4Q Earnings conference call - part 2
DOUG LIND: Thank you, Jim. If I can have you revisit the issue of in licensed product potential over the next 12 to 18 months. What is the landscape that you see out there? How competitive is it? Is that an expectation that you want to keep in front of the market, or where do we stand right now?
JIM TOBIN: I expect that the number of things worthy of in licensing will actually over the next year as data comes forward and surprises us in some areas. Okay? Some things that you think will work don't. Some things you think won't work do. There are-the clinical pipeline is so pregnant at this point, that I believe that the industry in general is going to generate things that we would be interested in. I also believe that the funding environment in the future is likely to be less friendly than it has been this past year or two. So more people with good things are going to need help from people like us. So we're going to keep our lines in the water and stay ready to do smart things when the opportunity presents itself.
We're making some organizational announcements in the near future that will beef up our organization in this area. We're ready to roll here. We had been focused in the last half of `97 on getting the Merck deal done. That took up an awful lot of the capacity, so to speak, of our in and out licensing operation. That's behind us now, and so we're open for business.
DOUG LIND: So are you comfortable saying that you have a goal of "x" million dollar potential product revenues in a given year like this year? Can you give us some sense of what your-the magnitude of your internal goals are.
JIM TOBIN: I don't think about it in those terms. What we're looking for are products that have high therapeutic headroom that address markets that are focused markets, but can be big dollar markets because of that high therapeutic headroom so that we can get at them with, call it 50-100 man field forces and not eat ourselves alive with expenses. We like to make margins in the same 75-85% range on these things after royalties, so that we have money left to plow back into R&D to be able to support the product. One of the things that we're learning with AVONEXr is that it "ain't over when it's over." Okay. We now have, I think, seven trials in AVONEXr running and two more to start. There is a large tale to the market development of a drug and we want to make sure we have the margins to be able to do that. So that's the kind of thing we're looking for. That's the kind of thing everybody's looking for.
On the other hand, honestly we have not found it that hard to do the deals that we want to do. You don't win them all, but you don't lose them all either. Just because big pharma has more money, we have-we're more biotech friendly in a sense. We, I think, are-have shown ourselves to be a good partner at this point. So we get to look at an awful lot of things.
DOUG LIND: Thank you.
OPERATOR: Thank you. Our next question comes from Meirav Chovav of Solomon Smith Barney.
MEIRAV CHOVAV: Hi. This is Meirav Chovav of Solomon Smith Barney.
JIM TOBIN: I was hoping that was you, Meirav.
MEIRAV CHOVAV: I was hoping that was me as well! That, by the way, wins the prize! But going back to business, congratulations for a good quarter. One of the questions that come to mind and you sort of briefly discussed is the issue of the royalties. According to Schering Plough, the major patent on IntronrA only expires around the year 2002, and now you are saying that the patent on hepatitis B got extended. So does this mean that your royalties rate are going to go up rather than go down starting the year 2000?
JIM TOBIN: I think that if I had to make a guess, I think what you will see-understand that the-when Schering talks about the IntronrA patent 2002, that's basically U.S. Okay? There are all kinds of other dates in other countries on all kinds of other patents and the analysis of this is very complex and it drives people nuts to try to do it. I suspect what will actually happen is that you'll see a bit of a sag in 2000 that comes back in 2001, and as Hirulogr and VLA4 hit the market, at this point it wouldn't surprise me to see royalties actually increase as we go forward. I've stopped worrying about it, and I think we're in pretty good shape. There is litigation that is in place right now that could have the effect of extending the patents beyond 2002, and lots of things can happen in those kinds of circumstances, so the net of it all is that I guess basically I'll have to stay at this point, stay tuned, but I think we're in pretty good shape.
MEIRAV CHOVAV: By the way, I know that Schering is working on a pegalated form of IntronrA. Are you going to get royalties out of that as well?
JIM TOBIN: If they get it to the market before the patents expire we would, and if we get extensions we would. That's-our patents cover even a pegalated version; which, by the way, I hear good things about. I understand that that's a good way to do it.
MEIRAV CHOVAV: Well, that's what everybody's doing [inaudible] proteins. It seems like the way to go. One brief-you mentioned seven clinical trials on AVONEXr. I was wondering which ones they are, and when would you expect the potentially first additional indication of AVONEXr?
JIM TOBIN: Let me think if I can list them all. There is the extension trial. There is the monosymptomatic trial. There is the double dose trial. There is trial in combination of azathioprine. There is about to be a secondary progressive trial. There's a glioma trial. There's about to be an IPF trial and primary progressive. So those are the ones going on.
MEIRAV CHOVAV: When would you expect to have data from any of those trials to support the additional indication or extension of the label?
JIM TOBIN: It would be a while yet. The IPF trial hasn't even started. It will start in the next phase -- 60 or 90 days. The glioma trial, we got reasonable-we sort of met our hurdle rate on the first tranche of patients that we were looking at, and so what we've done is triple that at this point to look at a bunch more patients. That is still Phase II kind of information. On the other hand, nothing much works in glioma, so if we see good data, we may be able to get fairly rapid turn around on something there. So I don't know-we're at least a year and a half away, and maybe two years away from label extension.
MEIRAV CHOVAV: Congratulations once again. Thank you.
JIM TOBIN: Thank you.
OPERATOR: Thank you. Our next question comes from Reijer Lenstra of UPB Asset Management.
REIJER LENSTRA: Congratulations with a very nice quarter. You have several very interesting Phase II trials ongoing this year. Can you comment whether you expect any of these trials to wrap up before year end?
JIM TOBIN: Well let's see. I have to think about them one at a time. The current CVT124 Phase IIa, we're extending on the renal piece, but yet ought to wrap up certainly before the middle of the year, and I expect that the Phase IIb actually will be completed by the end of the year. We should have IIB data to show you, let's say, a year from now. CD40, Phase I stuff should be-I mean all we'll know there is that we'll get some safety data. That's available fairly soon, and then we plan to start several trials on the Phase II type, and they are varying lengths. I would expect, for instance, the Factor 8 inhibitor stuff will be very short and you'll see that quickly. That's sort of proof of concept stuff. The others will take longer to do just because it takes longer to accrue the patients.
LFA3TIP, you'll see data on that in some science form or other in the next few months once we've analyzed it all. I would expect that there will be more data before the end of the year, so yes, you'll see additional Phase II data. In the case of LFA3TIP, the next Phase II will model, meaning doses in patient populations, what we would expect to do in Phase III. So you ought to have Phase II data kind of by the end of this year that really means something to you.
REIJER LENSTRA: Is this the placebo control trial, the Phase IIb trial?
JIM TOBIN: Yes, it will...
REIJER LENSTRA: ... have it by the year end.
JIM TOBIN: Yes. The next Phase II trials will be in doses that we would plan to use in Phase III in patient populations that we would plan to use in Phase III, and with a placebo control.
REIJER LENSTRA: That will be very nice. So we have good things to look forward to. I have a question about-you're quite sure that Serono will not get its drug approved in the United States. Could they file for a somewhat different label than you have because they can claim, perhaps that they did the trials in somewhat different patient groups.
JIM TOBIN: That won't fly, I don't believe, with the trial that they have data from now. They've got other trials running and they could always do something there. When we had our panel discussion, when was that? Three years ago, okay. The question-one of the half a dozen questions the FDA Advisory Panel noted on, should the approved patient population be limited to those included in the trial or extended further? The panel clearly said yes, those results pertain to people up to EDSS of 5.5. Once you become non-ambulatory that's another question. Alright? So the FDA's own panel has told them that our results pertain to the same patient population that Serono ran their trial in, so I don't think that they can get around that.
REIJER LENSTRA: That will be nice. And in Europe you have, like you said, you doubled your sales every quarter. I probably misunderstood it, but did you suggest that we'll double it next year or do you see some slowing down here?
JIM TOBIN: Well I don't think we can double until we reach the moon, but I think our doubling quarters. I don't expect to do $20 million in the first quarter in Europe. We might, but I doubt that that's going to turn out that way. On the other hand, total sales in Europe in `97 were just under $20 million, and we will do a lot more than $20 million in `98; so you'll see sales in Europe multiply.
REIJER LENSTRA: Thank you.
OPERATOR: Thank you. Our next question comes from Robert Leboyer of Brown Brothers Harriman.
ROBERT LEBOYER: I have a quick question on the additional AVONEXr trials that you have running. You seem to have a whole variety of trials, but the one thing that I haven't heard is anything on oral delivery using technology that MSV or Alkermes has. Do you plan such things or if not, why not?
JIM TOBIN: We have no plans, at this point, to pursue delivery of proteins. We have other molecules that can be delivered orally that hold out the promise of being effective in MS, and it's our feeling that we're better off moving to the next generation of product for an oral; rather than trying to beat our heads against the oral delivery of this protein.
ROBERT LEBOYER: Okay. Good. Thank you.
OPERATOR: Thank you. Our next question comes from George Gilbert from Northern Trust.
GEORGE GILBERT: Hi, Jim. Can you give us a little bit-could you just tell us when the German and Italian approvals occurred or if there are any reimbursement changes in Germany or Italy that might be pertinent to the growth rates there?
JIM TOBIN: We started selling in Germany right away, so that would have been March of `97. We started selling in Italy in September, I believe, of `97. We're about to cross the 1,000 patient mark in Italy already. Germany is 2,000 to 3,000; somewhere in that range. France just literally is-we've been in the market three weeks now, and we're very upbeat about our changes in France. As far as reimbursement goes, there are always-I mean one of the downsides of government run health care systems is, there are always noises around price reductions and that sort of thing, but we have not had difficulty in that area so far. Knock on wood.
GEORGE GILBERT: Thank you.
OPERATOR: Thank you. Our next question comes from May-Kin Ho of Goldman Sachs.
MAY-KIN HO: Hi, Jim. Hello.
JIM TOBIN: Hello.
MAY-KIN HO: I have a question. When you talk about a pipeline, if I've heard it correctly. You said that you expect two more compounds from partners. Did I hear that right?
JIM TOBIN: I was speaking of new trials starting up in Hirulogr and new trials starting up in VLA4.
MAY-KIN HO: Oh, okay.
JIM TOBIN: That's what I was referring to.
MAY-KIN HO: Okay. And Joe, can you tell me how many patients were in the Phase IIA trial for LFA3TIP?
JOE DAVIE: We have had of the order of 50 patients with severe psoriasis receive LFA3TIP at this juncture. I've forgotten exactly the balance between the extension of our Phase I and the beginning of our Phase II; maybe 50/50 in that ballpark. So something of that order.
MAY-KIN HO: Thank you.
JOE DAVIE: Thank you. Our next question comes from Edmund Debler of Mehta Partners.
EDMUND DEBLER: My name changed since the first question! If I may look at the P&L real quickly. What are you guys thinking going forward in terms of the expenditures; if you can run through some of those items. I guess you spent 100 and-where are we now? R&D. You spent $145 million. What does next year look like possibly?
JIM TOBIN: About 170.
EDMUND DEBLER: And SG&A; any leveraging of that going forward? Are we still going to be-we're still spending a lot, I gather, with the launch in Europe.
JIM TOBIN: Well most of the build up of expenditures in Europe are in place, so what you're really looking at is the annualization of what we've already done. So you'll see-I mean we didn't have much in place at all, Q1 of `97. So Q1 of `98 over Q1 of `97 in Europe will be a very large increase, but from Q4 to Q1 will not be a large increase.
EDMUND DEBLER: What kind of a number or percent of sales would be expect to see going forward? Again, you seem to say now we sort of normalized a little bit. What should we use as a rule of thumb until a new product appears?
JIM TOBIN: We're running, right now, at about 19 or 18, 19% of sales, and I think that will come down as we go forward into the 15% kind of range; something along those lines. That's on total revenues, and as we look forward a few years I would expect to do 15% of sales on product revenues alone.
EDMUND DEBLER: Okay.
JIM TOBIN: With basically the royalty stream being gravy, so my long term projection-that's a bad word. My long term target. What I'm trying to achieve here is a P&L profile where if you take product sales only plus just the very base of royalties; call it $100 million or something like that, and you look at that as your revenue base, we would expect to do 85% gross margins; SG&A in the 15% range, R&D in the 25-30% range, and pre-tax in the whatever is left; but I think it's about 45% or 50%.
EDMUND DEBLER: Good pre-tax. Two last really quick questions. You mentioned the royalties just now. With regards to the timing of IntronrA and the possible boost from the ICN product, what is the timing on that, in your mind? What are you looking at in terms of your forecasts?
JIM TOBIN: I think there will be sort of a delay before that hits, but I think you'll see it before the end of the year actually; start to get traction before the end of the year. I don't know what it's going to look like rolling forward, but it's hard to see it as negative.
EDMUND DEBLER: And the last point that I just noticed sort of going through the lease, $440 million in cash and multiple securities. What are you going to do with it, Jim? That's a lot of money.
JIM TOBIN: That is a lot of money. We're writing checks at the rate of $7 million a month to buy in stock. That's basically aimed at making sure that we-as our options are exercised, we're able to replace that stock. The objective there is to keep the total number of shares more or less flat for some years here. Beyond that, there are a lot of things you can do with cash when you've got it, and we're keeping our eyes open. I don't want to tell you I'm going to do X, Y, and Z, and then not be able to do it.
EDMUND DEBLER: I know it's difficult in a public forum like this, but clearly it's a fair amount of capital. You can do a lot of things in acquisitions, expansions, extensions, whatever you want to call it. Can you give us any insight at all to what you're thinking?
JIM TOBIN: Well, the only insight I can give you is that I don't intend to be a bank. I don't pay us to earn 6.3% on my cash, and I am painfully aware that I need to do something about that, okay? Now beyond that, I can't tell you what I plan to do.
EDMUND DEBLER: We'll keep watching you. Thanks a lot, Jim.
OPERATOR: Thank you. Mr. Conley, at this time there are no further questions.
JOHN CONLEY: I think we can just bring this to a pleasant end right now. Thank you, everyone, and if there are further questions I'll make myself available. Otherwise I look forward to a great year with all of you. Bye bye. |
