Jazz Pharmaceuticals PLC (JAZZ) 2003 Q2 法說會逐字稿

Good *morning. My name is *Tracy, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Orphan Medical second-quarter conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be question-and-answer period. (CALLER INSTRUCTIONS) Thank *you. Mr. *Folkens, you may begin your conference.

Good morning and thank you for joining us today for the Orphan Medical 2003 second-quarter conference call. As Tracy mentioned, I am Dave Folkens, corporate communications department here at Orphan. On the line with me today we have John Bullion, CEO and Chairman of Orphan Medical; Tim McGrath, Vice President and Chief Financial Officer; Dr. Bill Houghton, who is our Executive Vice President, Chief Scientific and Medical Officer; and Mark Perrin, our Executive Vice President and Chief Commercial Officer. As Tracy mentioned a question-and-answer session will follow today's prepared remarks.

Before starting, please be reminded that this conference call may contain forward-looking statements regarding future events or future financial performance of the company, including without *limitation, statements regarding operating results, earnings per share, growth opportunities, and other statements that refer to Orphan Medical's plans, prospects, expectations, strategies, intentions, and beliefs. The forward-looking statements are based on information available to Orphan Medical *today, and the company assumes no obligation to update these statements if circumstances change. For additional information, please see the cautionary statements included in the most recent Form 10-Q or Form 10-K filed with the Securities and Exchange Commission. At this time I will turn the call over to John Bullion. Please go ahead, John.

Thanks, David. Good morning. Thank you for joining us. During the second quarter, we achieved several important milestones. We obtained the capital necessary to fund our business plan in a nondilutive manner. Second-quarter revenues were 4.3 million, a 20 percent increase over the second quarter of 2002. Xyrem contributed about 800,000 of these revenues, in line with our current expectations for the product. Importantly, the rate of growth in prescriptions increased during the second half of the quarter to a new level that has been maintained. In June, we participated in the world's largest specialty sleep meeting at which Xyrem received significant attention. During the quarter, more physicians prescribed Xyrem to more patients. We initiated patient recruitment in a second clinical trial to assess Xyrem in treating excessive daytime sleepiness and *narcolepsy, and we advanced discussions with parties interested in licensing Xyrem for international markets. But before going into these achievements in more detail, Tim McGrath will review second-quarter financial results. Tim?

Thanks, John. As we mentioned, revenue for this quarter ended June 30 was #4.3 million, a 23 percent increase from the 3.5 million reported in the second quarter of last year. We reported net income to common shareholders of 26 million or $2.11 per diluted share, compared to a net loss of 1.8 million or 17 cents per diluted share in the second quarter of 2002. Excluding the product divestments that occurred during the quarter, we had a net loss of 4.3 million or 41 cents per share. For the six months ended June 30, our revenues were 8.9 million, an increase of 25 percent over the same period the prior year. Earnings for the year-to-date period were 21.9 million or $1.80 per diluted share, comparing to a net loss of 2.9 million or 28 cents per diluted share for the first half of 2002. Again this is due to the divestment transactions that occurred during the quarter.

Net loss for the six months ended June 30, excluding the divestment activities, was 8.4 million or 80 cents per diluted share. As of June 30, we had over $30 million of cash availability including the line of credit. Our cash usage for the second quarter was approximately 3.8 million, down from the 4.5 million in the first quarter. I will now turn the call back to John.

Thanks Tim. As I said, Xyrem continues to be prescribed to more patients by more physicians. As of June 30, 2003, 716 physicians had written Xyrem prescriptions for 1,977 patients, a 30 percent increase over the level reported in May. Clearly the number of prescriptions written by each physician is increasing, indicating a greater level of acceptance by physicians. Out of the 1,977 prescriptions, over 1,300 have been filled and about 400 are being processed. Importantly, when examining the six-week period ended June 30, new prescriptions increased 57 percent over the prior six-week period of April 1 to May 15. This represents a new level of prescribing for Xyrem.

We were very pleased with the progress of Xyrem since the middle of the second quarter. We're finding that about 10 percent of patients don't fill their initial prescription; and about 8 percent of patients discontinue use after initiating therapy. Only 3 percent is due to side effects, and 1.5 percent due to lack of efficacy. Overall, we believe these data are better than or in line with use of other specialty medications used in chronic conditions.

The Associated Professional Sleep Societies meeting is the largest annual meeting of sleep specialists from around the world. In June, at June's meeting we sponsored a very well attended satellite symposium. We also had a large commercial presence for the first time and had extensive activity at our exhibits. We generated a substantial number of leads from sleep experts visiting our booth at the four-day meeting. Xyrem was discussed at a number of meet-the-professor sessions addressing narcolepsy treatment.

As mentioned, we significantly strengthened our cash position in a nondilutive manner with the divestment of Busulfex, Sucraid, and *Elliotts-B Solution. We will use the proceeds to fund the commercial programs and clinical development of Xyrem.

Looking forward to the second half of the year, we have several development activities that will potentially expand the use of Xyrem in other indications. We have two Phase IIIb clinical trials underway to evaluate Xyrem as a treatment for excessive daytime sleepiness or EDS associated with narcolepsy. The first trial, SXB-15, is 57 percent complete now; and patient enrollment in the EXCEEDS trial, our second Phase IIIb trial, was initiated during the second quarter. The successful completion of these trials remains a critical objective of the company, and we intend to compile the data from both trials and submit a supplemental NDA in the middle of *2004 in order to expand the labeling and the usage of Xyrem. We believe that Xyrem is first-line treatment for cataplexy and holds the potential to be the foundation for effective treatment of all the symptoms associated with narcolepsy.

We have a scientific advisory meeting scheduled for designing an appropriate protocol in order to *initiate a proof of principle trial evaluating Xyrem in the treatment of fibromyalgia. We plan to begin this trial in the second half of the year. Fibromyalgia represents a significant market opportunity for Xyrem, assuming the results of the trial are positive.

We also plan to meet with the FDA in the third quarter to discuss the development of Butamben which holds intriguing potential in the management of intractable cancer pain. We are in discussions with companies interested in licensing Xyrem for registration and subsequent marketing outside the United States. We are evaluating the best strategic and operating fits, and hope to reach agreement with a European partner in the next several months.

We continue to expect our 2003 revenue to be in the *$15 to $18 million range, including our guidance for Xyrem revenues of 4.5 to 6 million. We anticipate that total fourth-quarter revenue will be 10 to 15 percent higher than third quarter, and that Xyrem revenues will grow at a faster rate. Our development spending is expected to increase in order to support *trials and insure that we are doing all we can to successfully complete the ongoing trials. Given our current expectations and development plans, we expect current capital along with proceeds from international licensing of Xyrem to be sufficient to fund operations at least through 2004.

We made substantial progress during the second quarter in focusing our business on sleep disorders, pain, and other central nervous disorders that are treated by a physician specialist. I will now turn the teleconference back to the operator, who will poll for questions.

(CALLER INSTRUCTIONS) *Our first question comes from Chad Zimmer (ph).

Good morning, *John. Good morning, Tim. Just looking at the revenue number, I'm assuming there was some Busulfex revenue in there. Can you break that out for us?

The Busulfex revenue in the second quarter was about 1.5 million, 1.4 million.

Okay. Just so I have a clear understanding, when you say that 1,300 prescriptions have been filled, but then basically based on last quarter's roughly $1000 price per prescription for the quarter, that would mean that you're recognizing revenue on 800? If it is 800,000. Is that right thinking? I'm just curious. If you had 1,300 prescriptions that got filled in the quarter but there was 800,000 in revenues, that would imply a lower price per prescription than I was looking for.

Right. Mark, you want to explain?

I can go back and look at the details. Because these prescriptions are obviously being filled throughout the quarter, you're not going to be seeing the full revenue. Each patient is going to bring on an annual basis the over $5000 per patient. So you just have to look at the timing of when those scripts get filled.

Don't *forget, Chad, that each new prescription involves a titration period, from the patient started at 4.5 grams per day dose; and then either increased, titrate up or down, according to performance with the drug.

Are the titrations, at least for the patients that were prescribed in the first quarter, are they currently titrating up?

Yes. They are. They are moving forward, but they are certainly going up on an average basis. If you recall, the number we assume that most patients will gravitate towards is about 6.6 grams, which is what we saw in the treatment *R&D program.

Great. Thanks.

*Your next question comes from Steven Abernathy.

John, help me with some of the descriptions of the EXCEEDS trial. Can you help us with percentage enrollment and description of the end-points?

Actually I will ask Bill Houghton to address that.

Enrollment has only just commenced, we have got *[inaudible] patients enrolled in the trial now, so it is early days. But end-points, our comparison of the response of four groups of patients. Patients are assigned after a baseline single-blind leading (ph) period to either Xyrem alone, placebo alone, modafonil alone, or Xyrem plus modafonil. All of those *are blinded medications. So it is truly a *double-blind, double-dummy trial. The primary assessment will be the maintenance of wakefulness test at the end of an 8-week treatment period. The principal aim is to assess, for the first time ever, whether Xyrem alone has an effect in daytime sleepiness; or whether it is only by supplementation of the activity of stimulant drugs. And of course we already had background data on the combination of Xyrem with stimulant drugs, because in our original NDA all of the patients were maintained at unchanged dose of stimulant medication. So, the primary endpoint is excessive daytime sleepiness, with the objective measure of a maintenance of wakefulness test, along with the subjective measure of the Epworth Sleepiness Scale. And by comparing the three groups with placebo, we will be able to determine whether Xyrem and modafonil are in actual fact additive or synergistic.

Bill, describe the patients as they get enrolled. Who are these patients?

They are patients with a bona fide diagnosis of narcolepsy requiring a polysomnogram in the last five years, followed by a multiple sleep latency test; so they will have objective measures of a small or short sleep latency, less than five minutes. They require a history of excessive daytime sleepiness every day for at least six months, with frequent sleep attacks included. So it is truly the strictest diagnosis of narcolepsy. The difference with this trial is that we don't have an obligatory presence of cataplexy in these patients.

One more question. Are these patients refractory to any other treatment regimes?

No. To enter the trial they have to be patients on modafonil. So they are truly diagnosed narcoleptic patients requiring modafonil, or requiring stimulant therapy for daytime sleepiness. And to limit the variability we have chosen a single stimulant; and since modafonil is the market leader, we have chosen modafonil as that stimulant.

Last question on this matter. Is it your hope that at the end of this study that the labeling will be as you described it? It sounds unlikely to be a broader label than that.

That will certainly be an area of negotiation depending on the outcome of the trial. We have certainly discussed with the FDA, previously, the significance of primary efficacy in daytime sleepiness. If truly Xyrem alone changes daytime sleepiness, we could make the proposal that it be indicated for the treatment of narcolepsy. There may be an alternative, though, that continues the indication for the reduction of cataplexy in narcolepsy and for the treatment of daytime sleepiness. If, however, the drug works primarily as a supplement to stimulants, the indication would read very clearly that.

Thank you. I will get back in line.

*Your next question comes from Elmer Cairo (ph) .

Good morning and congratulations. John, I had a question on this encouraging trend of, I think, it is *57% increase in total scripts written in the second half of the quarter versus the first half. Is this correct?

Yes, that's right. The increase in the half quarters, -- as you know we are reporting the prescription levels in half quarters to half quarter. The second half of the second quarter increased by 57 percent over the first half of the quarter.

Okay. Now, assuming that you would meet just the conservative range of your guidance for the year, that would be about $4.5 million. We would expect sequential increases of about 60 percent in Xyrem scripts quarter-on-quarter in the third quarter and fourth quarter respectively, which is roughly the same sort of rate that we experienced in the second half of this quarter. Is this again the right way of looking at it?

I'll ask Mark to address that. But, no, because again we are looking at in essence a rate of change that was at 57 percent. We basically have reached another level of prescribing. We would expect those levels to increase, but we would not expect to see the 60 percent on a quarter by quarter basis. Mark, do you want to elaborate?

I think we are very very encouraged by that big jump that we saw in the second half of the second quarter; but I don't think that it is realistic to expect that is going to be sustained. But it is going to certainly drive nice incremental revenue, because again this product, where the real benefit of the revenue increases come from as these scripts get refilled, and the sustaining revenue you get from a patient. But the rate of the increase was not likely to hit those kinds of levels. But it brings us again to another level of prescribing. And our models suggest that it would continue to grow at a reasonable rate for the balance of the forecast period.

Okay. Thank you very much. One more question on the discontinuation rate. I noted that it slightly increased from 6 percent to 8 percent. And while the *rates due to the side effects remained the same, 3 percent, and the lack of efficacy, I think, it was 1.5 percent. What is the remaining percentage due to? Do you think that this is just noise *here, and we should not pay attention to this slight increase?

Right. I think that's right; it is just generally noise. The side effects and the *patients' view that the product is not effective are the two keys that we watch. And as you pointed out, together that is 5 percent of the 8 percent. The final 3 percent is really a whole range of issues. Patients decide for cost reasons, or their insurance plans change, their copays change. There are a whole variety of reasons, that no one in particular is of any significance.

One last question. If you could please comment on your anticipated cash usage in the second half of this year and in 2004? I'm just trying to get a sense of how should we estimate a potential license fee for an international *partnership with the fact that you have 30 million in the balance sheet now?

As we have talked about before, the general structure of the licensing arrangement will have a series of milestone payments, from the execution of the agreement up through and beyond the registration and approval and marketing of the product in *Europe. The initial upfront payment, combined with the cash availability of roughly 30 million now, will last through and beyond the end of '04. I think a reasonable cash usage going forward is going to be, probably until the Xyrem revenue starts increasing, is going to be probably in the neighborhood of 4.5 to $5.5 million for the next couple quarters.

4.5 to 5.5 for the next couple of quarters. The very last question is, do you still anticipate to close a deal mid ' 03?

As I said in my remarks, we would expect really to close the deal now over the next several months. And the reason for that is, obviously, we focused our attentions on the divestment of the products that generated the capital. Frankly, that action allowed us to make sure that we were finding the right partners and negotiating the best deal with those partners. So the time pressure so to speak to close the deal has been *reduced, and we're really focusing on doing the best deal we can there.

Okay. Thank you very much.

*Your next question comes from Andrew Forman (ph) .

Hi, gentlemen. Great quarter, great progress. Most of the specific questions have been addressed. Let me ask a bigger picture question. It has been one year, I believe, this week, since FDA approval. Is that right?

That's right. We should have noted that as well. Thank you for pointing that out.

As you reflect upon the past year, John, Mark, Bill, Tim, what has been different about the experience, I guess particularly Mark, in terms of the market adoption of Xyrem? Given it clearly was a unique marketing challenge. And what tactics are changing going forward, based on what you have learned? Whether it was from pricing, target markets? You addressed some of this before; maybe you can go to another level of detail. Reimbursement?

And then Bill, on the PROCEEDS trial, is there anything different that you are doing on the study to try to maximize the potential of Xyrem? And the last question on the international deal, is it fair to say that since the balance sheet needs near-term have been addressed, are you looking to get a higher split of sales than you might otherwise have pursued? In other words will the economics be more favorable to Orphan? Thanks.

You want to take the first part of that, Mark, which was what we have learned?

That probably would take several hours, I think. Let me try to capture maybe some of the key points. I guess the first thing I would say is about our target audience and our customer base. It is interesting; I think that it does not follow, I think, the kind of standard 80-20 rule, where 20 percent of the physicians treat 80 percent of the patients. This is a very diverse group of customers. And I think one of the things we realized in launching a new sales force into a new market was just the time it takes to really understand referral patterns, and the wide range of specialists involved in the treatment of sleep medicine, and where those specialists themselves stand on the learning curve, both on narcolepsy and in their understanding of sodium oxybate. So, a lot of interesting things I think we have learned about our customer base.

Secondly, which is related to that, to the point that many of these physicians are on very different learning curves, is because the history of GHB and sodium oxybate is so unique that I think the time it is taken, the frequency to calm these physicians, and get their comfort levels, and get their experience base is such where they feel comfortable, and truly see the profound impact this has on patients, is longer than what you would typically see in other therapeutic categories. Even in new categories where you're really learning about a new -- where you are creating a category. This history on this product has really taken a lot of time to walk physicians through. And certainly it's taking time for both our organizations, all physicians, through our patients through that. Patients have an extraordinary amount of questions on this medication.

So I think those are two of the big lessons we have learned on the product from the commercial perspective. I also think that, not that we learned it, but I think it was very much validated that this requires a very important element of medical education. Which I think speaks to the second; but we kind of knew that going in. But every time we have done medical education, every time we go to APSS and work with the medical societies on disseminating information in this area, you can clearly see there is a huge need for it and response to it.

If I can interject, with more cash in the bank, if you go to Tim and say, (inaudible) all this money, do you have a sense *that if you were to increase the promotional budget based on what you have learned in the last year, that you are confident that you could deliver greater acceleration in Xyrem uptake?

We've done two things. One, we have certainly shifted. I think we have shifted a lot of resources from maybe more traditional promotional platforms into more specialized programs, specialty medical education area and peer-to-peer patient-related initiatives, things like that. We have realigned our investment to where we think those areas are most responsive.

In regards to the sales force itself, as we generate a lot more intelligence relative to our customer base, we are in fact currently examining our deployment frequencies, etc., and make sure we are optimized from the sales force, both size level and their alignment.

Are you planning to expand in the second half of this year? And remind us what the size of the *sales force is currently.

It's a group of 36 people out there; and we have made no decision on increasing it. But we're certainly looking at what we have got now. And also in working with our consultants on *sales force deployment, we're also obviously very cognizant of EDS data. It goes to the marketplace. And as the approval comes through from the agency, we will clearly need to look at our *sales force size.

Are resales about what you expected, better or worse? And what are they now?

There are three components we're looking at, and obviously the more data we get the better we are in understanding. There is this issue of *disenrollment, and that is the patient who elect not to have their initial prescription filled. That is not uncommon, certainly. There is the discontinuation rate. And then there is the compliance rate on refills, which is still running quite strong. I would have to say 80 plus percent; and we define that as a patient coming within seven days of their scheduled refill.

Andrew, would you met mind repeating your question around the EXCEEDS trial for Bill?

I got it.

Fire the same question at Bill, what have you learned since FDA approval? And how are you thinking about designing the trials so as to get the most out of it?

Andrew, let me make a couple of global statements before I address the trial. I think the first response is that I am very gratified that we have had no surprises. As you are aware, we filed a reasonably small database of 500 patients. And there is always potential to learn new things about the drug once it is commercialized, with the extended use. Certainly the side effect profile reported to date has not produced surprises. It's certainly within the distribution that was seen in the clinical *trials, as is the efficacy. We receive very heart-warming patient accounts of response to the drug. And a discontinuation rate of 1.5 percent due to lack of clinical responses. Again, very gratifying. So, in overall terms, the performance of the drug is as we would have expected it to be.

None of that has therefore changed our requirements of the EXCEEDS trial. That protocol was actually designed at about the time of launch. And in retrospect, there is nothing there that I want to change. What it really seeks to do is to, as I mentioned previously, assess whether Xyrem has an independent effect on daytime sleepiness. The SXB-15 protocol absolutely consolidates in blinded randomized session and with parallel group design -- what we feel we have strong indication for in the database that we *have, except that we have added the objective measure for daytime sleepiness. We have strong assurance that the drug works in conjunction with stimulants to improve daytime performance in patients. We needed the objective data. And the SXB-15 trial will absolutely consolidate that. However, it is still in conjunction with stimulants. Because in that trial we cease the anticataplectic drugs.

So if we look at what SXB-22 or the EXCEEDS trial adds to our database, it really creates the potential for establishing Xyrem as first-line treatment. We've got secure efficacy data for cataplexy. We've got very secure data for sleep architecture. And after all, it is a sedative hypnotic drug; so the consolidation of the fragmented nighttime sleep in narcoleptics is not something that we have to sell strongly. People accept the drug as a sedative hypnotic property.

What we really need to do is establish a database that shows efficacy of Xyrem independent of stimulants, to be able to propose first-line treatment. If we do that, with the EXCEEDS trial, we really have a full hand, if you like, to be able to propose Xyrem as first-line treatment for *narcolepsy -- to which stimulant medications could then be added in a stepwise titration to maximize or optimize the treatment of daytime sleepiness. So it becomes a very important new aspect of the database.

And of course in association with that, it adds the first database that demonstrates the safety of the drug without stimulant medications. And the FDA did have suggestions that maybe stimulant medications were protective of Xyrem, which is not supported by our understating of its pharmacology or the kinetics of the stimulant drug. Because after all they are taken in the morning to stay awake during the day; and Xyrem is taken at night to have its daytime effects. But it will therefore formalize that safety profile in one group of those patients. And it's designed as 50 patients to complete the trial. So it becomes a significant database of Xyrem alone, to which we will then be able to add to the number of patients in our existing database that happened not to be on stimulants because of side effects or lack of response. If we go back and look at that segment, it was 20 percent of our existing database, so by integrating and doing subset analyses there, we will maybe have a very secure comparative safety profile of the drug independent of stimulants.

The third part of your question had to do with the negotiation for international rights to *Xyrem; and you asked whether we might backload it more now, given that we -- given our new cash position or capital position. I think the answer to that is it certainly allows us to be more balanced in our approach. We are still negotiating the three components that Tim mentioned, the upfront fees, the milestone fees, and then the royalties at the back end. Those, I think we will see how the mix turns out, but certainly it does allow us to have more flexibility in those discussions.

Have you zeroed in on the desired partner or you still have --

Yes, we do have the discussions down to a very focused short list of partners, and we are actively negotiating and going back and forth with them at this stage.

Congratulations on a great first year.

Thank you. The other message I would like to follow up with on your comments, because I think they are important, is the first year here has been very important in establishing Xyrem as Mark described in the marketplace, and then taking the next step that Bill was describing as expanding the near-term potential of Xyrem or the treatment for more of the symptoms or are all of the symptoms of narcolepsy. And then beyond that, we feel very strongly that sodium oxybate, i.e. Xyrem, has quite a bit of potential in other *indications; and we are going to be moving those activities forward. We mentioned the proof of principle study in the fibromyalgia that we intend to begin the second half, and we are finding other opportunities that we will explore as time goes on.

Thanks.

*Your next question comes from Ernest Anberg (ph).

Good morning, John and all. Can I go back to the top-line for a minute and make sure that I understand what you are saying about the trends in prescriptions out there? You reported as of 3/31 that you had had 1250 prescriptions approximately. In mid quarter, you said 1500 approximately, and at the end of the quarter 1977. My math says that that is almost a doubling of scripts in the second half of the quarter versus the 57 percent that you're talking about. Am I missing something there?

The numbers -- what I am looking at, Ernie, is the 1250 to 1532, that first six-week period was about 280 scripts, new patients who had been prescribed. And then the last half of this second quarter was close to 450.

The difference probably is in the 1532 then? To make the math straight, Mark?

I think what you're getting at, Ernie, is that there was about a 450 increase in --

-- in the second half.

Right. Yes, you're right, we were looking at this on a reported prescription level, a reported prescription level.

John, you said at the beginning of your comments that you were encouraged by the level of prescriptions added in the second half of the quarter. I think if I look at what I wrote down quickly, the prescriptions are being maintained. Does that mean that you're running ahead at a rate of the 450 per half quarter kind of thing? Is that what you said?

We really look at it on a weekly basis, *obviously; and we've always got to be careful we don't get lost in the trees. But when we step back and look at it, we have really seen a very nice increase in the rate of weekly prescribing, but also which obviously translates that it's in a nice step-up in the half quarter to half quarter of level of prescribing as well.

But that's what you mean by the level of prescribing is being *maintained. It is being maintained at the second half of the quarter kind of rate.

Right, that's correct. We're seeing the same level maintained, frankly, in the beginning of the third quarter here.

That suggests that exiting the end of the year if trends continue, you may be at a higher rate than you thought three months ago?

Not necessarily. It's encouraging. We'll watch it and see how it plays out over the next couple of months, obviously. But our algorithm, if you will, our plan, our schedule had in it an increase in weekly and biquarterly *prescribing; and we are very pleased that we have seen that come into play according to schedule.

Okay. By subtracting the 1.5 million -- $1.4 million of Busulfex revenues in the second quarter suggests a run rate of Antizol somewhere probably just under $2 million because you had some other revenue in there, too. Do you think that can be maintained on a go-forward basis?

That includes some Cystadane sales as well. But yes, we have said in the past that we would expect that to be fairly flat and sustained.

The 1,300 prescriptions that you have filled at your minimum scrip rate of $4000 suggests a potential revenue for Xyrem in the third quarter somewhere in the midrange of a million 2, a million 3. Is that the kind of expectation that you have? To get us to the 15 million at the bottom end of the range?

In that general range. Yes.

Okay. That helps. Thank you much. I would like to ask one question on the spending side of it. You have indicated $3 million in the next two quarters, roughly, of R&D spending.

Yes.

Sales and marketing spending, do you believe it will run approximately where it ran in the second quarter? Or should it increase?

It's going to go up a little bit.

SG&A down at about 1.5 million a quarter?

Yes.

And that is where you come to your $4.5 to $5 million of burn rate in the next two quarters.

That's right.

Thank you.

*Your next question comes from Dallas Webb (ph) .

Good morning. I know you have already hit on this, but as far as the international partnership timing, I understand that your balance sheet gives you a little bit more leeway right now; but would be fair to say you're looking to have a deal closed by year end?

Absolutely.

Okay. Can you expand a little bit on the fibromyalgia trial? As far as can you give us any insight on the design, number of patients, length, and approximately how much money you're planning on allocating toward it?

They are difficult questions to answer at this point in time. It is a disease where most of the measures are subjective. That is why we have chosen a very appropriate scientific advisory board. We would like to reduce the considerations of measurement out points to declare one a primary efficacy measure; and then we will obviously do a power calculation according to that primary efficacy measure to determine the number of patients. But in very broad terms, we are thinking of a 200-patient trial that *lasts for three months.

The efficacy measures will certainly include pain response, patient global assessment of their symptom response. We will look at some objective measures, such as the sleep disturbance that has been characterized in fibromyalgia, and we may well extend that to some property *function testing. So we will make it as broad as we can, but certainly declare a primary efficacy measure so we don't impose statistical considerations with multiple measures.

Okay. The cost of this trial has already been factored into your guidance for the rest of this year?

Yes.

Okay. Thank you.

*Your next question comes from Brian Lester (ph) .

Good morning. Can you tell us what portion of the 2,000 or so Xyrem patients you believe are being prescribed for off-label usage?

Mark, you want to address that one?

Sure. I think from what we have seen in the databases, and it is not a complete database, obviously, since we don't get diagnoses on all *patients -- but we estimate it is running around 10 percent at the current level. That is 10 percent outside *narcolepsy, because certainly when prescriptions come in and they're written for just either narcolepsy or sometimes they are written for *cataplexy. It is not always certain whether it is excessive daytime sleepiness, or excessive daytime sleepiness plus cataplexy. But probably 80 to 90 percent on the narcolepsy area; and then 10, maybe as high as 15 or 20 percent off label.

Okay. Can you just reiterate what was the average titration in grams? And how much price for Xyrem in the second quarter?

I think that when you look across our total patient population, I think it was running slightly over 5 to *5.5 because we're getting so many new patients coming in at low 4.5 gram dose. We don't have those people titrated up to what we anticipate, as I said earlier, the 6.6. But it is in the 5 to 5.5 probably on average across all patients.

Was there any progress in the patients who were at 5.7 in May 16th?

As far as?

Have they reached 6.6 yet, or are they at a 6.0 level?

We continue to see on average things are moving up. Again it is hard to tell, because of the mix. And compliance issues do play into this. I think we are continuing to see progress. And the 5.7 is the number from May 16th that we stated? Yes. Then I think we must be up higher than that on those patients who were already there, because we're seeing the overall trend improve.

Just finally, what is the average length of time from when a sleep specialist first prescribes Xyrem to when the patient would receive his medication?

About 60 percent of patients are getting it within 14 days; 70 or 80 percent are getting it within 30 days; and then you have got this group of patients that are taking quite a bit of time to get through their insurance system.

Okay. Thank you very much.

*Your next question comes from Steven Abernathy.

Just a quick follow-on. Firstly, do you plan to continue the mid quarter updates?

Yes.

For the rest of this year, hopefully?

Yes.

Okay. Secondly, does the Xyrem have -- help me with the -- I understand titration is increasing over time, as expected. However I am having a hard time calibrating that to dollars per year per patient. Can you help me understand what gram level needs to be obtained before we can get to a $5000 per year patient fee?

6 grams get you $5000 per year if they are 100 percent compliant.

Understand. Okay. Along Brian's last question, the lag between -- I'm having trouble sort of getting my arms around -- the new physicians are up 30 percent. New scripts are up 26 percent. I'm wondering if there shouldn't be an exponential or a multiplicative sort of relationship there instead of a linear relationship? Does that happen at some point? As one doctor initially --

You are really referring to how many scripts per doc are we seeing. I think what we saw in the second half of the second quarter, for the first time, was both things kicking in. Which is, to address your exponential, that we saw the existing prescriber base increase their level, as we continued to bring new doctors on board. So we had this nice, very nice step jump in weekly prescriptions, as John mentioned earlier, has been sustained.

In quantified terms, we are seeing each doctor start to add patients. Is that what you are saying?

Right, and that's what we referred to last quarter. We talked about how the average, when you work out the number of patients, it was pretty obvious that new physicians who are new to Xyrem were typically writing a prescription for a single patient, seeing how that patient performed. And that was taking a couple of months or more. And we anticipated through market research that these doctors would, once they're comfortable with the drug and how their patients were doing on Xyrem, that they would expand usage to other cataplexy and narcolepsy patients. And we believe this add is beginning to happen now.

Real quick follow-on. The average beginning dose now, is it still around 4 grams or is that starting to (technical difficulty) up also?

That is in the label; it is 4.5.

Okay. Thank you, sir.

At this time, there are no further questions.

Great. Thanks very much for attending today's meeting. We look forward to updating you as time goes forward and having our third-quarter call with you.

This concludes today's conference call. You may now disconnect.