Friday, February 13, 2009

Zymogenetics Q4-Edited

RECOTHROM net sales for the quarter were $4.7 million and this is 165% greater than net sales in the third quarter. We saw increased demand each month during the quarter. It’s important to point out though that there was an increase in the levels of wholesalers stocking during the quarter. We’ve estimated the increase at approximately $800,000, which could end up effecting first quarter 2009 revenues on one to two weeks of sales.
Half of the product sales for the quarter was $4.7 million, which included $3.8 million reserve for inventory projected to become obsolete. We now have a better visibility into our rate of market penetration and although we are planning to extend the shelf life of our finished product to 36 months. We won’t have the stability data until late 2009........
So for 2009 RECOTHROM sales, we expect to see a continued upward trend and we believe the net sales for the year will fall within the range of $25 million to $35 million...
Edward Tenthoff – Piper Jaffray
Great, thank you very much and congratulations on a much improved year-end. I know there has been a lot of work on for physicians, so congratulate them on the hard work in progress. If I made the starting with recoup sales in fourth quarter, the stocking issue and sort of the pricing update, you have given the guidance of $25 million to $35 million. Can you give us a little bit more color on that? Are you finding that you are converting bovine? Is it coming at the expense of other human thrombin? Give us a little bit more color on that fourth quarter success and sort of how the pricing is backing up currently?
Douglas Williams
Hi [Tenth], this is Doug. Thanks for the compliment at the beginning of your question. We do think that the quarter was certainly a good one for us, and moving us in the right direction. I think as far as the fourth quarter for RECOTHROM, certainly the pricing change that we took in October I think was a key reason for our accounts to convert. We have been seeing I think more activity in the marketplace in the fourth quarter in terms of sales activity, that has begun to translate into dollars and I think we are beginning to get a handle now on the run rate sort of based on that fourth quarter. And that’s what has sort of led us to project forward and give our guidance for 2009 with some sense of confidence. As far as the stocking issue is concerned I think again we sort of looked at the run rate and made an estimate based on what we have seen as the levels of wholesaler stock that were sort of consistent with previous levels of sales and made an estimate that approximately $800,000 of the fourth quarter reflected stocking sort of in anticipation at the beginning of the year. So we’ve sort of based that of comparing the sales curve with the previous stock in curves and really coming up with that gap and estimating that’s attributable to about $800,000 of that number.
Edward Tenthoff – Piper Jaffray
Right. And just then from the competitive [thought] can you say is the gain coming to the expense of bovine? Are you still seeing Omrix/J&J or has that transaction caused some disturbance there? Just give us a little bit of color on the market?
Douglas Williams
Yeah, I think in terms of the topical hemostat market, we’ve got information now on 2008, and how that market has played out. The IMS information would tell us that primarily what seems to happening in the marketplace is a displacement of bovine thrombin. I think that the majority of that change is attributable to us, taking market share away from Thrombin-JMI. I think the level of activity for Evithrom is still somewhat difficult as routine although certainly the numbers would lead you to believe that they haven’t been making significant inroads in terms of that particular product. Now again I think we’ve always said that we are not certain reporting around Evithrom as far as those numbers are concerned. And certainly the information that we have would suggest that in terms of our capturing market share from Thrombin-JMI that we are sort of leading the way versus the other plasma-based thrombins that are out there. And we don’t see any real discernible difference in terms of J&J’s acquisition of Omrix. We didn’t really expect that there would be given the J&J has always been responsible for the marketing and sales of the product all along.
Edward Tenthoff – Piper Jaffray
Great, that’s very helpful. I appreciate it.
Operator
The next question is from Marshal Urist with Morgan Stanley. Please state your question.
Marshal Urist – Morgan Stanley
Yeah, hey guys, good afternoon. So I just wondered if you go back and talk a little bit more about the RECOTHROM guidance, and I know you don’t want to talk about the formulary and patents and everything, but can you give us a sense of the extent to which the pace there is improving and, are you seeing any change in complete conversion versus sharing formularies? And then on the guidance for next year, when you got to that number, it’s still a pretty healthy improvement of the run rate from the quarter if you backout the inventory charges. I’m wondering what you guys are assuming in there in terms of how much of that is sort of follow through from account we’re already in and then how much would you be accounting on new accounts in formulary patents to get to that number?
Douglas Williams
I mean without giving you too much color around how we triangulated in on that range. I mean sufficed to say that we feel that though we have a much better handle on what's happening in the market right now than we did certainly earlier last year. We've looked at our current run rate then made a few assumptions about some of the accounts that we know have converted, but aren’t yet reflected in the sales. So, I think that we’ve taken sort of a data-oriented approach to generating that range that we've provide and we feel pretty comfortable right now with that range based on what we see today. So, I think we feel as though there are some accounts that obviously haven’t begun their ordering process. And I think overall what we are seeing in the market in terms of general activity trends, we are getting more P&T committee meetings. We are still successful at those P&T committee meetings. And again we are trying to move away from spending too much time on those softer metrics, which many of the people whose names I see are on the call have expressed some dismay at not really knowing how to utilize that information effectively, given all of the different variables that play into the time it takes or an account to convert, the time it takes for converted account to switch to actual steady state ordering patterns. It has been a complicated metric for people to understand. So, I think we feel pretty comfortable with the numbers we put out there based on fourth quarter run rate and what we see moving forward into market.
Han Li – Stanford Group Company
Yeah, good afternoon. Questions on RECOTHROM. Bayer filed European Marketing Application last August. Any update on the European Regulatory Discussion and Drug Vying approval and also can you give us some color on the European thrombin market and we know that J&J also filed for their human thrombin products in Europe too?
James Johnson
As it relates to Bayer’s filing in Europe there is no real update at this point to provide you with other than our assumptions haven't changed. We’re still operating under the joint assumptions that the existing package of data that we provided will be acceptable to garner registration in that territory. Again as you know the communication issues around contact with the EU authorities is something that we have to sort of follow the lead of our partner on and until they are ready to disclose any additional information, we sort of follow their lead in this regard. But at this point there is no change in the assumptions. We’re still operating under the assumption that the existing package will be acceptable to garner approval in the EU territory and beyond. And as far as the thrombin market, again I think this is a situation where there is no standalone thrombin in the EU market today. Bayer believes that provides a very significant opportunity to basically launch their product and build a new market, where there isn’t one. The current options for physicians in the EU territory are either cheap surgical sponges which really don’t have much in the way of hemostatic properties, or expensive fiber and sealants, which by definition are expensive and physicians sort of keep those in reserve. I think the price point for a standalone thrombin product in that market could be quite attractive and therefore it represents a good market opportunity for Bayer. That’s the way they have seen it obviously since they struck the deal with us and again we're optimistic that we’ll receive approval on schedule.
Han Li – Stanford Group Company
Okay. When you see on schedule and approval timeline, should we the earliest we expect or should be some time this summer?
Douglas Williams
And it’s usually about 12 to 14 months. I think is the average time in the EU.
Han Li – Stanford Group Company
So, they filed August, last August should be sometime August, September or it is?
Douglas Williams
Again I think that’s an estimate. I'm not sure that the EU follows quite as rigorous a calendar in that way. So, I would assume second half of 2009 sometime.
Han Li – Stanford Group Company
Quickly, roughly ballpark the European and other territories in terms of market size, can we think is equal size or bigger than the current U.S. market?
Douglas Williams
I think the way we've been thinking about the ex-U.S. market is that in the aggregate is probably a comparable size to the U.S. market.
Han Li – Stanford Group Company
Okay. And quickly a couple of housekeeping items, on the RECOTHROM, the U.S. sales, are you recording U.S. sales but you pay a royalty to Bayer, officially it’s commercial partner, so that will go into the express line going to SG&A I assume?
Douglas Williams
Yeah that’s correct.
Han Li – Stanford Group Company
And you disposed us up to 20% [virtually]?
Douglas Williams
The high end of the range is 20, but it starts in the mid teen.
David Miller – Biotech Stock Research
Okay. And then the last question is can you give us any kind of guidance there or just general kind of guidelines on when you might be including RECOTHROM in other products basing them in the sponges or other kinds of means to kind of extend the use of the product in the surgical suite?
Douglas Williams
I can’t give you specific guidance on that now other than to say that we have pre-clinical activities ongoing for a [flowable] version and the timeline associated with when that would be approved is largely based on the need to have discussions with regulatory agencies about what path that might take. So if we were to move forward that would be the first formulations just based on the level of activity that we've already completed. Preclinically there are other ideas and Steven Zaruby and his team will be exploring those and others as possible line extension strategies in the future, but for now I can’t give you a specific timeline given the lack of certainty around the regulatory path.
David Miller – Biotech Stock Research
Okay, and then I guess I have one other question on the guidance for cash use. Does that assume that any kind of in-licensing of products for the RECOTHROM sales force?
Douglas Williams
Yeah the answer is no on that. It did not assume any in-licensing activities.

Haemacure announces intention to restructure, sell company

MONTREAL — Biotechnology developer Haemacure Corp. (TSX:HAE) said Friday it is likely to run through its cash reserves without additional financing and announced its intention to merge or sell the company.
The Montreal-based firm said it would initiate a process meant to lead to a sale without specifying any potential buyers.
Haemacure implemented a series of cost-cutting measures intended to create a three-month window in which the company could either arrange a sale or secure bridge financing.
Those measures included placing 12 out of 18 employees on leave, restructuring obligations to suppliers and suspending major consulting agreements.
Haemacure said it was also postponing pre-clinical trials for its fibrin sealant, a potential skin-graft treatment that was due to enter the next phase of testing this summer.
The company said it would continue to prepare for the clinical trials in case financing becomes available.
Last month, Haemacure said its 2008 fiscal loss doubled to $8 million or five cents a share as revenue slipped to $96,500 from year-earlier levels of $119,700.