Ligand Pharmaceuticals Inc (LGND) 2002 Q1 法說會逐字稿

Thank you everyone for holding I would like to welcome you to your conference call today. I would like to remind everyone that the call is being recorded and Mr. Robins --- and that your lines are on listen only and that we will have a formal questions and answers at the end of the conference. Mr. Robinson I would like to go ahead and turn that over to you now. And thank you for using Sprint Conference.

Is David Robinson our CEO and Paul Maier our CFO, we would like to welcome you to this call to discuss our first quarter results and performance. Just to get an administrative detail out of the way, I would point out as you all know, that there are risk inherent in our business and that we will be making forward-looking statements to get more information on those I would point you towards the Safe Harbor section of our press release as well as the previously releasing in our security filings. And with the administrative detailing out of the way. I will turn it over to David.

Thank you Mike. Welcome everyone to Ligand first quarter we are very pleased this morning to dialogue with you, with perhaps the must robust press release that we have put out. We have tried to get as much information as we can into our press release on a broad range of activities that are on going in the company. So hopefully I can focus my comments on providing some prospective around the -- that -- rather robust set of activities. The company is pleased with where we are as we completed our fist quarter of 2002. A snap shot, I think shows the company with a solid inline base business performance with the first quarter product sales up 59 percent, operating losses down by 73 percent and with a total revenue growth of 46 percent and a net per share loss down 50 percent. So operational the business as we prepare to go to market with our largest product in 2Q AVINZA really is a solid operational growth performance. Particularly in light of the rather robust fourth quarter of 2001, we feel the business performed pretty well in the first quarter.

In addition you can see that the company is fully prepared with a broad range of activities for robust AVINZA launch that we believe that will further accelerate our inline existing base business. In addition you will notice a number of activities that are being done or in process ahead of schedule consisted with the company's announced strategy to complete a major capital restructuring. All of those together added to some fairly robust, what we would call other revenue growth and we believe the financial outlook is firming quite solidly for 2002 with a growth projectory further turning up.

The highlights I would focus on I believe will now revolve around first the financial outlook. We believe the first quarter results are fairly consistent with the company that should be excepting totals revenue to be in $126 to $140 million ranges. And the variables in there are principle a variables that are typical of a company launching new products. Little bit of variables on in line product sales which we are quite comfortable. Should approximately double this year to between $82 and $90 million, we think that is a reasonable range and with a little bit of variables still on the other revenue line. But we think those two ranges are a reasonable range for the company for this year, with some upside reminding.

Total operating expenses we believe are now firming into the $98 to $103 million range and those are driven by the pace of investment and the scheduling of investment behind the AVINZA launch which now clearer and will be this quarter and for the next two quarters heavy investment. And in the ramp of our pivotal trail program for Targretin capsules in non-small cells lung cancer. We expect the net of those investment and that timing to bring us to a full year operating income, that is positive for the first time. Somewhere in between $2 million and $6 million with again some upside to that range. While we have not yet fully transition to quarterly earning base company and therefore our quarterlies due remind subject to considerable quarter to quarter variable in both revenues and earnings. We do except our first operational and profitable quarter to either the third or fourth and calling closer then that is a little bit more difficult and probably not to important.

Earnings per share we expected to be in a range somewhere between a $0.08 loss for the year and $0.02 net EPS positive for the year and I believe that is the first time we have been able to give that kind of guidance at the net line. When we look at some of the events that under pin that financial outlook above and beyond a very positive evolution of our inline businesses that continue to grow nicely. Clearly, Avinza launch and the details of timing of that are a pivotal event. We do believe that preparations, including product supply are tracking to the timetable that we've outlined here where our first mission is to have enough product and to place enough product, to ensure that product is available in the retail distribution channels and not just the wholesalers for patients to be able to come in with prescriptions prescribed across the country and find product with a reasonable probability.

So that's our first mission. And we do expect to complete that sufficiently to trigger full scale national promotion by early June, if not a little before that. That, we believe will be a robust promotional launch as we have had the time to prepare virtually all of the essential materials to support health care professionals' ability to understand and use Avinza including five peer review journal publications that includes pivotal trial data, more than seven published abstracts and posters and a wide range of scientific product literature that will have cleared through FDA or

review. We -- excuse me --

review -- we are particularly proud of the amount of scientific information that at product launch we are able to supply the market. We believe that's particularly important. It's remarkable for a new product launch. Usually these materials trail the launch and promotion by six to twelve months. And we're particularly pleased that we're going to have a robust program at launch that will both empower our sales force and really enable and educate health care professionals on our product. We have listed in the press release the sources for those publications so that those who are inclined to research the science side will find an abundance of information to dedicate themselves to. We are confident of the company's ability with all sales forces in place totaling almost 80 representatives who have been trained and tested -- and we would also add motivated at a national launch meeting -- we are confident that we are going to have the best product launch that Ligand has had and that there is a substantial interest in the marketplace for this product. Our professional services phone lines have been busy and the inquiries from the marketplace are robust with regard to imminent availability of the product for patients. So we're poised, we believe to do the best job we've done on Ligand's fifth product launch.

We continue with our dialogue with our partner, Elan with no definitive conclusion yet but we believe we've made productive progress in that dialogue with our partner towards evaluation and conclusion of a co-promotion arrangement for Avinza to complement the activities of our 80 representatives. And we are hopeful that as we move towards market we'll resolve that dialogue in this quarter and be able to make some announcements related to those conclusions.

Shifting from Avinza launch, we also would note with some pleasing acceleration that the strategy to substantially and dramatically change our capital structure is nearing completion. We completed the wrap up in first quarter of all of our zero coupon convertible debt. And that was eliminated. That brought the company to a stronger balance sheet with positive net shareholder equity and with the recent announcement we -- of the noticing of the glyco side seven and a half percent convertible debentures that we are calling those -- that was enabled by the completion of a

financing earlier in this quarter. Those two events will enable us to complete the transition of our balance sheet to where we have with the call -- the Glycomed debt eliminated 98 percent of the company's long-term debt on the balance sheet at the end of 2001, so rather dramatic progress there. That's not just important as a financial balance sheet strengthening activity but it also going forward in quarters three and four will position the company to have little or no non-operational drag on positive operational profits going forward. So we are nearing that important benchmark for the company.

With that completed, we will certainly have the operational cash that we need to run our business and we will have a very strong balance sheet going forward. We would also note in this quarter the completion of an important transaction with Royalty Pharma, which was a sale of rights and options to future SERM Royalty Streams with a potential of up to $56 million. In the first quarter we realized $6 million for the first portion of that sale. During this quarter we were noticed by Royalty Pharma of an additional $3 million option exercise which we expect to receive this quarter. And we have the remaining $47 million still outstanding, which we expect decisions from Royalty Pharma during the course of this year still and '03 and early '04. Those underpinnings are important for recognizing important

of some of that Royalty Stream that is enabling Ligand to increase our investments in our own product pipeline. And so we're pleased to see that continuing on track.

We would say at this point that the company's game plan maturing for this year is very much on track and that we're pleased with the progress. And as we look to the second quarter we look to further accelerate that track, both with a stronger inline product result for the second quarter. Second quarter traditionally, along with fourth quarter are our two strongest quarters for inline products and with the launch of Avinza to see product revenues further accelerate.

So I think with those comments I will open for questions, if there are any. And thank you for participating.

Thank you. If anyone has a question, if they'll hit star, one on a touch tone phone that will place you in the queue. Again, that is star, one. And if someone has already asked your question and you need to remove yourself, just hit the pound sign. And we do have a question from David Cohen. Go ahead, please.

Good morning. Congrats on a good quarter

Thanks, David.

A couple of questions -- one is if you can just - pro forma

purchases, et cetera, what number of shares we'll have outstanding and what the net debt would be.

Yes, we currently have approximately 71 million shares outstanding on a primary basis and on a fully diluted basis approximately 78 million.

And is that

?

That's actual now. And that includes the shares that we issued from the recent pipe and the shares we issued from the zero coupon note conversion. And with respect to the Glycomed redemption, there are no shares associated with that because that's a straight cash redemption. And so that's -- those numbers are pretty good going forward.

And most of the convertible is 48 million but the cash is 38? How are you going to pay for the redemption?

The first quarter results where we had cash of approximately 39 million was prior to the pipe investment so that occurred -- the closing on that occurred in April.

Got it.

So the proceeds from that will be used to extinguish the

debt.

That was 69 million, David.

Great and then just wondered on the

. If you could just talk about the range of the alternative being considered and also whether or not

promotional whether or not they serve parties as well just or just the

that you're talking to about co-promotion?

There's a not too much that we haven't stated as to our dialogue there David, that I can talk to but let me see if I can catch you up with all that we have said. If you look at the sales force deployment of Ligand we have now 25 representatives in the general pain sales force. Thirty-five to 40 in the oncology sales force, and another 20 in our

and other pharmaceutical sales force. That will be promoting AVINZA. With that coverage fundamentally we take care of 90 percent of the prescriptions in this class in oncology. We take care of approximately 80 to 85 percent in the HIV area. And we take of about 55 plus percent of the general pain specialist prescription market. What we don't take care of is deeper into the pain specialist, ranging from neurologists to anesthesiologist to critical care. There's a whole host of physician specialties that we don't go very deep into, we only touch the high

, high

prescribers.

So the first thing that we are looking for from

partner and from

is they're very strong in those area, so they can complete coverage take us right up to about 95 percent of that prescription market coverage in that group. Then beyond that what were hoping to get is after you cover those specialist, the market starts to fragment out. So Ligand sales forces would be trying to cover about 10 thousand physicians. What we need to cover in our view to pick up somewhere between 80 and 85 percent of the total pescription market we need to cover 40 to 50 thousand physicians. So we're looking to bring some of the

other sales forces into the promotion of the product which would include their GP family physician IM sales force. Some of their hospital sales forces as well as their CNS sales force. So that's the focus of the dialogue, that is a little bit more dispersed not concentrated coverage. A larger number of physicians and they have a pipe line that their already promoting to those physicians. So the dialogue that we're having is how to get the right

to optimize the product and how do you reward that economically related to it's value creation. And that's really the central focus of the dialogue and we have several different models that were dialoguing about to honestly try to find a win-win for both partners.

And I think that characterizes where we are, where in that--you know financial assessment and what are the commitment that

is able to make across all of those physician specialties. Given their fairly broad product line and fairly robust new product launch schedule this year. So it's a timing and you know when can that kind of commitment be made and what the financial reward would be. I think both parties are very very interested in trying to come to agreement so were working hard at it. As it relates to carrying on a dialogue with third parties we have had inquiries but we have not engaged those inquiries we will complete our dialogue with

first and a gift that should not produce the desired results then we would engage in the other dialogues.

If you could just talk a little bit about whether you expect selling and when into -- in May and just how we should just expect the launch of AVINZA or how to judge how successfully AVINZA launch is going.

I would start with a very, I think fundamental appreciation that the only way to judge AVINZA launch in our view is new prescription generation and we will try to be transparent with -- we're going to be tracking this weekly through monthly the most meaningful day will always be monthly, weekly is far too widely fluctuating but the real judge of AVINZA launch will be new prescription generation how quickly do we bring new patients into the product, and so that to us is the first six to seven months through this year is getting a good feel for where the data points are on that prescription generation curve.

We would highlight that because AVINZA is a widespread retail distribution type product unlike our existing specialty products. We will have an important part of supporting the launch we must have product available at the point of the patient. These are patient with moderate to severe pain they urgently need their medicines and we must get product to the retail distribution so part of our before we start promoting day one we want adequate distribution in the main retail pharmacies that treat these patient population and they tend to be centered the major pain clinics major pain

and so our first several weeks of distribution is to get enough product through to wholesalers and insure that retail pharmacy participate in a pull through and placement of the product. Week cannot push a control drug out it must be pulled through to retail pharmacy. So we have a program to do that. We are not targeting 15 to 20 percent of the major -- if you look at 50 thousand retail pharmacies in the United States, they're certainly 20 to 25 thousand of those that we want to quickly get to in the first six to 12 months of launch. In our initial we want to get to 15 percent or 20 percent of those 50 thousand so you can imagine that initial distribution and stocking will be substantial that does not mean that those should be expected to flow through to sales. While the wholesaler will be final and the pull through from pharmacy will be final we don't necessarily expect to book those completely in the initial quarter or two as sales flowing through our sales line, we will probably take a more conservative accounting view of that revenue and bring it over some time period. So I think that in conceptualizing the launch it will certainly not be a big first month then nothing. It will be a lot smoother than that because we will be cautious about the translation of initial stocking to the reported sales line. I don't know whether that helped at all David?

No that's great. Is there a specific dollar number you expect to be

in during the first quarter spending?

We wouldn't speculate at -- about that. I think we've said that for this year we're pretty comfortable with the range of analyst estimates for AVINZA. That ranges from 12 million to around 20 million and so I think we continue to be comfortable that AVINZA going to -- in our reported sales--that is at which we book, is going to be in that range. And so we wouldn't want to speculate about how much more we have to do with distribution, or how much of that is distribution.

I think that the most important way to look at AVINZA is everything is going to be fine if we try track prescriptions and demand is robust and to expectation is going to be great launch no matter how much we have in distribution and I think that is the critical component that we would focus everyone on.

Thank you very much and good luck.

and Thanks David.

Oh, O.K. we have another question from Mike Solomon with

. Go ahead.

Good morning and thanks for taking my question. Could you tell us how much is the ONTAK sales were due to wholesaler stocking?

For first quarter, we have kind of pre- quarter transition taking place to put it in perspective the fourth quarter last year was a strong quarter. We have kind of -- if you look back at the last six or eight quarters on ONTAK we had continuing strong growth. And that has really been fundamental driven by demand, not by distribution effects. So we are quite comfortable that ONTAK continues on a strong demand growth driven curve. As you have that has the perspective to broaden out the product we needed to get wider placement and if you think about the wholesaler as probably an audience of maybe 100 to 120 different outlets around the United States as you transition from wholesalers who didn't stock any product, to wholesalers that vary in amounts from one to three months of product. And you have the beginning of wholesaler distribution in the fourth quarter with new wholesalers coming on in the first quarter and we expect in second to complete that process. We have one more major wholesalers that we are trying to get to actually stock the product through it's system. You can imagine that the impact in any given quarter is not really major.

So, you know, if we were to talk about 10 to 15 percent of anyone of these quarters sales that could be talk about as stocking per say, because wholesalers were credited with the sales, they just didn't stock the product. So we had a shipped direct to billed through the wholesalers system and so what, now what has changed is they are stocking the product and we simplified it and we made sure that they are closer to the centers of use, so they can serve the centers use better. So, I don't know whether that has helped, but I think that probably 10 percent to 15 percent of anyone of these two or three quarters is really wholesale stocking is not really that much.

OK

We mention it not because it's a major item, but it is note worthy in the quarter.

OK, and also you can give us some guidance on the margin for fiscal year 02.

In the first quarter we had about 67.4 percent of growth margin and of course over all it will depend on the relative mix, because each of our products and a different margin profile. But we expect for the full year that we see an improvement over the first quarter and the plus two to three percent range over what we did in the first quarter.

OK. Great thanks.

Thank you

And we have another question from David Stock with Stock Medical Sciences Fund, go ahead.

Yes, good morning and good quarter.

Thank you

It seems that the interest is on AVINZA and you did list some up and coming, I guess some publications, but could you --- this is a very big area in terms of pain management could you sort of again go over what you see as the medical meetings where there some papers or commentary on this and in this market where do you see your products targeting the competitors. Or where do you see your market share gains dire from with those products out there. Thank you.

Yes, thank you for question. At the strategy marketing level if we look at the sustained release

Pain market, which is not necessarily the only market to look at, but if we focus on that a market of about 2.3 billion. We are going to be the first new product entry into that market in almost five years, so that alone is going to be helpfully phenomenon. It is clear that if you to take share of that market, there are two ways that it will happened. One is markets are rapidly growing, these have been among the robust pharmaceuticals markets of the last five years. Growing in excess of 40 percent a year and last year again was another robust growth. So we will share in that growth as a new product entry. The second way that we believe will be successful with AVINZA is we will compete very much head to head with OxyContin, with

and with MS Contin. We believe the principally the former two rather then the latter. Most of our activities will be focus on at competing with the two market leaders.

What we bring to patients and physicians, I think you first have to look at a backdrop. The backdrop of the market is we believe you can't understand this market without understanding the

and the concerned over

the exist in the marketplace upon, not just the media and, you know, the politicians, but there genuine

and concern among the using physicians population, the using nursing population and managed care. So we believed understanding the market, is to understand that backdrop and the anks divers from all of the attention and concerns about the use and or potential abuse of

.

We believe therefore, that the market is in a receptive state. How receptive we will see. I think it is our assessment from the market research we have done and from extensive contacts with physician and nursing populations that there is a genuine interest to have a new product and to diversify the usage from what is a fairly highly consecrated market. Any time you have single product with 60 percent plus share of the market, that is an highly consecrated market, even in pharmaceuticals. So, that is the market backdrop, how real that is and how that translate into receptive to a new product, is the uncertainty of the new product launch and we will see. What we offer in that receptive market is what we believe to be in it's simplest foundation the only true once a day product on the market.

If you look at the

of AVINZA it's profile is the true once a day product. Just that our label reflects even that the product is to be given once day. We think that's a major advantage over the market leader, that is a twice day product and in fact must be given that way. We think it is a major advantage to have once a day oral, even relative to a patch product and we so we thing that simple advantage translate quite nicely. The

further definite that ours is a

performance that has the lowest fluctuation index. That means it doesn't get to the highs, highs or the lows, lows so, it stays in a therapeutic window. That is once you stabilize the patient where you want to keep a chronic moderate to severe pain patient with opi-analgesic. So we believe that profile is already recognize by a certain physician population and it would be appreciate fairly quickly by the broader population as we began promotion. And so, I think those are two very important things.

The clinical data not, package insert also begins to speak to what the potential clinical benefit of that

curve might be and in the publish clinical data you can see the begins of translations, though nothing that raises to something that we can get into the label yet. But physician will read the amount of clinical data and I think that they will begin to see some the potential benefits for their patients. And those include with the more stable P.K. profile a potential benefits in quality and quantity of sleep -- that's very important to these patients -- and potential benefits in what we would say is a smoother day for the patients, fewer peaks that might cause nausea or vomiting and fewer valleys that might cause breakthrough pain. And so it's a little bit more stable daily routine for what are largely ambulatory patients.

So we think that's the principle focus, is to take that set of simple messages and talk to physicians about it. We will have a very active professional services function, so as physicians inquire more and more about the product we can support them with distribution of all the published scientific information on the product. And they'll be able to make their own judgments about how that can benefit their patients. We think there's a lot of interest. We also are very active with the nursing associations. We recently had a meeting with more than 650 nurses that tend to oncology pain patients. And there was genuine enthusiasm for some of the challenges that they have in managing their patients.

They deal front line-with these chronic pain patients and they are problematic, so I think with some enthusiasm there they'll be working with their physicians to help those patients. And we think there'll be some switching that -- you have some patients out there not doing particularly well with their, you know, twice a day or more frequent medications. And so there's a pool out there that will want to try a once a day product. We will be supporting that with conversion tables that will guide the physicians on how to convert patients who are already on opio-analgesics to our product. And package insert does some of that. And we'll have some conversion tables for them that will make it even easier, so I think that's kind of our perspective on what our mission is.

I think we're particularly pleased with the quality of the training of our sales force. We've fully tested and validated their knowledge. And we think they're ready to go.

Excellent, in fact, pretty expensive -- if I might follow up, you did indicate that some of the range in the first year, I think you indicated about $10 million but this is a huge area and as you say an unmet medical need of substantial proportions. Is there a number you could shoot at as far as, let's say five years out, three years out sort of? Is this a possible, you know megatime blockbuster size? I know blockbuster for you is perhaps $50 to $100 million but could this go substantially beyond the $100 million peak sales per year?

I think we probably need to address that in two ways. First of all, we want to be conservative with whatever we do there. The market is so big that you could truly get wildly enthusiastic, so let me try to repeat where I believe we've stated before. Based on the sales forces we have today, -- that's around 80 representatives -- talking only to Ligand, we are committed to making this a very significant product, so we plan both the sales force investments and our own additional investments in media. That includes, you know the journal advertising and direct mail. That includes a whole host of scientific symposia and related activities. And we intend to invest heavily in the post-approval clinical documentation of this product, so based on that, we believe this product has the potential over the next five years in our hands, in a reasonably competitive market to become $125 to $150 million product. And that's where we want to take it as a minimum. And I think we've stated that before.

The upside to that of Ligand alone remains substantial, so before we comment further on how much more upside, I think we'd like to see the first six months of prescriptions and then see what the trend line is tracking to but even just with our own efforts in such a robust and growing market there's considerable upside just with our resources. When you then answer that question for a co-promotion with a partner the numbers become quite significantly larger because we're able to add the other 35 to 40 percent of the market that Ligand wouldn't be covering and really compete across the whole spectrum of uses in patients and physicians populations. So the number gets rather large. And I think the upside to a co-promotion scenario, I think modeling this out looking at whatever size you think the market is in the co-promotion scenario we believe looking for a five to ten percent market share is not wildly aggressive. We think that as the partners looking at five to ten percent of whatever you think the market size will be out five years from now is not wildly aggressive. And so that number has a pretty wide scattergram depending upon how large you believe the market is.

Terrific. Thank you very much.

We have another question from

with Legg Mason. Go ahead.

Yes, good morning. Hi. I've got a couple quick follow up questions for Paul. Paul, the collaborative research number was obviously relatively low this quarter and actually substantially down year over year and quarter over quarter. I was wondering if you can comment on where that's going for the year. Also, as you combine the Royalty Pharma payments does your guidance assume any further Royalty Pharma payments coming in in the third or the fourth quarters?

The reason that we had a range in the total revenue is to take into account possibility of the Royalty Pharma payments as well as corporate partner milestones and other revenue items of that nature. And so that is included in the range of guidance.

Okay. In different terms of why the drop of this quarter, just was it a milestone thing, not many things came through or are we dealing with, perhaps ...

I'm not sure I understand the drop. We never gave any guidance for the first quarter.

No, I'm not talking about versus guidance. I'm talking about versus actuals. If you back out the six million one gets to about five million residual.

I think I understand the question. I think the short answer is first quarter was not a milestone quarter. We didn't have any corporate partner milestones, so we have in that other revenue other than the Royalty Pharma we have the usual

and Lilly research payments. And we didn't have any milestones first quarter. Those are expected to be second quarter and third quarter and fourth quarter.

Okay. Great. And I was wondering if you could highlight a little bit about what sort of meetings you're going to be at coming up soon for the rest of the year in terms of trying to promote Avinza and the presence you'll have at those meetings.

Near term meetings, obviously,

is way up on the agenda. And we will have a major presence at

for Avinza since that's one of our

audiences. We also have four abstract publications and poster sessions at Asco that cover the first clinical data on Targretin and

from our Phase I, II study that enabled our pivotal trial, so that data in interim form will be abstracted and presented fairly interesting. We also will have an important presentation on ONTAK in

at

. And we have two other studies, one on one of our products,

in bronchio pre-neoplasia in former smokers, a rather large and interesting study that we've been conducting for, you know probably four or five years with the

So

is going to be a pretty active schedule for us, including Avinza. We also in this month have a major range of publications at SIDS, the Society for Investigative Dermatology that covers Targretin and ONTAK and some rather interesting, though somewhat more exploratory range of scientific dimensions of our product but some of them start to elucidate a little bit better. Some of the Targretin mechanism of action in oncology. So you know, there are some rather interesting science there in helping to understand better our drugs. As we go toward the end of the year. Mike can you help with the conference schedule on this, I think we've got. In August we got the International Association for the Study of Pain that's the tenth world congress on pain. So that's a major meeting for us on a AVINZA.

And then there's

in November. I think those are probably the three or four key conferences for us still this year.

Great thank you very much.

Thank you and we have another question. David

go head.

I wonder if you could just go through again the economics on the AVINZA relative to

and what Ligands gets.

We revise this -- the AVINZA is fairly clear and simple we have the commercial rights to AVINZA in the U.S. and Canada. We have a supply agreement with

where we buy from them they are our exclusive spire. And we buy at rates that will range in year one to year four between 30 and 35 of our net sales. So our margins on launch will be slightly higher and they will settle down in subsequent years. We estimate our margins to be the 65 to 70 percent range as a result of that supply relationship and we will book the sales in the U.S. So pretty straight forward it will look somewhat like ONTAK with perhaps slightly higher margins in the beginning. So it's fairly typical of in license product with a supply agreement. We've done a similar thing with our products in Europe. We have slightly higher supply prices for our specialty products than AVINZA. But it's pretty typical relationship. So it's pretty straight forward.

We do we have one technical I think important component that the supply price provides for certain usual and customary discounts, but those discounts are capped. So should we decide we want to go compete in the low price end of the market and we want to give major discounts. Which by the way we don't but should we want to then our margins would impacted by that they wouldn't just be automatically passed through to

.

Since 85 percent of this market is fundamentally a retail market, not heavily discounted we're not overly concerned that but should we want to go compete in that lower end market that moves on contract -- you know that typically is the long term nursing care segment or long term care segment and it moves on contract, then we would have some impact on margin because it would naturally flow through via the supply mechanism.

Than you very much .

Thank you David.

We have another question from Skip

with Golf Capital. Go head.

Yeah, just a follow up on David's question. David, you sort of said the lesson until we revised it. How might it change? If it was revised would it be better or would it be worse?

Well I can -- I think state pretty clearly, we don't have any interest on anything except upside on AVINZA. So whatever we do with Co-promotion by definition in our financial assessments has to be incremental. So whether that would be incremental to margins or just incremental in net value from the product really depends upon the model. I think the most probably is we stick with the current model we got. I mean that's the most probable. There are other variations. You know you can open up the supply price and share a higher rate of margin differently. So there are other models for how Co-Promotion works. But right now I think the most probable is we continue work off the supply model and we bring the

sales force on and compensate them accordingly for that. That's the more classical way, so I think while both are possible I think the most probable is remaining with what we got. I would also say you know we're working very hard. There's a huge upside to this product but it comes with expanding volumes.

So the challenge is to put enough competitive muscle behind this across the more dispersed physician population to insure that you get it. And that brings a very positive benefit the net value to AVINZA to our shareholder and correspondingly because

are aligned with ours, it improves their net value for their share holders as well. There really is a win-win here for both companies and so that's pretty much a line in the sand for us, is Co-Promotion needs to increase the value to our shareholders to what we are seeing right here.

And is there any sense of when we'll actually understand the dimensions of that is that still a summer type of conclusions the negotiations or the structure?

Yeah it's um, I think where we are right now we've got the momentum and the focus now at the right level of dialogue that I think we can get more comfortable that this dialogue should wrap us this quarter so we should be able to clarify when this quarter is a little bit more difficult. But we're very intensively into the dialogue and at the right levels so you know we'll get there. There's a lot of modeling going on, a lot of sharing back and forth so I think this quarter we should be able to wrap those dialogues up.

Good, thanks a lot.

If there's any further questions please hit star one now. At this time it looks like all the questions.

Great, well thank you very much and should you have any further questions we're here and be happy to take them. Thank you for joining us.