Q3 Earnings Conference Call
++++ Part 2 of 2 ++++
Eric: Our next question comes from Alex To of Donaldson Lufkin Jenrette.
Alex: Hi. Congratulations. It's a very good quarter, especially on the AVONEX sales. I'm picking up two numbers you gave out. You said now you have 46 percent of the shares, of the market share of the prescription market, and you also extended the market by 35 percent. In my very crude back-of-envelope calculation is that you basically captured about 27 to 28 percent of the previously Betaseronr market. What is the resistance you're seeing at this point in terms of switching people who are currently on Betaseronr and coming to AVONEX?
Ken Bate: Okay. Yes, I think Alex, just to be clear, and as I said, I'm on a cell phone, when we said market share, we said 40 plus percent, not 46, so it's in the lower 40's at the moment in time a couple weeks ago when we last had data. I think your back-of-the-napkin is generally right, I'm not going to take the time to...
Alex: I had 25 percent.
Ken Bate: Yes, but the resistance to switching, if there is any - and I wouldn't define it as resistance - I would just define it as not momentum to switchers, when physicians are saying a patient is doing well and provided the patient doesn't come back to them and say Hey, I want to switch, they are generally leaving well enough alone. So, if you will, the resistance is only that some patients are satisfied and if they're satisfied, the physician is not forcing at this point a switch or even encouraging a switch.
Eric: Our next question comes from Kim Anstatt from Montgomery Securities.
Kim: Hi, this is Kim Anstatt. I have two questions. Can you guys go over what drove royalties this quarter and going forward? And also, can you cover any positive milestones in the next three months, please?
Jim: Kim, this is Jim Vincent. The major driver and going forward, of course, is two things, one of which we mentioned in our press release. This hepatitis story just has lots of legs and before that in the recent period, and that continues too. The melanoma approval in the United States for Intronr A, that has stimulated a lot of growth which they think is going to continue going forward. The hepatitis story, the Germans now have articulated a new vaccination policy for adolescents and children, and we have already begun to see that grow. If you want to hear somebody wax eloquent about that, you should talk to the SmithKline Beecham people, they just see that as a really, really big potential. We're expecting UK to follow behind that. That will take somewhat longer.
So what you're seeing across the world, because it's so intelligent, it's so cost-effective and other reasons, that's why this hepatitis B vaccine is the first vaccine ever that's achieved a billion dollars in sales. It's just such an effective story that we're expecting to see that roll throughout the world if you will. And then you add to that the impact of the Secretion license going forward. That's going to add another couple hundreds of millions of dollars of end-market sales on top of what we have now. So that's a whole new sales royalty base.
You put all that together, that's how you get to double digit growth in 97. Beyond that, even looking out into '98, we can still see high single-digits. It could well be more because our technology licensing efforts: which as I said, started 7, 8 years ago; they're not over yet. We're still out there working - fighting in some cases - lawsuits in some cases - with this patent portfolio on other potential royalty deals that are significant, but which we don't talk much about. We didn't tell you much about our fight over the past four years with Pharmacia. We don't know when they're going to come to fruition, it's a little hard to forecast, but it's not over.
Eric: Our next question comes from Ed Hurwitz of Robertson Stephens.
Ed: Hi. Thanks for taking another question. Can you just comment on the cost of goods for the quarter because I have them substantially higher for a blended rate. Thanks.
Jim Tobin: Well, let's see. There is about a 10 percent cost of goods associated with the royalty base, and somewhat more than that on the product side, so it just sort of works out on average like it does.
Eric: Our next question comes from Richard Van den Broek of Hambrecht and Quist .
Richard: What's the call volume into your information line and likewise the number of mailings requested for the information packages?
Ken Bate: Rich, specifically we don't give the figures, but I can tell you it's parallel with the seasonality in the marketplace that I described to Meirav; given that you saw the activity wane a bit in the month of August and come back strongly in September.
Richard: But it is still at the same clip as you saw in the early going, July time frame?
Ken Bate: As a practical matter, the answer is yes. You recognize that as time goes on, the nature of the calls changes, so you've got to recalibrate a bit.
Richard: Sure.
Ken Bate: But the answer is yes; the lead indicator, continues to look good.
Richard: Thanks a lot.
Eric: Our next question comes from Laurie Gatham of GEI Financial Services.
Laurie: Hi. Can you comment, please, on the status of your pipeline?
Jim Tobin: Let me do that. A couple of things. One, we've had LFA3TIP - ultimately aimed at psoriasis - in the clinic now for 11 months. We continue to see very positive results even in early phase I, so that's going along. We put Gelsolin - which will ultimately be for CF - into the clinic just in the last few days, so that's a start. And we've got CD40 Ligand antibody coming into the clinic right around the turn of the year and VLA4 small molecule call it middle of next year. So, while the pipeline had for all intents and purposes (as I say internally) been 'circling Logan' while we did AVONEX, it has really started to move forward strongly now that we've got time to focus on it.
Eric: Our next question comes from MayKin Ho of Goldman Sachs.
MayKin: Hi. Can you comment a little bit on the accounts receivable number? It seems to be much higher than I would have expected.
Jim Tobin: No, what's in there, MayKin, is the $30 million from Pharmacia.
Maykin: Oh, okay.
Jim Tobin: That should have arrived today. So that's the biggest driver. You've got, of course, trade receivables in there as well. But the biggest thing to bump that number up was the fact that we announced a deal right at the end of the quarter and gave them ten days to pay us.
Maykin: Okay, that makes me feel much more comfortable.
Jim Tobin: Yes, don't panic.
Maykin: What is the accounts payable?
Jim Tobin: It's basically just normal stuff.
Maykin: Because we don't have the number.
Jim Tobin: Let me look, I've got it around here somewhere. I've got to find it in all this...I've got more information here than I know what to do with.
Maykin: Maybe while somebody is looking, you can comment on what you're going to talk about at the neurology meeting this weekend [American Neurology Association Meeting in Miami, Oct 12-15].
Jim Tobin: We're going to talk about how what seems to be the mechanism of AVONEX: a few new hints in that area.
Maykin: Would that be the MS symposium or this is part of the regular presentation?
Jim Tobin: I don't know the answer to that one. There are a couple small bits of information analysis from within the trials that we've done that come out. One of them, I know, is at a satellite session. I honestly, MayKin, don't recall which one is within the conference and which one is at the satellite.
The other piece of it, MayKin, is that there has been some reanalysis of the data that uses different yardsticks from the one point of EDSS sustained for six months. We've got the same data cut at 2 points for six months and 1 point for a year. Looking at the data from using different yardsticks, the bottom line of that is, no matter how you look at our disability data, it gets nothing but stronger.
MayKin: Great.
Jim Tobin: The answer to your question on payables is, call it $10 million.
MayKin: Thank you very much. It was a great quarter.
Jim Tobin: Thank you. You called it pretty close, MayKin.
Eric: Our next question comes from Meg Malloy of Needham and Company.
Meg: Thanks. Great quarter. Two quick questions. One just for clarification. Could you give us your estimated number of patients that today are on Betaseron therapy? And secondly, when patients do drop out, and I recognize it's obviously very small numbers, could you site the reasons why?
Ken Bate: Okay Meg, - the first one - and you know we buy the same data that you folks do it would appear that the total number of people on Betaseron at this point feels like it's now below 20,000. I'm not sure that internally my starting point was ever quite as high as Beta Seron may have said going a number of months back when they said they were pushing 30, but it seems to me like they've lost a good 6 or 7,000 from their total scripts data, and that would put them in the higher teens.
Meg: Okay.
Ken Bate: With regard to the dropout, frankly the incidence of it is low and the formality of collecting the reasons is not institutionalized well enough to tell you if there is any particular reason or any pattern developing. It's just anecdotal that somebody got the flu or didn't like injecting themselves, but no pattern has emerged because the numbers are real, real small.
Meg: Okay, thanks very much.
Eric: Our next question comes from Reijer Lenstra of Smith Barney.
Reijer: A short question about the tax rate going forward, and a more interesting question perhaps is about the antibodies that you see arising against AVONEX and whether there is any information on what is cross-reaction with the antibody serum antibodies?
Jim Tobin: Let me take the antibody question. We are continuing, through our extension study, to develop data to address the antibody question. We have a new yardstick, a new assay, that we have great confidence in now. It's been validated, and we have gone back and reanalyzed the original trial data to recalibrate, and now we're going forward collecting data. We're up to a year now on our actual product in the marketplace. It's really still preliminary in the sense that it seems to take longer than a year for antibody experience to peak. So we need another couple of data points before we can say definitively the answer is x, But what I can say is, at this juncture certainly our data indicates that the percentage of patients who demonstrate antibodies is certainly no higher than the kind of low 20's number that we have talked about before, which is way lower than the Betaseron number. Also within that number of patients who demonstrate antibodies, there is a subset - a rather small subset actually - that have antibody titers that are likely high enough to be considered truly neutralizing activity. We need to get some more data before we feel comfortable putting the data out there. But that data is not far off and it's all heading off in the right direction.
As far as tax rate stuff goes, Reijer, would you mind calling Rick separately because this is complicated.
Reijer: I don't want to understand anything, I just want to have an idea of what the ongoing tax rate is.
Jim Tobin: That's still complicated, you're mixing book and real taxes together here, Reijer, as you convert some sort of accounting policies.
Rick Lundberg: I described the tax situation in the last quarterly conference call, and it's a long description. But very briefly, we're losing money, some small numbers in Europe, which offsets the U.S. profits. But we're still taxed at our U.S. tax rate on those U.S. profits. So you've got to consolidate those two, and it results in an apparent tax rate that's a slight bit higher than the tax rate here in the U.S.
Actually, during one of the questions I checked on Ed Hurwitz's question, and the tax rate was around 46, 47 percent for this quarter if you take out the tax benefit. Going forward into Q4, I would say it's around 43, 45, somewhere in that ballpark. After that, it's a whole other story.
Eric: Our next question comes from Kristin Gamble of Flood Gamble Associates.
Kristin: Can you comment on the length of time the prescriptions are covering and whether that's changed since the beginning and what the implication of that might be?
Ken Bate: Okay. Most all scripts are being written for one month as we see it, and we have not seen any change in the patterns, so the latter part of your question is, there's no implication that we can take away from that. The part that gets a little confusing from those of you who buy data is: what's deemed to be a new script versus what's a renewal? There, the data is really mixed up because of the managed care policies that sometimes require every month's script to be considered new. But I think you can safely assume that virtually all of the drug is being purchased in four-week increments as far as AVONEX is concerned.
Kristin: When might that change?
Speaker: I don't have any reason to believe it will change. I think it's becoming the policy of managed care to keep the scripts shorter rather than to allow one to buy three or six months. We also recognize that as a practical matter, we are not particularly encouraging patients to buy three or six months at a time because the drug does take up a little room in your refrigerator . So we're perfectly happy and will not be trying to get anyone to change the four-week cycle. You can get the drug through all our distribution channels delivered within a day, so there's not an issue of convenience or service.
Eric: Our next question comes from Angeli Kolhatkar of Weiss Peck and Greer.
Angeli: Hi. This is Angelie Kolhatkar. Just wondering if you guys have a sense of what percentage of patients are self-injecting versus having a friend or a family member or a health care person?
Ken Bate: If somebody back in Cambridge has a better answer than this, please add it. I can't be more quantitative than to tell you that the hunch is, Angeli, that first of all, a very, very high percentage are doing it one of those two ways. There are a relatively small number of folks going to a nurse or a physician. But within the larger group, it would feel like the great majority are self-injecting, caregivers and family members, neighbors, that number is probably relatively low. I don't know whether it's 20 percent or 15 or 25, but if feels like it might be in that range.
Eric: Our next question comes from Carrie Lehman of Zweig.
Carrie: Out of the $27 million for AVONEX sales, can you tell us how much of that was inventory filling?
Jim Tobin: Not much.
Carrie: Okay. Can you give us an approximate number?
Jim Tobin: Not really, we don't really know, but we do check on inventories. What we do know is that what's in inventory out there is slightly less than a month, and it's been going at that now since not long after launch. So in terms of turns, it's holding fairly steady, but as sales go up, that means of course that the units in inventory will go up a little bit. But it's not a significant number that would change that 27 to anything much different.
Ken Bate: Right. Carrie, there were no special incentive programs for anybody to build inventory or run them down. There was something within the quarter, but that washed out during the quarter.
Carrie: Great, thanks.
Eric: Gentlemen, that is the final question for this evening.
Rick: Okay, I think we're done. Thanks everyone for joining us. Again, I'll be available after the call, 617-679-2822, and I'll be here for the rest of the week. So, thanks a lot and we'll talk to you all soon.
[FIN] |
