Robert A. Yedid - Managing Director Michael S. Anderson - Chief Executive Officer and Director Sian Crouzet - Principal Financial Officer and Financial Controller Steven A. Lisi - Senior Vice President of Business and Corporate Development.
Jason N. Butler - JMP Securities LLC, Research Division John T. Boris - SunTrust Robinson Humphrey, Inc., Research Division James F. Molloy - Summer Street Research Partners Jason M. Gerberry - Leerink Swann LLC, Research Division Matthew L. Kaplan - Ladenburg Thalmann & Co. Inc., Research Division Scott R.
Henry - Roth Capital Partners, LLC, Research Division.
Good morning, ladies and gentlemen, and welcome to the Flamel Technologies Third Quarter 2014 Results Conference Call. Please note that this call is being recorded. I would now like to turn the call over to Mr. Bob Yedid. Please go ahead, sir..
Good morning. This is Bob Yedid from ICR, and welcome to the Flamel Technologies Third Quarter 2014 Conference Call. Before we begin, I will start with some cautionary statement.
The following presentation regarding Flamel Technologies SA includes a number of matters, particularly as regarded -- as related to the status of various research projects and technology platforms, that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.
The presentation reflects the current views of Flamel's management with the respect to future events and is subject to risks and uncertainties that could cause actual events to differ materially from those contemplated in such forward-looking statements.
These risks include risks that products in the development stage may not achieve scientific objectives or milestones or meet stringent regulatory requirements; uncertainties regarding markets acceptance of products; and the impact of competitive products and pricing.
These and other risks are described more fully on Flamel's public filings, including the Form 20-F for the year ended December 31, 2013.
Except as required by law, Flamel did not intend and disclaims any duty or obligation to update or revise any forward-looking statements contained in the presentation to reflect information, future events or otherwise. After the prepared remarks, we will be opening the call to a question-and-answer period.
At this time, it's my pleasure to turn the conference call over to Mike Anderson, Chief Executive Officer of Flamel.
Mike?.
Thank you, Bob. Good morning, ladies and gentlemen. Thank you very much for joining us today. I'm going to focus my remarks on a number of topics during today's call, including the appointment of Dr.
David Monteith as the Vice President of Research and Development at Flamel; our progress toward capturing the entire neostigmine market; our launch of VAZCULEP; our progress with our other unapproved marketed products; and our pipeline of proprietary products.
And then after my comments, Siân Crouzet, our Principal Financial Officer, will discuss our third quarter financials. We're pleased to announce today that Dr. David Monteith has joined Flamel as the Vice President of Research and Development and will head that group on our behalf.
David is a great addition to our team as he brings to Flamel, 25 years of research and development experience, including the past 14 years at Schering-Plough and then Merck.
His experience includes over a decade of focus on drug delivery and lifecycle product development while at Schering-Plough, and a smaller specialty pharma company, Core Technologies. He also spent time at Lipha and at Syntex. His experience is unique as it ranges from large pharma to specialty pharma to drug delivery. He earned a Ph.D.
in Pharmaceutics from the University of Strathclyde in Glasgow, Scotland. As one would expect, David was very thorough in his review of our product portfolio prior to joining Flamel. He is off to a very fast start, and since he joined us 2 weeks ago and has even within this very brief period of time, contributed to our progress.
Clearly, we're very pleased that he's joined our organization, and we're excited about his contribution. Now I'd like to update on Bloxiverz, the first and only FDA-approved version of neostigmine methylsulfate, an injectable product used in hospital operating rooms. As we announced in early August, Flamel received communication from the U.S.
Food and Drug Administration that all manufacturers of unapproved versions of neostigmine methylsulfate had been notified by the FDA to cease manufacturing of the unapproved versions of neostigmine as of July 30, 2014.
Of course, we sincerely appreciate the FDA's action, which clearly indicates its commitment to the integrity of the unapproved drugs initiative. We also stated back in August that FDA was allowing the existing inventories of the unapproved product in the distribution channel from the manufacturers of the unapproved drugs to continue to be sold.
However, as you will recall, we were not provided information by the FDA, regarding inventory levels held by either these manufacturers or the trade. Our sales of Bloxiverz in the third quarter were consistent with the second quarter.
As of the end of the third quarter, our percent market share of neostigmine scripts was in the mid-teens, and we have seen some modest growth in the past several weeks.
We continue to expect our market share to increase in the balance of the fourth quarter and into 2015, although as I mentioned earlier, the FDA has not provided us insight to the inventory positions held by the unapproved manufacturers in early August.
We are seeing some anecdotal evidence that customers will start to increase orders with Flamel as some accounts are worried about the available supply of the unapproved product. It is important to remember that once the channel starts to run out of the unapproved product, we should see a fairly dramatic ramp-up in the sales of Bloxiverz.
Unlike a traditional drug launch, neostigmine has been used for years and doesn't require any kind of conventional detailing in order to build usage. Turning to pricing. Our current price of Bloxiverz and future pricing philosophy remain unchanged.
We want to remind investors that Flamel has made a substantial investment in the development of Bloxiverz, including the development itself, preparing the FDA filing and bearing the expense of Phase IV work that we agreed upon with the FDA as part of the final approval. We will price Bloxiverz in order to earn an adequate return for our investment.
From the supply standpoint, our inventory is sufficient to supply 100% of the market's needs for neostigmine today, and we have a solid inventory position at all major wholesalers. In fact, our existing inventories exceed what a company might normally carry in order to assure a consistent supply of this medically necessary drug.
So Flamel is in a position to be able to take advantage of customer demand once it comes our way. For our second FDA-approved product, VAZCULEP, we're excited to announce that it has been launched into the market in all 3 vial sizes following FDA approval of our second New Drug Application for phenylephrine hydrochloride on June 30 of this year.
VAZCULEP injection is indicated for the treatment of hypotension, resulting primarily from vasodilation in surgery settings. For the most part, phenylephrine hydrochloride is used in operating rooms and is injected intravenously either as a bolus or on a continuous IV drip using the 5ml and 10ml pharmacy bulk package vials.
Flamel started commercial distribution of VAZCULEP in late September and early October in the 1ml single use vials and the 5ml and 10ml pharmacy bulk package vials. West-Ward Pharmaceuticals has an FDA-approved version of the 1ml single use vial, which was launched about 18 months ago.
It's our belief that Sandoz offers unapproved versions of phenylephrine hydrochloride, but only in the 5ml and 10ml vial sizes. We are encouraged that Flamel's VAZCULEP is the only FDA-approved version of phenylephrine to be available in all 3 vial sizes to the market, which will be of great convenience to hospitals and to other purchasers.
Many hospitals, of course, prefer to buy separate sizes of the same product from the same vendor. Having only the Flamel label will make it less confusing to hospital technicians and pharmacists, potentially reducing the risk of medication error.
As we've discussed, Flamel's strategy for getting FDA approval for VAZCULEP, like Bloxiverz falls within the FDA unapproved drugs initiative.
In order to encourage manufacturers to submit and to get FDA approvals for these older, unapproved drugs, the FDA has a general policy to ask the unapproved manufacturers to exit the market once a product is granted an approval.
A company's ability to supply the market adequately is one of the parameters used by FDA with respect to its timing on these approvals or removals. With our FDA-approved versions of all vial sizes of phenylephrine, Flamel will bring our case to the forefront of the FDA to remove the unapproved drugs from the marketplace.
Based on these circumstances, we believe that it will take FDA less time to begin the process to remove the unapproved manufacturers of phenylephrine from the marketplace than the 14-month time that we've seen for Bloxiverz. Although again that's subject to a number of variables.
The variable that we do control is our ability to have sufficient inventory and doing so, will can provide the comfort, FDA needs, in order to more expediently remove unapproved products from the market. The current market sales for phenylephrine hydrochloride in both the unapproved and approved version are estimated to be about $50 million.
We have announced our WAC pricing, WAC standing for wholesale acquisition cost, for all 3 sizes of VAZCULEP. So distributors, GPOs and customers are aware of our pricing.
As with Bloxiverz, VAZCULEP is manufactured from -- for Flamel by a contract manufacturer with an excellent reputation in the marketplace and was originally selected in part as a result of its excellent FDA record. Turning to our third unapproved marketed drug opportunity.
Based on our R&D team's assessment and recommendation, we will be submitting the NDA application for our third unapproved marketed drug in the first half of 2015, rather than the second half of 2014, in order to ensure the overall quality of our filing package.
While we would have preferred not to delay this filing, management believes this strategy will lead to a successful and hopefully, a speedier outcome. We believe that the market size for the drug is at least as large as neostigmine market at launch, and it has the potential to be the largest opportunity in our company's UMD portfolio.
We will announce the filing of a clot #3 to investors at a time of acceptance of the NDA filing by the FDA, which is, as you may know, approximately 75 days after the initial filings, assuming all materials are in order. With regards to a clot #4, we are still contemplating a 2015 filing.
Overall, we believe our unapproved marketed drug strategy is still viable and the company will continue to look for opportunities in this area, always putting those in the context of other product opportunities available to Flamel. Now turning to clinical data announcements.
In late September, we announced the results of a First-in-Man Clinical Study in healthy volunteers using our proprietary LiquiTime drug delivery platform applied to ibuprofen, a broadly used medication for pain relief and for fever reduction.
LiquiTime, of course, is designed to provide a controlled, extended release of oral liquids, principally for patients who may have difficulty swallowing pills for whatever the reason.
We're very pleased with the initial data on LiquiTime ibuprofen as it is the first of 2 planned programs in our pipeline of proprietary products, using the company's LiquiTime technology for the over-the-counter or OTC market. The next step will be to move this product into a pivotal, bioequivalence study, which will involve more patients in 2015.
The recent trial was designed as a 16-subject, 3-way crossover in healthy volunteers, evaluating 2 different formulations of LiquiTime ibuprofen, dosed twice a day compared with an immediate release ibuprofen oral suspension dosed 4x a day as the control arm.
One formulation of LiquiTime ibuprofen was shown to be bioequivalent to the immediate release ibuprofen oral suspension using the FDA's requirements for bioequivalence. There were no safety or tolerability issues. The ibuprofen market is large and it presents a solid product opportunity for Flamel.
For anyone that has young children, we think there's a benefit to dosing a child at bedtime for a full night's effect, rather than having a child waking up in the middle of the night for a second dose. One research analyst put the branded and private label OTC market for these liquid ibuprofen-only products at over $200 million in 2013.
We anticipate that our product will be differentiated in the market as a 2x per day dosing rather than as a 4x to 6x per day, which obviously could command a premium price to today's products in the marketplace.
Being able to reduce the dosing with a pleasant tasting product that has good mouth feel would provide real value to Flamel and to its shareholders. Work on our next LiquiTime pipeline product in the respiratory area is proceeding.
In terms of the timing, we anticipate that the data for that program will be announced in the first quarter of 2015, rather than by the end of 2014 year originally projected. The study itself is proceeding in a timely manner.
However, prior to disclosing the data, we'll need to have a quality audit of the clinical study site at the end of the trial to be completed by our CRO, and this will cause us to announce the data in early 2015. Currently, the standard timeframe for such quality audits of the study site is 30 to 60 days.
As we've said many times, Flamel does not have the scale or experience to compete in the OTC market, and we will be seeking a licensing partner for our products at the most opportune time for the company. We will seek a partner for both our LiquiTime products, that have been tested in the pain and respiratory areas.
The flexibility of the LiquiTime platform allows Flamel to create a variety of products, both OTC and prescription. The platform's ability to handle drugs with different kinetics can be a very valuable for both single-entity drugs or for combination products.
Now I would like to update you on the other products in our proprietary pipeline using Flamel's other patented drug delivery platforms. In addition to the LiquiTime products, the company's other products include sodium oxybate using Micropump, our flexible drug delivery technology for the oral delivery of small molecules.
Micropump is a proven technology, and it's been approved to be a Coreg CR since 2006. In April, we announced positive results from a First-in-Man clinical study in healthy volunteers using our Micropump technology applied to sodium oxybate.
The study identified formulations with the potential to eliminate the second night time dose for patients suffering from narcolepsy. The initial trial was in 16 patients using 3 different formulations of Micropump sodium oxybate and Xyrem at a nightly dose of 4.5 grams with an extension phase at 6 grams for the successful Micropump formulations.
As we explained on our last call, we are currently conducting an extension of that protocol using 2 of our Micropump formulations of sodium oxybate on the larger number of healthy volunteers, where additional subjects will be dosed at 4.5, 6 and 7.5 grams. We expect to announce the PK data from this larger extension study before the end of 2014.
I want to reiterate our development program for Micropump sodium oxybate to our investors. Following the just mentioned PK study, we'll perform another study to further evaluate pharmacokinetic and pharmacodynamic endpoints with results expected in the second quarter of 2015. This study is not a registration study.
We plan to meet with regulatory authorities prior to embarking upon any registration studies, which we expect will begin before the end of 2015. Based upon the FDA's requirements, likely an 8- to 12-week timeframe for the endpoints in the trial and the time needed for enrollment, we anticipate an NDA filing in late '16 or early 2017.
We will keep investors and analysts up-to-date on our progress. Flamel also has an initial pipeline product in pain that uses our Trigger Lock drug delivery technology. Trigger Lock is specifically designed to provide abuse resistance for long-acting opioid analgesics, which is a major problem in the United States.
Trigger Lock products are designed to be resistant to abuse by extraction and subsequent injection, crushing and snorting as well as being resistant to extraction of the drug using alcohol. The start of our clinical trial has been slightly delayed because of import/export issues with controlled substances up to here in France.
While we expect those issues to be resolved very shortly, this means that the pharmacokinetic data from this initial Trigger Lock trial will not be available until the first half of 2015. We will be conducting in vitro abuse deterrence testing for the Trigger Lock opioid product in parallel, in order to facilitate getting the timing back on target.
These data will be announced with the PK data in 2015. Finally, work is continuing on our once-weekly formulation of exenatide, GLP-1 agonist used to treat type 2 diabetes based on our Medusa platform for injectables using a hydrogel depot formulation. We expect to present clinical -- human clinical data in the second half of 2015.
Overall, there are 5 programs in our proprietary pipeline, which Flamel plans to work actively on and where the company has 100% rights.
As outlined in our investor presentation, which is posted on our website, we just presented data on the LiquiTime ibuprofen product, and we expect to have data on 3 or more of these products in the next 3 to 9 months.
Moreover, we expect to add new products to our proprietary pipeline over time that will allow us to leverage our capabilities and to showcase the patented drug delivery platforms. We hope to provide updates on additional molecules in our mid-term proprietary pipeline in various stages of preclinical development prior to the end of 2015.
With that, I would like to turn the call over to Siân Crouzet, our Principal Financial Officer, for a discussion of the third quarter financials.
Siân?.
Thank you, Mike, and good morning. Flamel reported total revenue during the third quarter of 2014 of $7 million compared to $5.6 million in the third quarter of 2013. Product sales and services revenues in the third quarter of 2014 totaled $4.7 million compared to $2.5 million for the year-ago period.
The year-over-year increase was due to the continued sales of Bloxiverz, which had just started its launch in the prior year quarter. On a sequential basis, the sales of Bloxiverz were comparable with the second quarter. Cost of goods and services sold for the third quarter 2014 were $1.9 million compared to $1.7 million in the prior year period.
Research and development costs in this third quarter totaled $7 million, slightly higher than the $6.7 million in the prior year period. Selling, general and administrative costs were $4.1 million in the third quarter compared to $2.9 million in the third quarter 2013.
This increase resulted from the increase in FDA products fees, following the approval of VAZCULEP and higher legal costs against manufacturers of unapproved neostigmine. We continue to amortize R&D assets associated with the development of Bloxiverz. The amortization expense was $2.9 million in the third quarter of 2014.
This is a noncash expense and we will be amortizing these R&D assets through the end of 2016. Total net interest income was $86,000 in the third quarter of 2014 compared to interest expense of $688,000 in the prior year period.
Interest expense was largely eliminated with the company's repayment of nearly all of its debt and lines of credit with the portion of the net proceeds from its offering of 12.4 million ADSs in March of 2014. Net loss on a GAAP basis for the third quarter 2014 was $10 million versus a net loss of $6.4 million in the year-ago period.
Loss per share, both basic and diluted was $0.26 in the quarter versus $0.25 in the third quarter of 2013. In addition, we have provided certain non-GAAP data that allows investors to evaluate the company's ongoing operations.
The adjustments exclude fair value remeasurements and amortization expense directly associated with acquisition of Eclat on an after-tax basis, asset impairments, effects of early reimbursements of certain debt instruments, and unrealized foreign exchange gains and losses, as it includes earnout and royalty payments due associated with the acquisition liabilities and royalty agreements.
Adjusted net loss for the third quarter of 2014 was $6 million versus an adjusted net loss of $5.4 million in the prior year period. Adjusted loss per share, both basic and diluted, was $0.16 in the third quarter of 2014 versus a loss of $0.21 in the prior year period.
With respect to cash and marketable securities, we ended the third quarter of 2014 with cash and marketable securities of $76.4 million, reflecting a cash use of approximately $1.5 million over the quarter.
During the third quarter, Flamel received a payment of $5.7 million from the French government in recognition of the research and development conducted by the company in France, effectively an R&D tax credit.
We have qualified for this R&D tax credit in France for the past several years, and it is typically received in the second or third quarter of the year, related to our R&D spending in the prior year. From a cash use standpoint, the change in our cash position from the end of the second quarter to September 30 was $1.5 million.
If we subtracted the full $5.7 million R&D payments, which happens once a year, then the mathematical cash used for the third quarter would have been $7.2 million.
However, if the R&D payment was spread ratably over the 4 quarters, then approximately $1.4 million of the R&D payment would have fallen into Q3, which would imply a cash use of $5.8 million, which is very similar to our adjusted net loss of $6 million. With that, I will now turn the call back over to Mike before taking questions..
Thank you, Siân. We've seen a series of steps forward at Flamel, including the FDA's decision to force the suppliers of unapproved neostigmine to cease manufacturing of neostigmine as of July 30, 2014; the commercial launch of VAZCULEP; and initial clinical data on our LiquiTime pain product.
Internally, we're pleased to have our new Vice President of Research and Development on board, who is already contributing to the direction of our proprietary R&D efforts.
Unfortunately, during the quarter, we also had some challenges and product timelines with respect to clot #3, the timing of the clinical data of our LiquiTime Respiratory product and our Trigger Lock opioid. However, development of all of these products is continuing and we will look to recover time where we can.
We look forward to our ability to increase our sales of Bloxiverz as the supplies of the unapproved product are depleted in the marketplace. From our proprietary pipeline, we continue to provide visibility to our shareholders into our important pipeline products, such as sodium oxybate, as our programs advance and meaningful updates become available.
We appreciate your participation on today's call. And before we begin the question-and-answer, I'd like to also mention and introduce to you Steve Lisi, who's our Senior Vice President of Business and Commercial Development. And over the course of your questions, Steve, Siân and myself will be available to answer them.
So at this point, operator, I'd like to open the line for any questions..
[Operator Instructions] And we will take our first question from Jason Butler from JMP Securities..
Just the first one on the neostigmine market.
Mike, can I just ask you to give a little more color on your comments that you've heard anecdotal evidence that the supply may be running down for the unapproved products? Is there any additional information you can give us that gives us some confidence that the supply in the channels will be expired by -- within the next couple months or so?.
I'll do my best here, Jason. As we've mentioned earlier, we have received some anecdotal commentary from customers and not only including hospitals, but distributors as well asking to make sure that our inventories were sufficient for information they're getting from other suppliers.
We've -- and the uptick of these kinds of questions and conversations has taken a new perspective over the past couple of weeks. We -- for those reasons, feel fairly comfortable that we're getting close to the end of this.
And -- so most of it is just questions from our customer base and some of the research and analysis we've been able to do in the marketplace..
Okay, that's helpful.
And then just on VAZCULEP, any early read into the adoption here? And any insights you can give us into how you think the adoption curve will look, while there's still nonapproved product in the channel?.
Yes, great question. And I can tell you that it's -- obviously, only been a couple of weeks that we've had VAZCULEP on the hospital shelves and on the wholesaler shelves.
But at this very early stage, as we mark the progress of VAZCULEP comparing it to the initial uptake of Bloxiverz, it appears to be moving better at this point in time than Bloxiverz was. We're not 100% sure why that is, but we've already had hospital movement each day and a growing movement of all 3 vial sizes.
So we're kind of buoyed by that, but it's still early. And we'll just have to see how that materializes over time..
And we'll take our next question from John Boris from SunTrust Robinson Humphrey..
Opportunity to take questions. So obviously there was some increased legal expense hitting the OpEx line associated with your anticipation of the FDA, trying to attempt to get all the neostigmine suppliers out of the marketplace.
But what is the next step for the FDA to take? Is there any step for them? And what prevents the suppliers from continuing to put product in the channel all the way through November and December? Do any kind of -- any kind of guidance you can give there would be helpful going forward. And then I have some follow-ups..
Sure. So that's a great question. And first, let me comment to you, John, that we have, even after our discussions with FDA back around the first of August, we've continued to have some ongoing dialogue with them to make sure that our understanding was correct and so forth.
And we have received word from FDA on more than one occasion that in fact, our understanding is correct. We were told at the time that FDA would allow whatever inventory that might exist to continue to be sold. We -- it's our belief that one of the people who participated probably had less inventory than the other.
But given that this product had been on the shortage of supply list early in 2014, you'll remember maybe that in January, February and the March timeframe, we saw a pickup in our sales of Bloxiverz because the unapproved products were in short supply.
So -- and given that it had historically been on and off again in short supply, we believe that as of July, the likelihood that there existed tons and tons of inventory on a product that unapproved guys were selling for a fraction of ours would be nonexistent. And -- so for those reasons, we do believe that the inventory maybe running pretty low.
In terms of what's the next step for FDA. I think the FDA's requesting and having the unapproved manufacturers remove the product should be enough of an action to cause most companies to do that. But if it were to turn out, that it goes on and on, we'll have to evaluate that at the time. Again we don't expect that to be the case..
Okay. So looking at 4Q is -- do you care to take any stab as to what you might think your market share might be in the fourth quarter? And then related to VAZCULEP, you indicated that it took 14 months for FDA to put a communication out there about neostigmine.
What makes you so sure that the FDA is going to act faster on the VAZCULEP product going forward?.
Okay. Well, first of all, I'm reticent about guessing on market share for Q4.
I will tell you, and as you know from your experience in this business, that given that this is a product where there's already a build-in demand and that, all we're doing at Flamel is really harvesting the demand that's already there, once the inventories run out, that the ramp-up should be fairly brisk.
And you -- I mean, you'd normally think, well, 1 month, you have 20% the next month, 30%, 40%. And we don't believe the trajectory of this -- Bloxiverz is going to look like that. So with respect to our market share, I think we have high expectations of doing quite well, even in the fourth quarter.
As it relates to phenylephrine and the second part of your question, and our confidence level that the FDA is going to remove unapproved phenylephrines from the marketplace in 12 months or less, I don't have that confidence. We do think that because the unapproved product, I mean, first of all, because there's been an approved 1ml vial out there.
And we believe they also probably been involved trying to get FDA to remove unapproved products, given that now, for the first time, FDA has approved the 5 and the 10ml at -- from a supplier who has shown historically it can supply product.
Three, because phenylephrine has not been deemed a medically necessary drug that all of the things and many of the parameters by which the FDA would use would point in favor of this being a sooner-rather-than-later product removal.
And we certainly don't have any proof, and we could go to FDA tomorrow and ask them to put that in writing and we'd be kidding ourselves. They wouldn't do it. So we have to be aggressive in our communications with FDA to assure them, A, we have sufficient inventory to supply the market, and we do.
And B, to remind them of the value of the unapproved drugs initiative and what it does for healthcare consumers. And so we're going to do everything we can to accelerate that. And we've come to know the FDA through this first experience. I can assure you..
And then just last question, I'll hop back in the queue then, Siân. Just for Steve, on the ibuprofen product concept of twice daily dosing.
Have you had an opportunity to take that product concept to both branded and generic manufacturers and assess their interest level, all the twice daily ibuprofen?.
John, you know I can't answer that question. So -- we're not going to discuss anything about any conversations we have with any other companies. So I'm sorry about that..
And we'll go now to Jim Molloy from Summer Street Research Partners..
Did you put out the actual Bloxiverz number? Because I remember you said with in line with what it was last quarter.
Is there -- do you guys give the actual number and if not, is there a reason why?.
Well, first of all -- that's a good question, Jim. First of all, we did not put out numbers, we haven't been putting out numbers. And as you know, we still, because we're new to the market, don't have a history, we have this revenue recognition issue, which is still impacting the numbers that you see.
If you look at the data sources on IMS, you see one set of numbers. We actually, and we have not published these numbers and at this point in time, wouldn't be inclined to do so. We do subscribe to a service that tells us each morning the movement of vials from the wholesaler to the hospital, the day before, on each of the strengths of neostigmine.
So we see everyday's movement out of the distribution channel into the hospitals. In fact, it's so specific, we can actually see which hospitals are ordering it. But that -- it's proprietary data and we really can't disclose that.
I can tell you that in the third quarter, as you saw in our numbers reported this morning, it was pretty much the same as it was in Q2. I can also tell you that as of recently, those numbers have been subject to a, what I'll call, modest pickup.
So we have seen some acceleration in those numbers, not enough for us to toast each other yet, but hopefully, it's a precursor of things to come..
And another.
This is slated -- presumably, this is slated to become a fairly large line item for you guys, at some point, do you expect putting out the Bloxiverz number?.
Yes, I think, as time goes on and the market settles down a little bit, that we'll probably try to be as transparent as we can possibly be. When you're in the early stages and this is something of an usual launch, of course.
Then, I think that there are so many issues that are on the side to put out numbers that we could maybe put out, could in some cases be misleading to people. So what you see in the way of revenue recognition and numbers that have gone straight to hospitals and don't reflect any numbers that sit in wholesalers and it's available on [indiscernible].
I'm sorry Jim..
How much visibility do you guys have into the channel? Or how much you think you can get? Obviously, I imagine you're probably trying as best you can to find out, or how much of that old inventory is still out there? And then....
Yes, we're quite active. We have a number of intelligent sources that we rely on and it's -- the marketers of the unapproved products have done a great job of camouflaging how much they have in any location, or what they plan to do with it, even though we clearly reported our conversations with FDA.
So people are, because of agreements companies have with wholesalers and with GPOs, there's a big limitation on how groups and wholesalers, how much information they can disseminate to us. But we work as many of the angles as we can..
The last question and then I'll hop back in the queue. I know that -- the Bloxiverz, the acquired strategy of all products, you get exclusively. You run it for a few years and then at some point, generics are expected to come into the market.
How long is the window remaining for Bloxiverz? And how much time do you guys have for at his point before the generics might start coming back?.
Well, clearly -- well, generics won't be coming back. They'll be coming for the first time, of course because so far. And now we require somebody to go through and filing an ANDA where the average queue time at the FDA is somewhere in the neighborhood of 30 months, last time I looked. So it's not a rapid process.
So -- but the truth is, is that we don't have any protection, not having IP. But one thing, I think people really haven't understood about this is that in our -- currently, we modeled in and we would suggest that we could probably see a generic sometime in late '16, although we don't know.
It could happen tomorrow, it could happen -- we could have end up with 5 years for that exclusivity. We just don't know.
But what I can tell you is that when a generic enters the marketplace or an approval is granted, we -- because we have experience in the generic market through the -- a clot group, we'll enter that generic market ourselves as our own AG. And so if this thing -- we'll have a tail on it.
It will go as long as neostigmine is a viable drug for reversing the effects of a neuromuscular block. Neostigmine is today, as you know, the only drug really that's used. There are some competitive product from Merck in Europe that has been turned down a couple of times by FDA. And so we feel pretty good that this is not a 1 year and out.
Clearly, there will be a window of time where the opportunity for Flamel and its shareholders is the highest..
[Operator Instructions] And we'll go now to Jason Gerberry with Leerink Partners..
First, just on clot #3, wondering if you guys could expand a little bit on what drove the delay and just how you guys would go about kind of just assuring investors that there's no major issues with respect to that submission?.
Great question, Jason. We -- the product is pretty much developed.
We are -- the submission of -- both of our first 2 NDAs were submissions that were, I guess, what you -- they're called paper NDAs, right? We didn't have to do any clinical work in front of it, and it's making sure that our clinical package for the third product is sufficient that we can get a quick and expedient review.
We think that we're on the right road and it's just a small delay, but we'll have to see. But we still anticipate filing it and we still think it's a -- it's an excellent opportunity. That's about all I can tell you. Sorry, I don't want to be evasive..
Okay. And just on Bloxiverz, the opportunity to price that product more commensurate with brand pricing.
Is the thought there that once you see a couple major orders, coupled with your own intelligence, what's going on with the market, that's going to be sort of the trigger point for you guys to increase your pricing on that product?.
Yes, that's a great question. And we'd prefer not to talk about pricing, frankly. But we -- just suffice it to say, you clearly know how the industry works. But also we have a significant investment in this product.
And we have a responsibility to our shareholders to have a reasonable return on that, and we'll do what we can to get that reasonable return. But I think that the way you do with these unapproved drugs is you try to be a strategic as you can be..
And then just last question on VAZCULEP, just the commentary that perhaps this could have a shorter than a 14-month timeframe for the FDA to get notice to the UMD suppliers.
I would think conversely that Sandoz maybe now knows that they'll be able to sell of their inventory after they get that notice and then, there is a risk that they buildup inventory starting now really.
So I mean, in the end of the day, should we be thinking about this sort of a net 18 months before you really get to enjoy better market conditions with respect to this opportunity? That's my last question..
This is -- who knows, I don't have a crystal ball. But I wouldn't look at it that way myself.
I think that, first of all, having been in the injectable manufacturing business for many years long before we started the clot, I can tell you to build inventory, significant amounts of inventory on a product that you're selling for 35% gross margin, probably doesn't make an awful lot of sense.
And I think that when you look at the Sandoz line of products and you look at the position that a 5ml and a 10ml vial of phenylephrine have and to me, that would be an interesting allocation of resources. Having said that, I can't speak for Sandoz.
We've said all along with respect to these unapproved drugs and the initiative is that FDA gives itself flexibility. I mean, as you know, I mean, we -- you look back at the unapproved drugs that have been handled in this fashion and some of them are -- been enormous success stories, things like colchicine and clindine and a number of others.
And you can see each one of them is a slightly different story. I believe that with respect to Bloxiverz, that part of the extension of that was for 2 reasons. Number one is neostigmine had been in short supply, historically, for 2 years. Alternately, West-Ward, American Regent, who was in it onetime, and APP, were in and out of inventory.
And when they were out of inventory, there were actually circumstances where elective surgeries had to be postponed. So given that there were no alternatives to the use of that drug, I think that, that was an impact to the FDA.
One of the biggest things they have is making supply chain worse because there's been such emphasis on the availability of -- particularly, injectable products in the marketplace.
Number two, with Bloxiverz, no one at FDA was familiar with a clot, and I think there was a concern that if you turn the business over to a clot and the clot, 6 months, 4 months later can't supply the market, then FDA has a bigger problem than they did in the first place.
And then the third issue, which is the idea of that not only was -- or was in neostigmine short supply, was a medically necessary drug. And it was rated as such by FDA. Phenylephrine is not treated that way. So -- and now clot is more familiar to the compliance work and the FDA.
And I think the way we've handled ourselves with Bloxiverz, while it's taking longer than we thought, I think will benefit us down the road. That's just my view. But we don't know, I can't speak for what Sandoz would do. I can just tell you what historically I have seen done..
And we'll take the next question from Matt Kaplan from Ladenburg Thalmann Firm..
Been a lot of focus on your unapproved product strategy. I wanted to shift gears a little bit in terms of your pipeline and specifically, can you talk a little bit about the sodium oxybate opportunity? And a few questions around that. But first, the extension study, the 2 formulation studies that's ongoing and the 3 different doses.
What should we look for when you announced that PK data by year end? I guess, what are some of the benchmarks that we should look at when you present that data?.
I'm going to defer to Steve on that, Steve?.
Thanks, Mike. Hey, Matt. What you want to see is the consistency with the first set of data that we showed. So we showed 4.5 and 6 grams, so you'll see those doses, again, plus the 7.5. We want to see consistency there in the data that we put out.
So we'll be putting out what our -- just what we did last time, what's the relative Cmax? What's our blood levels at average 6, 7 and 8? The same kind of data.
We just want to see consistency there, so that we can repeat exactly what was done the first time, so that we know we have a larger number of patients now -- excuse me, subjects now and new subjects. So that's really what you're looking for.
I don't think we're going to be giving too much more information than what we gave you on the first set of data..
Great.
And then in terms of -- if you think about the competitive landscape for Xyrem and sodium oxybate , and the regulatory pathway forward for you guys, could you talk a little bit more about that? And where this product would fit in? Obviously, there is next-generation products that Jazz and Concert are working on and the current product that's on the market.
And talk a little bit about, in terms of the timing that this could potentially have to market as well..
So I haven't seen any data on the Jazz, Concert product in humans. So I have no idea how our product compares to that product. So until we see data, there's really nothing I can say there. With respect to the current product of the market in Xyrem and the potential for generics, there's always generic challenges there.
Therefore, I felt -- obviously be similar to Xyrem, I mean, you're looking at a twice-a-night product versus a once-a-night product. I mean, that's all we can say right now in terms of knowing substantial or those significant differences between the 2.
We'll have to show more data to approve if we have any further differences or advantages over the product over Xyrem. But our understanding is that's a pretty significant difference for patients. So that's where we'll stand in the market if the Concert program is there, we'll have to assess that the time.
If it's not there, then it's essentially a once-a-night versus a twice-a-night dosing at this point. We can't really claim anything further than that. As for timing, I think we've been pretty clear that our goal is to -- as Mike stated earlier, our goal is to begin the study, the pivotal study by the end of 2015.
We can't predict enrollment times, we have no idea, but if you look at the Xyrem label, they ran 2 studies, the 2 different indications of excessive daytime sleep and as in cataplexy and narcoleptic patients. And those were 8- and 12-week end points from an efficacy perspective.
So one would think that we would have similar time frames for all trials, we can't be sure until we speak to FDA. But using that as a benchmark and so thinking about what we're going to do in terms of enrollment, I mean, you could all make your own guesses on that.
This is an often indication, patients are -- once that are diagnosed, they're are not too difficult to find. I think Jazz has stated there's about 12,000 patients on drug, on Xyrem, something like that, that they say on their quarters. So make your on the assessment on that.
But if we enroll patients and appear to -- in a certain period of time, we have an 8- to 12-week endpoint, we're hoping that an NDA submission will be somewhere around the end of 2016, late '16, early '17 kind of timeframe. And then you can make your own assessment as to how long it takes us to get to market.
Obviously, Jazz has patents in Orange Book, and I think everybody fully understands the requirements of 505(b)(2) filing that we're going to make if we're referencing Xyrem, obviously, everybody understands that.
So I'm not going to make any guesses here on how long it's going to take us before we get to market or not, that's something you guys are going to have to figure out. So that's our timing, I hope that helps..
And we'll take a question now from Scott Henry from Roth Capital..
I guess, I'd really -- trying to figure out how the ramp for Bloxiverz is progressing, and you've given us a lot of information.
But I'm wondering, with regard to the inventory out there, I mean, do you think it's a matter of days, or weeks before it would be depleted from today?.
Scott, I'm hesitant to make a guess on something I really don't know, I mean, we all have opinions. I think I -- based on the anecdotal steps, we've referred to, I think we may be fairly close. But we still expect this to be a significant contributor to us this year.
So rather than to guess that the inventory runs out next Thursday or week after that, I just don't know. But we do feel like we're on the right track and getting closer..
That color was helpful.
And I would expect by first quarter of '15, well, we certainly expect at a steady-state run rate, would you agree?.
That's our expectation..
Okay. And then just shifting years, looking at the model, license and research revenue was down in third quarter. Is that a blip down? Or is that kind of what we should expect going forward? It's obviously not as material as [indiscernible].
Well, Scott, remember, that used to be Flamel's business model and we've changed that model. We've taken over a period of time now. We've consciously put products of our own in, such as sodium oxybate and ibuprofen and so forth.
We've -- over the same timeframe, we've had -- we've eliminated products that we worked on for a long period of time that have no financial future or upside for us. And we are not, at this time, soliciting people to bring us a molecule to have us work on that. And that's why you see those revenues off.
And once the Bloxiverz and VAZCULEP pickup then we'll replace those revenues many, many times over with our own products. But it's a conscious effort and it represents a change in our business model. And one that's designed sort of to keep the company moving in the right direction for a long period of time.
It's difficult -- it's almost impossible to create a company today. And today's marketplace is dependent upon you're being able to solve some drug delivery problem that nobody else can solve. Just doesn't happen. Having said that, if somebody brought us a great opportunity, we'll talk with anyone.
But our focus is not to go out and drum the bushes to build that kind of business..
Okay, fair enough. And final question, your clot #3 is obviously a pretty important product for you. My understanding with these unapproved drug products is, it is a key part of the business model is being the first one filed.
So pushing that out to 6 months, do you still have high confidence level that no one could beat you to the filing of that product?.
We think that this delay is not going to impact that. That's correct..
And it appears there are no further questions. At this time, I'd like to turn the conference over to Mr. Mike Anderson, CEO, for any additional comments or remarks..
All right. Thank you, operator, and thank you for joining us again today on the call. We want to remind investors that we're going to be presenting at several conferences the next few months, including the Barclays Small Cap Symposium on November 12 in New York, and then the Jefferies Global Health Care Conference in London on November 19.
This will be followed by the Leerink Health Care Conference in New York in February and Barclays Global Health Care Conference in March in South Beach in Miami. And we will look forward to updating you on our business in our fourth quarter results call. Thank you again. Have a great weekend..
And ladies and gentlemen, this does conclude today's conference. And we do thank you for your participation..