how to diagnose it, how to diagnose it early. I think the average patient now spends -- used to spend two to three years bouncing around doctors before they finally got an IPF diagnosis. It’s now cut in half the average time is about a year and so that’s a big improvement.

I think -- so when you talk about the interstitial lung disease centers of the IPF centers, it’s quite mature and well developed. As you get out into the community, we’ve done market research, the awareness is reasonably good. And but it’s not quite up to the level of the IPF centers. And that’s part of the reason why we have decided to expand our commercial presence and invest meaningfully in medical education. If there’s another drug on the market as well besides pirfenidone there will be even more education in terms of improving the diagnosis.

I believe the way, we’ve approached this is perhaps conservative. We’ve only taken claims data. That means how many patients have doctors claimed to reimbursement for their IPF care? So we believe that the number of patients over time is going to increase above that because maybe and probably go towards more towards the epidemiology prevalence over time not in 2015.

But we believe that taking claims data for 2015 is probably the best way to start. And perhaps will be pleasantly surprised that there actually are more patients out there. So back 10 years ago, your track would have faced different challenges. I would say the awareness of IPF among the treaters is probably somewhat more mature, my instinct is.

I know you’re an expert, you’ve studied hard very well with the PAH market and track here in particular but my instinct is that it’s more mature. IPF is more mature than at same time of launch versus the PAH. But nonetheless there is still work to do to expand the market but we think it can be expanded quickly, relatively quickly meaning over a few years.

We also think the patients going to have a big voice in this meaning the patient is going to be in front of the doctor with their family. I think that’s going to have a big factor in terms of willingness to treat, which might not be the same as the PAH. So those are some thoughts but those are mostly, I would say, judgments. I don’t have a huge amount of data to back up the judgments but those are my historic. That’s my historical perspective since I’ve been here.


There are no further questions at this time. I’ll turn the call back to you.

Dan Welch

Thanks, Operator. As noted today, the second quarter and first six months have been an important and really exciting period for IPF patients and for InterMune. We’ve made exceptional progress in just a few months. I’m very proud of my team for the incredible accomplishments they have delivered and continue to deliver for patience and for shareholders.

Our company is going through an exciting transformation. And we expect to continue this transformation with what we hope will be the U.S. approval and launch of Esbriet in the coming months. We appreciate your interest and we look forward to updating you on our next quarterly call. Good day.


Ladies and gentlemen that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your line. Have a good day, everyone.

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