Jazz Pharmaceuticals PLC (JAZZ) 2004 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Orphan Medical Third Quarter Results Conference Call. (CALLER INSTRUCTIONS)

As a reminder, this conference is being recorded Wednesday, October 20, 2004. At this time, I’d like to turn today’s presentation over to David Folkens. Please go ahead, sir.

Thank you, Andrew. Thank you, everyone. Good morning and thank you all for joining us today for the Orphan Medical third quarter 2004 results conference call.

On the line with me today we have John Bullion, our CEO and Chairman of Orphan Medical, Tim McGrath, who’s VP and CFO; Mark Perrin, our EVP and Chief Commercial Officer, and Bill Houghton, our Chief Medical and Scientific Officer.

As Andrew mentioned, we will have a Q&A session, which will follow today’s prepared remarks.

But before we begin, I do want to remind you that this conference call may contain forward-looking statements regarding future events and future financial performance of the Company including, without limitation, statements regarding operating results, EPS, growth opportunities, and other statements that refer to Orphan Medical’s plans, prospects, expectations, strategies, intentions, and beliefs. These forward-looking statements are based on information currently available to the Company and we assume no obligation to update these statements as circumstances change. For additional information, please see the cautionary statements, including the most recent Form 10-Q, or Form 10-K, filed with the SEC.

With that, I will now turn the call over to John Bullion. Please go ahead.

Thanks David. Good morning. Thank you for attending our third quarter conference call.

We had a strong third quarter. Product revenues set a quarterly record of $6.7 million with total revenue, which includes royalty and licensing payments reaching $7.1 million. This is an increase of 138 percent compared to $3.0 million of total revenue in the third quarter of 2003.

Because of the strong third quarter performance, we’ve raised our total revenue expectation for the year to the $23 to $24 million range and our product revenue should be about $21 to $22 million of that total. Each of our products - Xyrem, Antizol, and Cystadane - contributed to the strong quarterly growth.

Xyrem revenue increased during the quarter to $3.1 million, an approximate 37 percent increase compared to the second quarter of this year and nearly a 175 percent increase over the quarter ended September 30, 2003. During the quarter, 8,171 prescriptions were filled and over 1,900 physicians have now prescribed Xyrem.

As prescribing of Xyrem has increased, the use of Xyrem outside of cataplexy and narcolepsy has also increased. This wider use indicates that more and more physicians are familiar with Xyrem and feel it could have efficacy in other indications. Obviously we’re equally intrigued by these possible indications and are evaluating indications that may increase Xyrem’s commercial potential.

Usage in certain of these other indications, however, is intermittent and/or short-term, whereas optimal use of Xyrem for cataplexy and narcolepsy involves nightly administration. The change in usage patterns has affected Xyrem refill rates and we’re adjusting our Xyrem revenue expectations for this year to be $10.5 to $11 million. We continue to estimate that the total available market for Xyrem in narcolepsy is about $250 million. Any other indications would, of course, represent additional market opportunity.

Antizol and Cystadane revenue for the quarter was $3.6 million, an increase of approximately 81 percent, from $2.0 million for the same period last year. Antizol in particular continues to impress with its strong performance. Over the past several years, we’ve established it as the standard of care for ethylene glycol or antifreeze poisoning or methanol poisoning, given its efficacy and relative ease of use. It is now used in treating at least two-thirds of these poisonings.

As you know, we announced very positive SXB-15 trial results in May. The trial demonstrated that Xyrem significantly improved Excessive Daytime Sleepiness (EDS) incrementally beyond stimulant use, reduces cataplexy attacks, has a profound affect on sleep architecture, reduces nighttime awakenings, and provides a major improvement in functionality during the day.

We recently announced positive results in our EXCEEDS or SXB-22 trial, which showed that Xyrem alone had a statistically significant impact on EDS compared to the placebo group, and that Xyrem and modafinil worked better together than either modafinil or Xyrem alone.

Together, these two trials strongly support the use of Xyrem as first-line treatment for narcolepsy and we’re preparing a supplemental NDA to request the FDA’s approval to market Xyrem as a treatment for narcolepsy. Submission of this sNDA should occur around the end of the year.

Bill Houghton is with us this morning and can discuss other aspects of the trial during the Q&A session.

The Proof of Principle trial to evaluate Xyrem in treating symptoms of Fibromyalgia Syndrome is off to a good start, with the patient enrollment growing nicely. Fibromyalgia is a chronic disease that affects over 4 million people in the United States and represents a market opportunity in excess of $1.0 billion dollars per year.

This trial will be conducted at approximately 20 centers, with 150 patients using a placebo and two doses of active Xyrem. This is a double-blind trial with an 8-week treatment period. The primary endpoints include patient improvement as assessed by the patient; standardized measures of pain and functionality as measured by the fibromyalgia impact questionnaire. Secondary measures will assess sleep, fatigue, and quality of life. Our plan is to complete the trial and announce top line results in the second of 2005.

Turning to our financial position, we had a net loss of $1.7 million in the quarter, or about $0.14 per share, compared to a net loss of $5.4 million or $0.50 per share in 2003. Due to the strong revenue performance, lower expenses and cash inflow from stock option activity, cash burn during the quarter was less than $0.5 million, at $0.4 million.

We ended the quarter with approximately $14.8 million in cash. With anticipated cash inflows from milestone payments and growing revenue levels, we’re forecasting that we have sufficient capital to take us at least into the second half of 2005.

The EU approval process is moving along well and we anticipate regulatory approval in Europe by the middle of next year. UCB Pharma has now completed its acquisition of Celltech and remains very committed to introducing Xyrem into the European market.

I’ll now turn the teleconference back to the operator and we’ll open up the Q&A session. Andrew?

Thank you, sir. (CALLER INSTRUCTIONS) Ernest Andberg, Feltl & Co.

Good morning.

Hi, Ernie.

Hey, just some questions on some of your comments, John. I see there’s obviously an increase in number of shares. How many -- what’s the share count at the end of Q3?

Ernie, its Tim. The actual shares outstanding are 11,423,000.

What was the option exercise in the quarter, roughly?

300,000 shares.

Thank you. On your cash flow projects or comments, what kind of milestone payments are you, in general terms, including in your thoughts on cash availability through the middle of next year?

There’s probably two milestone payments that are going to impact the next 8 months and that would be a milestone payment related to our filing of the sNDA here in the United States and there’s another milestone payment related to the approval of the product in Europe.

Can you give us a general idea of what those milestones could be relative to the $14.8 million of cash you’ve got today?

Yeah. They’d probably get -- in total they would be in the $3.0 million range, Ernie.

Thank you. You still have the bank lines in place. Is it $3.0 million?

Yes. We still have the bank line of credit in place through the end of this -- we just renewed it through the end of September of next year.

Is that still $3.0 million?

Total availability, actually, this year, we have an opportunity to increase it as our receivables go up to as much as $4.5 million.

Thank you.

Yeah. Again it’s an AR, a tied (ph) AR, of course, Ernie.

Yes. One last question and I’ll let somebody else get in line here. Operating expenses in the quarter were obviously - obviously or seemingly - lower than you expected after your second quarter report. Where can we expect those to go from here?

Operating expenses are going to increase in the next couple of quarters, related to the crescendo of activity for the sNDA filing. They’re also going to -- in the development area they’re going to continue to ratchet up as the fibromyalgia enrollment continues to go up. I would expect the development expenses to be in the $3.5 million range in the fourth quarter.

S&M was a little bit lower than we anticipated in the third quarter, but that’s primarily because the big medical education push related to the data from both SXB-15 and SXB-22 is really going to kick off here. It is in the process of kicking off right now, as those programs are really moving, increasing in number, over the next several weeks.

Okay, so it’s timing rather than when you spend the money.

Yes.

Rather than you’re going to not spend it.

That’s correct.

Okay. That’s good for me. Thank you.

Chad Simmer, Miller Johnson Steichen Kinnard.

Good morning, John.

Hi Chad.

In terms of the fibromyalgia study, the results coming out in the second half, how many centers, I guess right now, are active is my first question? And then based on everything I’ve been able to find, there’s seems to be a lot of patients that obviously don’t have a treatment, because there isn’t one. That seems like a long time to get 150 patients enrolled, given the circumstances of the disease.

Yeah, don’t forget that there are kind of three components to a trial. I’ll turn you over to Bill in a second, but you’ve got to enroll the patients, all those patients have to go through the pretreatment and the treatment period, and then you have to analyze and assess the data. You have to collect the data and then analyze it -- compile it and analyze it, so it’s a long process.

But Bill, do you want to expand on that?

Sure. We’ve got 26 sites signed up now. We’ve got 8 of those with IRB approval and in those 8 sites there’s very active patient enrollment. We’ve got another 6 sites being granted IRB approval this week. So they’ll start enrollment and still the plan is to complete enrollment very close to the end of this year.

However, it’s a study that can take 14 weeks to complete, with the period between each visit as a maximum, because that’s got to be included in sleep center scheduling for their sleep studies. John was right. If the last patient’s first visit was by the end of the year, that means we’ve got that last patient’s last visit in April next year. Then all the data’s got to be collected and entered. The database has got to be QA’d before the blind is broken and analysis process would obviously take a few weeks and we would be looking at that data very carefully before we made the announcement.

All right. Oh, because I thought -- did you say it was 8 weeks then or 18 weeks?

Well, it’s an 8-week treatment period, but there’s a screening period, then a washout period where the patients are removed from their other drugs, etc. So the total trial period is longer than 8 weeks. It’s actually a minimum of 8 weeks treatment period.

Okay. That clears it up for me, thanks. And then in terms of the -- 1,900 physicians have written prescriptions. Do you have an idea of how many of them -- I mean, are they all still writing prescriptions? What is really your, like, active base of physicians writing prescriptions.

Good question. Yeah, we’ve actually been looking at that. Mark, do you want to address that?

There are a number of physicians that have written just once and not been active after that. But that number is diminishing. In fact, the breadth of prescribing per physician continues to increase. On average it’s been about 5 scripts per physician, although this drug, like most drugs in the marketplace, does follow the 80/20 rule where those top 20 percent of the physicians are a good portion of the business.

But our breadth and depth of prescribing continues to increase nicely.

Thank you.

Aaron Reames, Stanford Financial Group.

Hello everyone and congratulations on a good quarter.

Thank you.

I had two questions. The first one I wanted to -- I wondered if you could address what indications outside of narcolepsy you’re seeing prescriptions right now?

Sure. Yeah. Actually, we’ve been tracking that, and as I mentioned in my comments, certainly that’s one of the things that’s changing the usage pattern here. But, again, I’ll let Mark comment on that because he’s done quite a bit of work looking at that.

Thanks, John. We collect the data and diagnosis a couple different ways and it’s still going to be a sampling. There’s no universal database that has every diagnosis in. And the diagnosis outside narcolepsy is ranging anywhere from 30 to 50 percent and within that off-label prescribing, we’re seeing 3 primary areas of prescriptions - 1) fibromyalgia, 2) hypersomnia, and 3) insomnia. So those are the 3 that make up the largest portion of off-label, outside narcolepsy prescribing.

Okay, great and then I wanted to find out what education programs you’re undertaking with sleep specialists.

I know that when patients first get on Xyrem, the first one to three nights can be very traumatic for the patient, just because there’s some dizziness and disconnected feelings. And when the patients call the Xyrem Success Program, they explain the process that it’s the first time the patient gets full sleep and it usually goes away after the two days of usage. But they’re hearing a different story from the sleep specialists.

I was wondering how that’s effecting prescribing habits and then also what you’re undertaking to educate the sleep specialist community?

Why don’t we break that up into two answers? One, I’ll let Bill address your comments about the first few nights of experience and then I think we can turn it over to Mark for the balance of the question. Bill?

Yes. You’re correct in a way, in that some of the symptoms do tend to occur at the beginning of treatment and accommodate with continued treatment.

But they are dose-related and if prescribers follow the current recommendation of a 4.5-gram commencement, there should be a relatively low incidence of side effects like dizziness, confusion. Certainly nausea and vomiting, in all of our blinded studies, is pretty low at the 4.5-gram dose. It’s certainly not zero, but it’s significantly low.

The second part of your comment is also partially true. If a fragmented nighttime sleep is part of their primary presentation and one of their major complaints, they may not achieve consolidated sleep at the 4.5-gram dose. And again, the recommendation is for dose titration to the most appropriate clinical response.

But if they’re not having the consolidated sleep, they’re not likely to feel spaced out and have problems with their perceptions of nighttime sleep. The only perception that they’ll have is that it hasn’t improved, as they would have perhaps liked. So that’s an educational process and we certainly are very ardent in stressing to the physicians that dose titration to the appropriate dose is a very important part of the pharmacology of the drug.

I’ll just add and comment also on the medical education. The one thing that also takes place on its first few nights is that, remember, these patients are coming in on a number of other medications. They’re often treated with stimulants for the daytime sleepiness or antidepressants for cataplexy and sedative hypnotics for sleep. And one of the issues on the first few nights is, as their prescribing physician adjusts doses of these other medications that could also impact the first few nights.

And also, one thing that we make a point of in our promotional materials with the physicians is to remind them that the maximum affect of Xyrem does take anywhere from 8 to 10 weeks. So those all are a part of the communication message.

How we’re doing it is a couple of ways. As you know, as part of the risk management program, the counseling component has traditionally taken place by the pharmacy. Right now, we’re working very closely with our physicians.

The sales force is making a major effort with the physicians to shift a lot of that counseling to the physician’s office, just for the reasons you’ve described. To make sure the physician or at least the physician’s staff is setting appropriate expectations with the patient on what to expect the first few nights on side effects, what to expect in terms of when the maximum effect is going to take place, etc.

So we clearly recognize how important that is to set appropriate expectations with the patient, so they can stay on therapy and realize the benefit over the long-term.

Well thank you so much.

Steven Abernathy, The Abernathy Group.

First questions are, I think, for Tim or John. Could you example the option program that’s available going forward for the rest of this year and into next year and help me understand? Let’s start there, please.

Yeah. Let me comment and then Tim can give you, I guess, where the balance of the program is.

One of the things that happened during the recent quarter is that we had a block of employee options that were expiring after 10 years and so several employees exercised those options prior to expiration. I was one of those employees and so I can speak to that. But the employees I know were all exercised and certainly we’re holding our options at this stage, because we’re obviously very excited about the potential of Xyrem and the Company.

Is there a lockup period for those exercising options and what was the exercise price?

Yeah. All of them were -- these were the original granted options that were made, I think, in 1994. The exercise price is $5.00. There is technically no lockup, although obviously myself - and there’s another officer - have fiduciary responsibilities and as you know, we would have to sell shares only through an announced plan the 10b5 program that’s available.

Okay. One more and then I’ll get back in line. I think it was Mark or someone made mention of the 22 and the 15 programs that are kicking off soon and he corrected himself and then said “and now”. Can you describe the programs that are going to be in place that seem -- are they programs similar to the programs that started last time after results of the EXCEEDS trial? Or tell me what the differences will be.

Mark?

Well, these are -- as the EDS data has been announced, clearly the sleep community is very interested in how this impacts their clinical practice and Orphan Medical has been working with both the medical education firms at Stanford University, making an unrestricted grant to support CME efforts.

We just, in light of these changing clinical trends, made another significant unrestricted grant to kick off a whole new program under the CME umbrella. And I’ve been advised that that agency in Stanford University is training all the faculty now, updating all their information with this latest clinical data, both not only for sodium oxybate, but other compounds. And that that program will be aggressively pursued towards the balance of this year and into ’05.

And Mark, am I correct in assuming that will encompass a series of get-togethers including dinners and other sort of formal get-togethers and I guess protagonist or testimonial-related doctors will be giving that presentation?

Generally, yes, the logistics of all that, again, are not by Orphan Medical. It’s all done through this unrestricted grant to a medical education agency and they have found the best venues tend to be CME dinner programs, some grand rounds, and things like that, where yes, there are certainly extensive peer-to-peer interaction.

Okay. I’ll get back in line. Thank you.

Dallas Webb, Stanford Financial.

Hey guys, congratulations on the quarter. I have a few just very quick questions. The first one will be for Tim. You did mention that there was some cash inflow due to the stock option exercising. Will you be using this cash to repurchase outstanding shares?

No. That’s not part of the program at this point.

Okay. The next question somewhat relates to the outside indications that we’re seeing additional use in and that would be what -- any update on the once nightly dosing formulation.

That remains a long way away. We’re still pursuing very active programs. We’re waiting on the manufacturer of a second prototype to assess in a canine pharmacokinetic study, as well as altered chemical entities. So yeah, the program remains very active, but there’s certainly not and endpoint in sight that would give us a timeframe for the transference from the current Xyrem.

Okay. Are you still planning on going into bi-local equivalent studies, half one of next year?

That depends on the outcome of the canine studies.

Okay and going back to the fibro trial, can you comment as to what percentage of patients have been enrolled?

No. I can’t give you a percentage of patients enrolled because it’s too early to know what the attrition rate overall is. I can tell you that there’s in excess of 60 patients in the first 4 centers that have enrolled patients to date, with a screening of over 300 patients who were appropriate to the study and obviously, as the centers come onboard, the study is proposed to those patients. So I’m very confident that patient succession will be very active.

Okay, great. Has there been any type of partnering interest at this level for Xyrem in the fibro indication?

There’s been a little bit of interest, but obviously it’s too early, as again, we need the results of this Proof of Principle study before I would expect to have any discussions or really think through the strategy of how we would approach that.

Sure, sure, okay and a final question. Can you just comment on the number of new prescriptions written in Q3?

Mark, do you want to cover that one?

The total number of new prescriptions was close to 1,800 in the third quarter and moving right along at a nice approximately 600 a month.

Great. Well, thank you very much.

Thanks, Dallas.

David Moskowitz, Friedman Billings Ramsey.

Yes, thanks and good morning - a couple questions. Number one, can you give us an update on the R&D guidance for the rest of this year and possibly ’05? It looks like those numbers came in a little bit lighter than we were expecting. And then second of all, also the guidance on Xyrem a little bit lower than I think expectations. Could you talk about if there’s been any change in the marketing strategy and also update us on the number of sleep centers that you guys are promoting it to? Thanks.

Sure. Thanks. I’ll answer the first question, as far as the development spending. As Bill just described, the patient enrollment is expected to continue to grow in the fibromyalgia trial. The activities related to the compilation of the sNDA are increasing. That spending is going to increase in the fourth quarter.

The fibromyalgia trial, as Bill also described, is going to roll over into the first part of next year as patients complete the trial and the data analysis and data compilation will occur in the second quarter timeframe.

As far as specific guidance for next year, we haven’t provided that yet.

Well, could I expect it to be roughly the same as this year or maybe up 5 to 10 percent? Do you have any sort of level that you can indicate?

Yeah. I think in that range is probably appropriate.

We certainly wouldn’t expect it to be down any, David. I mean, we’ve got -- as we inferred, we’re looking at some other interesting programs and with the fibro going on and the new formulation work and so on, all that, shortly we think we’ll keep the spending up in that area. We want to keep investing in this product.

Okay, thanks, John. And the number of sleep centers and if there’s any change in the marketing approach that you guys are taking?

Sure.

Yeah, I can comment on that. Certainly it’s basically universal coverage of the sleep centers that always been -- the core base of our selling effort by our sales force are the sleep centers, certainly.

In terms of any shifts in the marketing strategy, I think the only thing that we’re putting a lot of emphasis here, in the last quarter and into the balance of the year, is the area that I mentioned earlier. And that is the importance of really making sure physicians and their staffs are effectively counseling and coaching the patients on expectations and we’ve done a number of programs initiatives, especially involving nurses, to take a more active role.

And I think this is important because we’re seeing, again, a number of prescribing activity outside narcolepsy that it’s important that expectations are set with patients on what this compound is and how you get it through the centralized pharmacy and what type they can expect. So that’s been one major initiative, I would say, in the marketing strategy.

The other major initiative has, as I mentioned earlier, was our support through Stanford University of this major new CME initiative in EDS.

Okay, thank you and just one follow-up question on patient retention. Do you have any metrics that you could offer us in terms of patients that get on the drug and then stay on the drug?

Yeah I do and I think that’s one of the challenges we have in the first -- as John mentioned, right off the start and as I just referred to. Is that the mix of patients is such that what we anticipated, that the initial profile of this product being a long-term chronic care medicine. That some patients are coming in and out with their various insomnias or hypersomnias are not staying on this drug long-term and maybe they’re getting relief or what-have-you.

Likewise with fibromyalgia, that these patients are not as consistent as a narcolepsy patient. So it is, frankly, an evolving situation and we’re still seeing many patients either -- no huge increase in discontinuation rates. But it’s more of the balance of those who have been prescribed the drug and start the drug are not as consistently in the refills as the narcolepsy segment.

Okay, thanks a lot.

Brett Rice (ph), Wachovia Securities.

Good morning, gentlemen.

Good morning.

The news release refers to Xyrem revenues growing approximately 100 percent in 2005. Does that include a contribution from the expansion of Xyrem into EDS?

Yes it would. Again, as Mark just said, the mix of patients has certainly changed over the past couple quarters - but certainly over the past quarter - changed pretty significantly and looking forward, we’re trying to adjust for that mix and anticipate that. But it is difficult because we’ll see how the patterns go, as physicians explore the uses for Xyrem.

But, on the other hand, we do expect that the awareness of Xyrem’s efficacy in EDS will get into the marketplace over ’05, but again, we won’t be able to market directly and actively on label until we have an approval by the FDA. And we wouldn’t expect that until certainly the latter end of ’05.

Mark, do you want to cover anything else?

No.

And can I ask one more?

Sure.

The actual dollar amount that came in from stock option exercises in the third quarter, what was it?

I think it was just over --

$2.5 million.

Okay. Thank you.

Jeffrey Benson (ph), Little, Jim, [indecipherable] (ph).

Congratulations on the quarter.

Thanks, Jeff.

I know someone asked about patients, once they take the drug, how many stay on. And it makes it difficult, because in the other indications like fibro and maybe insomnia they would just get some maybe-therapeutic affect, feel better, and then they don’t have to take it again.

Right.

But if someone’s taking it for cataplexy and narcolepsy, I mean, I guess you know who’s getting those prescriptions. What percentage of those people who first start taking the drug stay on the drug? Can you break it out that way?

Well, again, because we have the diagnosis data as a sampling, we have a pretty good sense that we have at least half of the patients currently who will have been prescribed the product or are beginning prescribed for narcolepsy. And then, of the compliance rates where we see pretty much people coming in on a regular basis, they’re coming in at least 70 percent of the time each month for their refill.

But again, that’s kind of a rough estimate, because again, that would probably include other patients that we can’t quite separate out. But a good 70 percent compliance rate is what we’re seeing with our continuing patient-base.

Okay, so I mean, that’s not bad.

No it’s not and for a disease like cataplexy there are going to be days that they might not be 100 percent compliant and that’s reasonable.

Right. I guess in narcolepsy they’d be more compliant.

Maybe. Again, they don’t -- if they’re traveling or they’re changing their lifestyle or whatever, they might not be completely compliant day in and day out.

You’ve given some of the data in the narcolepsy trial, that you met the primary endpoints with Xyrem alone versus placebo and that it seemed to maybe even trended towards working a little better than the Provigil. I guess, again, in the primary endpoint. Now, were there secondary endpoints?

Like, I’d imagine with Provigil, people take it; because of stimulant they don’t sleep the next day. But it doesn’t help them sleep better at night. So that means that the next day, when they’re up during the day, they still don’t feel too good because they’re tired because they haven’t slept well the night before.

Xyrem seems to go to the problem of not sleeping properly and correcting their sleep patterns. Do you have secondary endpoints showing let’s say how the people felt or feel during the day? And can you talk about that a little, if you have that data?

Yes, I certainly can. We’ve got to be very careful relating too much of the data and response to just nighttime sleep - because if these people are put on the normal sedative hypnotic drugs and they’re able to achieve a reasonable night’s sleep - that it does virtually nothing to influence their data on sleepiness the next day.

However, we do see a distinct difference in the sleep architecture of the patient in the Xyrem group, whether it be Xyrem alone or Xyrem plus modafinil in the EXCEEDS trial. And when we looked at the subjective measures of data in sleepiness, the Epworth Sleepiness Scale (ESS) showed us that the patients certainly felt less soporific.

We have used the Pittsburgh Sleep Quality Index as a measure of their appreciation of their sleep and there is a positive value placed on the Xyrem as treatment. And of course, in the SXB-15 study, we included the functional outcome of sleep questionnaire, which is a validated measure and we saw a very positive response in 4 out of the 5 factors assessed by that questionnaire and a very positive and statistically significant global score in that outcome.

So we have very useful data to show not just the objective measure or daytime sleepiness, like the maintenance of wakefulness tests, or the subjective measure of sleepiness using the ESS, but the subjective appreciation of sleep and its functionality as positive for Xyrem.

Very good and I guess my last question would be with Provigil. I believe the dose that’s normally prescribed is 100 mg and think people tend to build up a tolerance to it and their doses end up getting increased. I was wondering if that happens with Xyrem. Do the people build up a tolerance once they’ve reached their does level where they have to increase the doses to get the affect?

The first statement was just a little shaky. Modafinil is approved at a strength of 100 and 200 mg tablets, but the recommended dosing is between 200 and 400 mg.

We certainly know that many patients are controlled at doses above 400mgs and in actual fact, in the EXCEEDS trial, we were given permission by the FDA to include patients between 200 and 600 mg of modafinil. So there are patients who are controlled on a dose higher than the highest suggested or approved dosage for modafinil.

Yeah, there is a possibility that tolerance develops to all the stimulant medications and we perceive that from interpretation of the status of patients when they enter our study on stable dose. They’re certainly a long way from normal in terms of daytime sleepiness. How much of that’s the consequence of tolerance from long treatment as against maximum affect of the drugs is difficult to determine. There’s one 12-month study been published recently - its very small - to show that patients remain controlled on modafinil over the 12-month period.

When it comes to Xyrem, we certainly got the data from the early GHB-3 study, where we followed patients with daily diaries over a period of 17 months and showed that efficacy was maintained very nicely over that long period of time, without escalation of dose. And that, of course, means that there’s not evidence of pharmacodynamic tolerance.

The long-term efficacy in the SXB-21 trial, which was the withdrawal paradigm, we very carefully looked at the status of patient control in that patient population who’d come from the GHB-2 study, we had numerical data of their cataplexy. And we saw no evidence of tolerance in the control when they entered the 22 trial and that was between 7 and 44 months later.

So, on the basis of that, we would be relatively confident that Xyrem hasn’t given evidence of tolerance in its approved indication. It’s very difficult to do very long-term efficacy studies. Obviously they’re extremely expensive. Maintaining track of patients is difficult. So we will extrapolate that data to give you the response.

Okay, thank you.

Steven Abernathy; The Abernathy Group.

Steve, are you there?

Yes, so sorry. I had this on mute to be thoughtful for the other listeners. Sorry. Dr. Houghton, I hadn’t had a chance to speak with you at all on this lately and I was wondering if you could -- has there been time to update any further information on the SXB-15 trial since the first public announcement? Has anymore data been made available?

We do have the complete data set, Steven. And the follow-up data, obviously, is to confirm all of the initial analyses. We made those announcements with the first cut of the data and there were no mathematical errors in that so the information regarding the primary and secondary measures remains concrete.

So there’s not a wealth of new data. New attention will be paid, at the time of publication, to perhaps subset analyses. But for the FDA report, we’ve addressed primary efficacy measures and the established secondary efficacy measures and they certainly have been made public on occasions like the symposium at the APSS Sleep meeting.

Okay. With that in mind now, can you help me clarify a reasonable filing period? And then just remind me, if you know off the top of your head so I don’t have to go to the site, how long the FDA has, maximum, to respond to your NDA?

Right. We remain on track with our goal to file by the end of the year. It goes beyond just the final report for SXB-15 and 22. Part of the submission involves integration of that data with all of the existing data and that’s made a little more complicated by the fact that the FDA now requires safety data coded according to a MedDRA dictionary of adverse event terms.

The initial filing was in -- utilized a COSTART dictionary. So the entire existing database has had to be recoded and there will be a full integration of the new safety data with that, which will obviously generate a new labeling for the drug. So that’s what takes it out to the end of the year. It’s not just dealing with two very large studies and large databases by themselves.

In terms of FDA review process, the PDUFA deadlines would allow the FDA a 10-month review period. So we would at least be assured of an FDA response within that 10-month period all being well. What we’re going to ask for is the possibility of the application of a priority review to this submission. We were granted a priority review for Xyrem with the initial submission and that was obviously very strongly supported by the absence of any approved treatment for cataplexy.

There are obviously other approved treatments for EDS, so whether the FDA will use this as worthy of priority review is speculative. But we’re certainly going to ask for that. If we were successful, that would mean a 6-month review period.

6-month review if priority -- how much, if not?

10 months is the standard PDUFA deadline.

Thank you. Okay and this is maybe for John or whomever John elects to answer this. John, I think that our desk hears, most commonly, one of the tops on the valuation of this Company is that there is an offering that has been filed. And I’m just wondering if you could publicly make any statement now that might help. The markets in general deplore lack of information or they love to have certainty, so uncertainty is automatically a negative. Can you help us clear that up a little bit or what -- my question to you formally is under what circumstances would you consider doing a secondary?

That’s a fair question. As you know, we did file a shelf registration, so we do have registered shares that we could install (ph) in either a pipe or a secondary offering, should we choose. What’s going to trigger that action would be a careful analysis of where we’re at currently and what our expectations are for spending, obviously, for ’05 and forward, what kind of opportunities we have.

We certainly anticipate that we’ll raise additional money, as all small biopharma companies do, on a regular and irregular basis. I think in a lot of ways we’ve probably been a lot tighter with each than a lot of those companies. But I would expect that we would raise some money.

We also, as you know, would like to increase the ownership of our stock so that we have better liquidity and there’s a little more float out there. The thing that we’re doing right now, Steve, is that we’re looking at our ’05 plan and needs. We’re also looking at, frankly, some opportunities that could play into that both on the income side, but on the spending side as well.

So we’re pulling all those things together and we’ll make the decision at that point. As soon as we have something concrete, certainly we will make an announcement to the Street and explain what we’re doing.

Would a price target help that decision?

I’m not quite sure I understand.

Would a particular share price make you feel more comfortable and would that trigger more of a decision?

Well, I think that that’s -- obviously a higher stock price is always something that -- or the stock price is always something that plays into the decision-making process, so I think, sure. I mean, clearly that’s always a factor.

And let me adjunct question to Tim. Tim, in ’05, do you flip to cash flow positive in one of those quarters and if so, which one?

Again, Steve, I think I’ll answer that, because we’ve been working on it a lot. I think the real issue there is what programs do we have going next year. I think obviously we want to be cautious on the revenue side and we certainly can’t necessarily count on any other sources of capital. So we’re trying to understand how all the numbers fit together.

But, again, I think from ’06 is the year in which we would see -- hitting a break-even point and then potentially beyond that, being profitable on a steady basis. But again, it is entirely dependent on what kind of development programs we have going on and frankly, what the ramping is of Xyrem and the other products.

Thanks. The last question I have is aimed at Bill or you, John, or whomever you decide again. Can you let us know who has been chosen for the reformulation of the XR?

No. We’ve not made that information public, but the parties that we’re working with are very experienced parties who are in the business of doing reformulations and the like.

Is it still more than one party or have you gotten it down to one now?

We’re still working with more than one party right now.

Thank you, gentlemen.

Okay.

Dallas Webb, Stanford Financial.

Yeah, just real quick switching gears. We’ve seen some strength with Antizol sales. Can you guys just comment on where this is coming from? More specifically, why now? And more importantly than that, is this sustainable?

Mark, do you want to speak to that?

Sure. I just want to remind everyone that Antizol comes -- the revenue increases come really from three sources. One is actually the increase in the size of the market, as far as the poisoning themselves. Two, of course, is the market share of Antizol versus ethanol and three, there is the stocking component as hospitals continue to stock for the first time.

The strong growth in ’04 is attributed probably to all three factors, but one of probably the strongest has been our increasing share of the market. We do get data. It is, unfortunately, somewhat old as it comes in through either the poison control centers or emergency room reporting. It suggests that at least two-thirds of all poisonings or suspected poisonings are now treated with Antizol and I would imagine that now, given the dating of that data, that we’re probably close to three-quarters.

So I think it says a lot as far as the product here, that over time it continues to demonstrate that it is really the product of choice. It’s just taking time to get to such a dominant market share.

I would also add, though, that the number of hospitals stocking this product continued to increase. It’s been very steady throughout the course of the year, as far as each month, a reasonable number of hospitals coming in for the very first time and order Antizol.

So, as we go forward, I think we can expect Antizol continuing to be strong sales. However, there is going to reach a point where you’re already at three-quarter market share, you already have a lot of hospitals that have stocked this product, so this kind of strong growth we experienced this year is not going to continue at this percent increase.

Okay. If you remove the stocking component, what type of growth do you think we can look for?

Well, again, you’re up to about a 75 percent share, so how much more market share your going eke out, probably not that much. And although the market itself has increased slightly or at least we suspect it - again, there are some reporting issues here - I don’t think we’re going to see all of a sudden a huge increase in the number of poisonings. So I would expect very modest growth outside the stocking.

Okay. Thank you.

Just to add to that, I think you have to be careful so you don’t -- and I’ll reiterate the point that Mark made again. These poisonings are incidents. It’s not a disease where, like narcolepsy, you can expect a certain medication pattern. Poisonings can rise and fall, but they’re certainly -- and I think it’s pretty clear that over the past couple of years the levels have certainly been higher than what we thought they were.

Well, with that, I will close the conference call and again I’d like to thank you for being here and attending and we certainly look forward to updating you as we have very important information. And certainly, if you have questions, feel free to follow-up. Thank you.

Thank you, gentlemen. Ladies and gentlemen, at this time we will conclude today’s teleconference presentation. If you would like to listen to a replay of the conference, please dial 1-800-405-2236. You may also dial 303-590-3000. You’ll be asked to enter an access code of 11011156. Ladies and gentlemen, we will conclude. We thank you for participating. At this time, you may now disconnect. 15