Ligand Pharmaceuticals Inc (LGND) 2003 Q1 法說會逐字稿

I would like to thank every one for holding and welcome to the conference call today with David Robinson.

I would like to remind everyone at this time that you are in a listen-only mode and we will have a question and answer session throughout the conference and this call is being recorded today for replay and transcription purposes.

Mr. Robinson, I will turn the call over to you now and thank you for using Sprint conferencing services.

Thank you Jane and good morning everybody.

This is Mike Watts, Head of Investor Relations for Ligand and I am here in San Diego with David Robinson our CEO, Paul Maier our Senior Vice President and Chief Financial Officer and Tom Silberg our Executive Vice President and COO.

I would like to welcome you all to this call this morning to discuss our first quarter 2003 financial results.

Just to get an administrative detail out of the way, I would point out to you that there are risks and uncertainties in our business and we will be making forward-looking statements this morning.

If you would like to get more information on those, I would refer you to our straight forward statement as well to our prior FEC filing.

So with that detail out of the way, I would turn it over to David Robinson.

Thank you very much Mike and thank everyone for joining us this morning.

I will try to keep my comments particularly brief this morning so that we can have more time for Q&A, would like to welcome everyone to Ligand's 2003 an important year for us.

In the first quarter of 2003, our commercial results underscored, we believe a strong quarter getting 2003 off to a very good start.

On or ahead of our business plan expectations and our financial outlook for the overall 2003.

While it is clearly too early in 2003 to become complacent or overconfident, we do believe this very good start is confirmation that the challenges met from 2002 have laid solid foundations for a positive 2003.

The first quarter results underscored a continuing strengthening of our oncology product sale and with Avinza co-promotion we began to see the beginnings of an important acceleration of growth in that product.

All key product groups met or exceeded our goals for the first quarter and we feel extremely positive about that.

The overall results versus prior year; however, do need to be kept perspective particularly as we relate to the other revenue and onetime charges that need to be understood from those quarters and from those comparisons.

During 2002, we had an other revenue item from Royalty Pharma of around $6 million, which impacted positively the first quarter 2002 results, substantially lowering our losses.

This year we expect those option exercises to be determined in the third and fourth quarters of this year.

Therefore, there will be a different calendarization of other revenue this year than prior year.

We believe those are items not to be concerned about in the assessment of overall results.

Also during the first quarter of this year, we took a decision not to exercise our option to purchase X-Ceptor and therefore, took a onetime charge to write off the option value carried on in our books.

We did so, because we believe that was in the best interest of shareholders and would allow us to remain focused on our top priorities for this year, which are to drive revenue and drive the company through to overall positive operating income results.

Going forward, we do expect the operating results to improve each quarter towards at least one profitable quarter in the second half of the year and towards an overall positive operating income result within the guidance that we have previously put out for the full year.

We would note in addition that other important components of our P&L in the first quarter behaved positively, our expense growth was quite consistent with our overall guidance for the year.

We also would note a very positive acceleration of accruals in our lung cancer trials putting us on or ahead of schedule for the completion of those two major trials for front line indication with Targretin capsules.

We believe that the expenses will continue to behave pretty consistent with our overall expectations for the year.

We would note with some particular pleasing comments that are initiation in startup with our co-promotion partner Organon in spite of the war in Iraq and some of the challenges they presented to the training and mobilization of three separate sales forces went off on schedule and we are particularly pleased with the commitment and focus that our partner has shown to get that activity out into the marketplace impacting prescriptions and driving our business.

We would underscore, in addition, that we feel that Organon has already made a positive contribution in the first quarter to forming stronger partnerships with chain pharmacies and with wholesalers towards some of our distribution goals and clearly the enthusiasm of the wholesalers for the expanded promotion of Avinza was part of the reality of the results of Avinza in the first quarter.

While it is too early on the prescription front to quantitate any significant impact, it is already clear that the acceleration in the most recent week of Avinza prescriptions to well over 1,400 is beginning to see the impact even if or but the first week of a much larger share of voice out in the marketplace on Avinza.

We believe that each week going forward will be a stronger and stronger week as the frequency and reach of the three Organon sales forces are increasingly able to be measured on Avinza prescription results.

I believe that, that would complete my comments for the overview and perspective on the results and I think at this point in time, in order to allow Q&A time, I will stop there and open it up, Mike.

Jane, I think we are ready for questions.

All right, if there are any questions at this time, please press * followed by 1 on your touch-tone phone.

The first question is from Alan Auerbach.

Mr. Auerbach, you may now have the floor.

Hi, good morning.

Good morning Allen.

First of all, on Avinza, how much of the revenue in the quarter was initial retail stocking versus that of end user demand.

It's of course impossible for us to know, but we can give you our estimate.

We think probably, if you look at the run rate of prescriptions, both NPA and then the non-NPA monitored prescription base, probably somewhere between 40 and 45 percent of that quarter's net sales were accounted for by actual pull through prescriptions, the balance was strengthening of the wholesalers for two events.

One, they need increased inventories to be cooperating with us in going out during the second quarter for a major retail push.

And secondly, wholesalers typically buy when they see an expanded, let's say, sales force effort behind a product, because they know that there are various distribution centers wont have enough inventory to cover that demand, so that represents I think the other 55 percent or 60 percent of the quarter's result.

Okay, okay, and you stated in your release that as of February, Avinza was stocked in about 6000 retail pharmacies.

Do you have, I know you are looking to get that up to 15,000 in Q2.

Is that likely to be, you know, back-end loaded, so we will see you get those 15,000 number totaled to the later part of the quarter or are you already close to 10?

It is extremely difficult Alan as you know to have a good firm number on the retail pharmacies that are actually stocking your product when you are in a growth phase.

Right.

So, it's very difficult for us to know exactly where we are month to month.

I think what I would say and then I will turn it over to Tom for some comments on what the program is.

I think we are going to be working with Organon, they are out there as from early April, working with their entire sales forces along with ours to expand the retail distribution, and so that's going to be ongoing throughout most of the quarter.

We probably would say that we expect progress throughout the quarter and then we will just have to measure at the end how that's going to go but may be Tom can shed some additional light on what the actual program is that we have going on out there.

I will comment a little bit on the timing as well, we really only have retail stocking information that's reliable through February, so we don't really know what actually has taken place in March, perhaps there are few more retail pharmacies that have been started as the result of the initial phase of Organon promotion.

If you think about the number of calls that the Organon people are making on retail pharmacies, times the number of people that are actually in the field, they can deliver anywhere from 40,000 to 50,000 retail pharmacy calls in a given month given the large primary care sales force that they have, so we do anticipate that we are somewhere in north of 6000 pharmacies, but to speculate on that would probably not be worthwhile.

I would like to comment on two programs and may be the timing of the programs.

Number one is the retail pharmacy activity that I just stated.

In other words, we have a large primary care sales force that is now following on retail pharmacies four times a day with some planned pharmacy blitz days if you will where they will be calling on 15-20 pharmacies in a given day to attempt to generate stocking and increase the breath of stocking of Avinza.

That will be going on throughout the second quarter.

Probably in the month of May, we will be executing a chain account activity from the chain headquarters in joint business between both the Organon and the Ligand national account trade management people.

To work with the national teams, we had some contacts with national teams, we

multiple contacts but preliminary at this point, but I would suspect that during the month of May we will start to see the impact of our top down chain program as well.

That has not been executed very much in the preliminary stages, but without activity in retail pharmacies throughout March as well as April, May, and June, and then the national top-down chain activity in the beginning of the month of May, we should start to see the pull through at the retail level perhaps some time in May and certainly in June.

Okay, that is helpful and on Targretin capsules, you know we have been it looks as though that sales of that has been pretty flat both in Q4 and then also looking back through 02/02.

What's they are going to take to get the revenue so that drug start growing?

I think if you track two components, Allen as we do, you have seen as we have now, two strong quarters, prescription overall, prescription growth for Targretin, and we believe that, that will now start to be reflected in wholesale or purchases.

Keep in mind, that for a product that is not retail pharmacy distributed, where you have inventories and wholesalers typically in a 125-150 different DCs, the wholesaler purchasing patterns do not immediately reflect the prescription patterns.

I think we have seen a firming up of the purchases and I believe if you look at the first half of this year as its evolving we are going to see very strong growth versus prior by the time the first half is wrapped out.

It just has a little lead lag time, so we have noted the same phenomenon you have, which is revenues around the 3.5 million.

We think with continued strong growth of prescriptions into the second quarter of this year that we will start see a break out at the purchases as well.

Okay.

It is one of the phenomenons of the specialty products that sometimes you see a lag because the wholesalers fundamentally have inventories and so, some of the early jumps in demand vacant supply out of inventories.

Then, slowly they catch up as their confidence at the demand has remained up not just spiked.

Okay.

My last question, can you comment on your FI-03 guidance, are you still comfortable with the guidance that you gave on the last call.

Yes.

Okay, thank you.

The next question is from Stefan Loren with Legg Mason.

You have the floor now.

Good morning.

Good morning.

I was wondering there was still a residual about 20 million left over from Avinza amortization.

I was wondering if that flowed in to this quarter already.

No, it did not.

Okay, great.

And also, just a quick back up as you could talk a little bit about the Elan shares.

Let me go back to that for a second, what figure is that 0.8 million flowing through.

Do we expect to see it this quarter or some time at a later date?

I will throw that question to Paul, our CFO.

We, Stefan continue to analyze that situation every quarter, but right now, I would not build any expectations that we would see that translate into revenue.

We will just do it on a case-by-case basis as we analyze our patterns going forward.

okay, great, thanks Also, I was referring if you can give me the unlock date for the Elan shares and at this point what you are planning on doing, are we going to see that in an orderly fashion, is Elan pushing now that they have had some negative interactions now with King, what is going on in that front?

I, as always would not speak for Elan.

I can give you our appreciation of it, which is not really changed too much.

We have provided for the lockup, which I believe comes off, Paul, May 11th.

At that point in time, Elan has been provided with two options to call upon Ligand management to do marketed distributions of their shares should they have an interest in selling.

Clearly, Elan has continued to believe in the value that the shares represent and through good times and tough times, has chosen to hold on to this assets as one they believe is worth a lot more than they can get in a sale mode.

They will continue to have those rights and we will continue to be ready if they want to do a marketed distribution to do it.

It is our expectations that the best way for Elan should they decide to sell their shares would be a marketed distribution.

That is the way I think most bankers would advise them to optimize the value of their shares is to do an orderly distribution of the shares.

I expect that with patience and wisdom that they have showed with regard to that asset that that will be their mode of operation.

If and when they decide in the future to sell those shares, they will call upon us to do a marketed distribution and we will help move it through the market clearing mechanism that way.

Great, and now are you still comfortable with the production out of the line, is that so going on track and looking like its going to be a good supplier in the future?

Yeah, the production has been going quite smoothly, thanks to an increase in ordering and purchasing, we are also loosening up a little bit the DEA quotas so that the quotas are being released, additional morphine quotas so that the plant can produce at the pace we wanted to produce.

We have had good progressive success now and getting the DEA to release additional quota to us.

So, yes we think we have good solid inventories, we are getting quotas released and the plants producing on a nice schedule for this year and we continue to try to build some additional inventory for next year as we expect the growth to be substantial and we want to stay up or ahead of that growth curve.

What's the progress with your second supplier at this point?

That is a Ligand driven project under our co-promo responsibilities and our people have been out assessing a wide range of potential suppliers.

We have a short list of three, though we are not closing off the list yet at three, we are doing some additional assessments.

It's a strategic supply decision for us going forward.

So, we do expect to have that supplier identified and QA'd between now and the third quarter, and to begin the process of working with that supplier towards a technology transfer following that.

So I would say so far the progress has been good and we will keep you posted as we get through that decision.

Great, thank you.

The next question is from Patrick

Patterson with

Partners.

Mr. Patterson you may have before.

Thank you, hi David, thanks for taking the call.

I have a three quick questions, one is related to Avinza, specifically in order you mentioned you had them significant wholesale of stocking which is, I guess, a good sign in terms of demands building up.

Did you have to do any discounting and if you could comment on that, that will be great.

Second question would be on your Pfizer collaboration, you have any news on lots of fixed things, a clinical news that's felt that you could share with us and the last question, can you enlighten me what you have to do, the first time I am here

to get the DEA to release more quotas on the free to produce more morphine containing products?

Yes, first question, if you look back on the launch of Avinza wholesaler inventories on launch, we initiated launch in late second quarter with wholesale distribution and we did just over $10 million in initial distribution and stocking of the wholesalers.

That inventory progressively over the third quarter, fourth quarter, and throughout the first quarter of this year, continued to be reduced such that the wholesalers were coming to the point of needing to restock or they would have insufficient inventories to meet the demand.

Just looking at the Ligand generated demand prior to co-promo, so as you lay on top of that the additional 700 plus representatives going into the field, it was very clear to the wholesalers that their stocking relative to the Ligand demand might have warranted a certain amount of restocking relative to the expected demand from co-promo efforts expected in second quarter clearly that wholesalers wanted to buy to adequately stock to that demand.

In addition, they were encouraged to work with us in new and broader ways and I say us meaning the co-promo partners, new and broader ways to rapidly expand retail distribution, that would put further strength on their inventories and since most of these C2 drugs move somewhat slower than the speed of light through the distribution channels because they have 2-2 forms.

The wholesalers clearly saw that it was wise to bond with us and expand their inventories to achieve those two objectives.

That was the principle motivations and we did make joint calls with Organon throughout March on the key wholesaler accounts that supplied the large retail chains and independent pharmacies.

Throughout that process, we did offer what we would call a standard, traditional discount to the wholesalers for those retail stocking programs, nothing dramatic, nothing heroic and so I would say it was a combination of the those three factors.

I would say also that clearly they would've been willing to purchase a lot more had our interest been simply stocking of wholesalers, so I think that it was very modest program relative even to the initial launch of a product, were the initial launch we did about $10 million and in this we had a fairly modest $6.6 million so we think the wholesalers are in pretty good shape to achieve our objectives but not carrying excessive inventories relative to the second quarter demand and retail stocking goals.

Okay.

The second question unfortunately my short answer is no.

I don't have any new information on

.

Alright.

I expect another update.

We get six-monthly updates from Pfizer in May of this year, we get them typically in May and December, so we're expecting, we will get some further updates.

I think to the extent that we get any meaningful information that this material on the subject will give a further update as soon as we know.

The DEA question, all scheduled drug made from bulk scheduled material whether they may be oxycodone, morphine whether they be hydromorphone, hydromorphine any of the narcotic relatives, are controlled by the DEA the importation, the manufacture and the distribution.

Right.

Such that all companies vesting to market finished products whether in the manufacturing or commercial distribution business, must get through an annual quarter process approval from the DEA.

Virtually all the manufacturers do it and all the marketers of drugs together with their manufactures have to do it.

So we are no different than any one else.

The quarters are based on an annual forecast, so you provide DEA with an annual forecast and they release against that annual forecast or expand that annual forecast to the extent that you validate those forecast with actual orders and flow through your system.

So it is a two-part system the officer and DEA responsible for releasing your product.

In this case, it would be we buy from a supplier in the US and the product shipped to the aligned plant.

Those quarters are released as on both a monthly and a quarterly basis as orders for your product are validating your annual forecast.

So as orders increase, you're able to get either forecasted quantities or excess quantities if your forecasts are running ahead of schedule and so we work very closely both with the aligned plant and with the DEA officer directly for timely release of those quotas.

They do have an independent view so it is not something that is purely a rubber stamp.

It is a dialogue and from time to time they will hold off 30 days to give you a code up and then you will go back to him and get it released.

So it's an ongoing process.

They tried to work very closely with the manufacturers, ensured two things - the smooth supply of demand in the market place, which they have no interest in shorting and secondly to ensure that there is not an undue buildup of inventories that then they have to worry about diversion or other items with regard to scheduled drugs.

Okay thank you very much David.

The next question is from Catherine Kim from EBS, you may have the floor.

Thank you for taking my question.

My first question is, do you have any changes in your revenue guidance, previously you did, you have set a revenue guidance of $160 to $175 million and especially on the product sales guidance you have said that product mix would be about half Oncology and half other Avinza, and I was wondering if you were going to change to let's say more of Avinza just because of what you are seeing so far.

No I think we would reiterate that's our best knowledge at this point, clearly we will keep you posted if there is any evolution of that.

Each quarter now, we expect to see substantial growth going forward in both of segments of our business, so if we see an evolution that changes that mix, we will comment on it, but so far we would say no.

All of our product groups for the first quarter were ahead of our business plan expectations that were consistent with that outlook and guidance.

So none of them underperformed what we expected.

Keep in mind Catherine that second quarter of last year was a pretty down quarter, so as we proceed through second quarter I think you will see a fairly substantial change, particularly to the Oncology growth rates, as we had a fairly weak second quarter last year.

So I think the picture will normalize more towards our overall guidance and outlook, as we move through the second quarter.

This is always the challenge of little bit of choppiness in the results whether it be other revenue or product sales.

So I think right at this point the answer is no, we are right on plan as we saw it for this year.

Clearly, there is growth ahead in each of the quarters and we will need to see that, but I think we are feeling pretty good about where we are right now.

Great, and my other question has to do with Avinza in terms of sales force, what feedback are you getting from them in terms of the switching or are you getting new patients if you can comment on that?

I'll put out that one to Tom if he has any information that I might not have gotten yet.

The feedback that we get, we get it in two ways.

Number one, we get it directly from our sales force, which is perhaps reliable to a certain degree and you also want to back that up with some objective feedback from customers through market research survey.

The latter, that is, the marketing research surveys that we are initiating are still either in development or in progress, so we don't really have objective information relative to switching or new patient starts in which regard to the way of Avinza being adopted by the prescribers.

Therefore, the subjective feedback from our sales force would suggest that we are primarily getting new patient starts that would also be reflected in the dosage strengths that are being used in the region of 60s, but as we watch the product mature a little bit, we see some very interesting and significant uptake of 120 mg strength, which would imply that either patients are being switched from other products or their dosages are growing as we get into the more severe chronic pain patients.

So I would say since the majority of our prescriptions at this point are still in the new patient category but the component of switches is beginning to pick up; however, like I say I

that as a subjective feedback from our sales force and just looking at the data, the market research surveys are probably will not be reported that for at least another month or two months before we have a better handle on that.

I would add one thing to that Catherine.

If we look at the mix of strengths that Tom was referring to, prior to the Organon co-promo initiation, we were seeing an increasing percentage from Ligand's efforts of the 90s and 120s.

That was implying that as we got to know doctors as they got to know Avinza and if they got to use more Avinza, they started with initially new patients and then were feeling comfortable moving and switching patients.

With the initiation of such a large number of new reps on the product, we expect a short-term dip to new patients that would change our overall mix, just because of the order of magnitude.

We think they will go down the same curb as we did, which is once they get that doctor to try it initially, he likes the results on a new patient, he is going to have a number of patients coming back in.

They are going to be relatively not satisfied with their current therapies and that is where the changes will start to accelerate.

So we think probably there is a little bit of reset that is going to take place in the mix in the short term.

We had the largest jump in prescriptions in the most recent week, a jump of over 200 in just the first week of co-promo we do not have the analyses of the mix of those prescriptions whether they in fact fit that, that experience that we just related to you or whether in fact it will a different mix there

again to the 90s and 120s.

We will try to give you in our next update a better appreciation of that, I think we feel that with 46 weeks of co-promotion we will start to see a pattern in the mix, the early pattern any way and we will be able to give you a better handle on that.

Okay thank you very much.

The next question is from Bill

Management.

You now have the floor.

Good morning, David I have three questions and I will take them one at a time.

We can start with a phenomena that occurred in the state of Florida, you could give us some color as to the rationale behind why the state of Florida switched from the atleast for the state Medicaid program; a formulary that included OxyContin to formulary that displaced OxyContin for Avinza.

What was the rationale behind that and have there been other states that have done that, you could characterize if you are aware of any state that are planning on doing that?

I'll throw that one to Tom for his comments, he is probably closest to that one.

What we have seen in the Medicaid environment is about a dozen, the 15 states have adopted a process to manage their Medicaid formularies by using a PBM or pharmacy benefit management company to handle that process and in doing so what the PBMs have done is they have established what they call preferred drug list for therapeutic categories now how the state does it and how PBM does it is the probably different with each state as negotiated process between the PBM was managing the Medicaid system for that state and that state's Medicaid officials.

In the state of Florida, they put the sustained-release opioids therapeutic class up for bid for the preferred drug list.

We simply provided them a reasonable bid on Avinza.

Their decision to switch drugs, they checked for the sustained-release opioids preferred drug list was entirely a decision between the state of Florida and their pharmacy benefit manager.

So it is the pattern that we have begun to see in other states as well, they stated earlier roughly 12-15 states are using pharmacy benefit managers and are taking the preferred drug list approach to the managing therapeutic areas.

We have been involved with as many of those as we can.

We are encouraged by their interest in looking at Avinza but the decision to prior authorize OxyContin in Florida and to put Avinza on the preferred drug list was a Medicaid decision in the state of Florida, between the state of Florida and there pharmacy benefit manager.

We simply provided a reasonable price and that was the rationale for that.

We anticipated that process for managing Medicaid formularies is going to probably grow over the next several months and years and so we are working with our Organon counterparts to stay on top of that and try to be as cooperative with those groups as we can.

Tom, could you comment on what other state Medicaid groups we might be working with that would be on the list of actives right now.

Well the state, I though we won't get all of them, but the ones that I can recall that are already using pharmacy benefit management companies and are taking the preferred drug list or PDL approach to managing the formularies would be Florida for one.

Florida is working with the PBM that manages I believe West Virginia, Illinois, Louisiana, Tennessee.

We are also looking at another PBM that manages the state of Michigan and with Johnson Ohio, so some of the big states in the northeastern part of the country, I guess where the PBMs are targeting their first state and obviously California is rather independent works by itself at this point in time so we are dealing with them independently, so we have contacts and I think a good working relationship with one pharmacy benefit management company and we are very encouraged by the early feedback of our interactions with the second PBM, so we are in pretty good position with both of the two leading PBMs that are managing Medicaid formularies and obviously they are controlling some of the bigger states with regard to this therapeutic

.

Bill, just a followup clarification on two points.

We did not and up till now it is continued to be our policy, we are not trying to price discount Avinza into Medicaid formularies.

So we are reasonably comfortable that the motivations of Florida would not have been principally or solely economic.

It is beyond that, it is note worthy that Florida has been a hot bed of problems with regard to OxyContin abuse, diversion and it has been a hot bed of BDA activity to try to manage some of the abuse, misuse and diversion taking place such that it has presented to Florida authorities with a substantial challenge and some public embarrassments.

They may or may not have been motivated by that.

What we are reasonably confident enough is we did not buy the business in the state of Florida.

If anything we have pursued a policy of simply matching these structural discounts that prevail in the market place.

So beyond that we are never going to know for sure because personalities in relationships also come into this picture, but I think that's probably as close as we are going to come to understanding the dynamics.

Okay, well, thank you for that elimination.

If I could proceed, the second question and Tom it's actually wonderful read into the pharmacy benefit management side.

I know it is early task for a progress report, but may be if you could tell us what is the general status and what are the plans to facilitate the lowering of kind of the placement of events in the tier structure of PBM so that the patient out of pocket could be a little less traumatic when that is a problem.

Well when we first commented that we really don't have a comprehensive update on any of our manage care contracting but at this point in time and I believe the situation is pretty similar to the last time we spoke with one exception and that is that we are continuing to work with large PBMs, national PBMs we are on the preferred list of PBMs that control over $100 million lives in the US and that was our first stage attempt and that is pretty much the status today.

The difference in our movement going forward is now that we have a large co-promotion partner who has a significant amount of resources and the quality expertise in the area of manage care.

One of the priorities that we placed in our partnership is to begin working on several levels of manage care activities, mainly PBMs, and that would be continuing with the national PBMs, while these are more important working with local healthcare plan and local PBMs, and establishing a formulary acceptance and a contract that is fair to both the local PBMs as well as to the patients within itself.

At this point in time, we have only about two or three weeks where we have initiated contact with local pharmacy benefit management companies, both the Organon national account managers as well as the Ligand national account managers are making those contacts.

Feedback has been very positive at this point in time.

We are working with each PBM on a local basis to deal with their local issues.

So we have pretty much a standard contract that we take to them, but we are certainly willing to work with them on local issues that affect their patients within their healthcare plan.

So it's a little premature to start commenting about the impact of that, but we are very confident that within the next two months or so we will begin to see return on local healthcare plan, local hospital formularies, the long-term care market is another one that we have established some strategies and are beginning to take that forward using the Organon long-term care account managers.

So, we are quite anxious to see the impact of all of this.

It is just, however, rather premature to comment as to the script that we have had so far.

Right, I will ask that question again in the next quarter; if I could just have finish up with my last question.

In terms of, to both Tom and David, in terms of the actual detailed calls that are made by the field representatives not the contract folks, clearly there is a high percentage that are being dedicated to the pharmacist and the pharmacy in general today.

What is that ratio or that percentage today?

How is it going to change, say for June 1st and then how would it look for September 1st that we can see?

What's the plan is in migration away from pharmacy and to the end prescriber over the next six months?

I think I will take a crack at answering that and hopefully if I didn't get your question right, please correct me but; there really isn't a plan to spend more time with pharmacy now and then move into the prescriber office in the future, our sale force as well as the Organon's sale force has daily call go for both physicians that is the

prescribing physician as well as pharmacies and those numbers around eight physician calls per day and four retail pharmacy calls per day.

I don't see that ratio changing a lot in the future perhaps if anything, there maybe a little bit more emphasis on physicians as we go forward but it is a pretty standard expectation that both sales forces have pharmacy, retail pharmacy calls all for a daily and weekly basis and physicians calls on a daily basis and as I said that in the case of Organon right now, their objectives are four pharmacy calls everyday and eight physician call everyday.

I don't see that changing much.

Okay, then I apologize for being confused and I appreciate the clarification.

Two other comments Bill that might be helpful.

First we're hitting all key targets in the specialty physician category of any type.

We are getting them weekly.

So the Ligand reps are calling on their targets every two weeks.

The Organon reps are calling on their targets every two weeks and we have a large universe of the specialists that we are both hitting.

So that specialist would've seen a representative from the Co-promo partners every week, that kind of intensity we believe is going to pay off big time with the specialty physicians, as we're not going to back off of that, that's what we call our saturation market share physician call strategy.

On the PCP, the primary care physician, we are not going to have quite that intensity.

It's going to be every two weeks, because we have only sales force covering those physicians.

They are not quite, in terms of total volume of prescription, as productive as the specialists, so we feel that every two weeks is very competitive.

There are really only two other primary care sales forces out there and our call-frequency and reach is more than competitive with both of them in the primary care arena.

So we feel pretty good about the intensity of that physician coverage and we are not going to back off of that anytime during 2003.

That is our market share penetration physician strategy.

The other thing I would mention that might be helpful to you because I know you do a tremendous amount of analysis on your own.

An interesting exercise would be to take the Ligand first six months' prescription generation and look at each month or each week because you probably had

weekly data, divide those numbers by 50 to come up with an average representative physician generation per week or per month and some would argue that our initial launch was not as robust.

Others would say it was robust relative to the size but either way you look at it do the calculation and then do some multipliers for the number of Organon reps and you can either look at the full contingent roughly 750 additional reps or half that and you can begin to scale what a weekly ramp just being contributed by Organon could be on the product and you can run that 100 percent number or the 50 percent number because there are differing productivities between the physicians universe being called on by their relative sales forces, but I think that might give you an interesting guide to the weekly delta growth of prescriptions or the range that might be expected coming out of the Co-promo effort, unless you have already done that Bill.

Thank you very much.

Alright.

The next question is from Dave Hoffman with

capital management.

You may have the floor.

Hi, I jumped on a couple of minutes late, so I apologize if these have been answered.

Welcome.

Would you be able to give us the just your best estimate of what the actual end-user demand was for AVINZA both in the quarter and since cumulatively since the launch versus the amount of reported sales, therefore we can get an accurate hand on what is in the channel?

Yeah, I think the answer if I can make it efficient this time is of the $6.6 million we probably would say 45 percent of that was demand, prescription demand by the time you look at NPA, plus the gross step rather prescriptions not monitored by NPA.

The balance was weak stocking of the wholesalers who had pretty much progressively reduced their inventories over the prior three quarters and we are now buying in anticipation of two things, clearly a much larger sales force effort that they would have to supply in the second quarter that is expanded demand so it would be normal as they restock up to the expected demand level and secondly a program, which we with our partners were locking on to with the wholesalers to really push now with the Organon sales force second quarter retail stocking, which the wholesalers would have to supply.

So, the rest of that was targeted for those two things.

We would put in perspective that that $6.6 million in purchases relative to Ligand's initial stocking is really a quite a small stocking.

We initiated the product distribution in June of '02 with about $10 million of wholesaler purchases.

These total purchases were 6.6 and about 45 percent of that was already demand call through.

So this is a fairly, roughly we would call modest, I think wholesalers would have been happy to buy a lot more.

Sure, so what would you, if you were to estimate them approximately little over $3.3 million with added to inventories this quarter.

Just a ballpark of what you think the total amount the dollars, like AVINZA, inventories are currently out there?

I don't have a good number for that.

I think you can kind of back into it from the history of purchases and the demand.

Since these purchases took place at the end of the quarter, clearly most of that was replenishment of the inventories.

I think we are probably looking at inventories, I would say in the $8 million to $10 million maximum range, I think that is about where it is.

Great, that is very helpful.

The weekly prescriptions as you had mentioned in the release, it looks 1400 which is outstanding, just could you give a sense of what that annualized run rate, what that equates to on an annualized run rate basis?

I think probably the most helpful think we can do there is to point you to our partnered goals.

We are working carefully to scale our efforts and execute to achieve a 10 percent market share of the overall market within the first five years.

For this year that translates into a month of December '03, somewhere between three and four percentage share of the overall Sustained Release opioid market which runs at about somewhere north of 14 million prescriptions per year.

So if you use that December year-end three to four percent market share of prescriptions, you can pretty much back into how we have to ramp going forward.

Clearly it means for the second quarter we have to more than double the prescriptions that we generated in the first quarter, substantially more than double and so I think you can pretty much calibrate and do your own quarterly by that.

Sure so you'd like to exit the second quarter with the weekly script rate therefore, you know roughly 3000.

Just one final question.

The sequential decline on tax sales, I realize there was stocking a few quarters back and that was restocking, it is just out of curiosity would you be able to estimate perhaps the number of you know the amount out in the channel, wholesale inventories in terms of months?

Yeah.

I think probably what you are referring to is the year over year comparison of the first quarter results.

No actually I was referring to Q402 versus Q103.

Okay, so I think I understand the question.

Let me see if I can answer that what I perceive to be the question in perspective.

Clearly in prior year, you will remember we had traditionally distributed on tax directly from our distributor to the using customer, most of the time a hospital or a therapy administration center.

That was done directly from our distributor.

We found that to be cumbersome and not as timely as we would like so we moved to wholesaler distribution.

We have five principal specialty Oncology wholesale distributors that stock substantial quantities of Ontak.

Those five are now able to directly serve a broad range of customers better than we could.

The first quarter of last year there was some initial stocking of the final of those five wholesalers such that we had those wholesalers coming on over quarters so that is what you see in the year over year.

When we look at how much inventory is in those wholesalers, we traditionally run varying from wholesaler to wholesaler anywhere from two months to six months of inventory.

That's normal for us with the specialty products.

Demand fluctuates by customer quite dramatically with Ontak and so we do see from time to time customer's inventories very quite dramatically downward if a major customer orders and so we keep as our front line distribution technique, we keep two to six months in those wholesalers.

That's why quarter to quarter what is most important is to look at our end-user demand shipments out of those wholesalers and that's what we report in our quarterly here is the actual end-user demand for the quarter went up 18 percent versus prior year and I believe was also up on the fourth quarter.

The rest of it normalizes out over a couple of quarters.

So we would once again expect with continuing strong demand of shipments to end-users in 2Q.

We would expect to see further progress with ONTAK reflecting the obvious underlying demand growth that is going on with the product.

Great, thank you and look forward to following the continued progress.

Okay, thank you.

The next question is from Stefan Loren, it was like I

have the call.

Yes, thank you very much.

Just a quick follow-up question.

It is just dealing with the accounting for Paul.

Paul you had quoted the X-Ceptor option as a one time and I was wondering if we should be thinking about then the options that you are selling more is one time and rather than as regular income.

Are you referring to the Royalty Pharma?

Absolutely.

Options.

Those are in the accounting sense are booked as other revenue, and so that is part of operating income as opposed to below the line, and we don't have any control over those decisions and we are quite comfortable with the way we account for that.

As you know, there are four more option decisions that Royalty Pharma will take and between this year and next year, and we are quite comfortable with the way we account for that.

Okay, so in terms of the guidance?

In terms of the guidance are there one, two or more of Royalty Pharma options that are being put in the guidance at this point?

The guidance that we gave earlier in the year as we stated before, we only assumed that one of the two options would be exercised.

Therefore there is upside if Royalty Pharma were to choose to exercise both options.

Thank you.

Stefan something as a followup that might be helpful.

There are pretty substantial differences and I am not going to play accountant, but just from business overview, the substantial differences between Royalty Pharma which is the sale of our royalty on a third party product.

In other words these are royalty rights we have from a partnered product and it is pretty traditional accounting that since it is a third party product the booking of the purchase of that option is a revenue item.

As opposed to if you see how we treated the sale of the royalty to Royalty Pharma on Targretin capsules which was not a revenue item, because it was our product and so that is a very important difference.

When you look at the options we had a existing equity position in X-Ceptor and we had an overarching option to purchase which we extended.

The 5 million was the price of extension of that option.

Had we purchased X-Ceptor it would have been rolled up in the purchase price.

So I think there is some fairly substantial differences between the two cases that we were to carefully with our outside auditors and as Paul said very very comfortable that, that's the very accurate reading of those transactions.

Thank you for taking the question.

Mr. Robinson, there are no more questions at this time.

There is one more question from Brian Kids with Keddell Health Partners, you have the floor.

Yeah, thank you.

Gentlemen, a quick question for you.

Could you please review again with regard to events that a wholesaler, you said that they would have been happy to have

to review again why they were not able to purchase more

effort?

Yes, I think we work very closely with our wholesale partners to manage appropriate inventory levels in the system.

And we have no interest in having too much inventory in the system relative to demand, either expectations or demand realities.

So there is always a balancing of those two things as we work with our partners.

We do that across our overall business as a good business practice.

So in the case of Avinza, we clearly looked at in the co-promotion setting, the ramping of demand and since it was so early in the process, we did not have any interest in seeing the wholesalers purchase inventory sufficient that they would not need to purchase again in the second quarter.

That did not make any sense until we have a better handle on demand.

It was prudent to work with them to sufficiently purchase to the goals that we had as partners and then during the second quarter, they can always come back and purchase additional, as we both have a better read of the demand levels.

And that's what we hope will be the pattern as we move through second quarter if we stock an additional 9000 or 10000 retail pharmacies that's going to pull through a lot of inventory and if we see the doubling plus of overall prescription demand that's going to pull through a lot, and the wholesalers will be back in a mode of being very happy because their inventory returns were good and they will back buying again in second quarter and that's what we hope will be the pattern.

Great, thank you.

Oh, that has been a great set of questions, if...

Mr. Robinson, there are no more questions at this time.

Great.

Then we thank you all very much for joining us and as always we are here if there are any follow-up questions that you'd like to ask.

Thank you very much.

Have a good day.