Antares Pharma, Inc.
Q4 2016 Earnings Call Transcript

Published: 14 Mar 2017

[Operator:]

Welcome to the Antares Pharma Fourth Quarter 2016 Operating and Financial Results Conference Call. [Operator Instructions] I'll now hand the conference over to Mr. Jack Howarth, Antares’ Vice President of Corporate Affairs. Please go ahead, sir.

[Jack Howarth:]

Thank you, Alan and good morning, everyone. This morning, we released our fourth quarter 2016 financial results and recent operating achievements and a copy of the press release can be found on the Antares website at www.antarespharma.com under the News section. In addition, this morning’s teleconference also contains an interactive slide presentation. If you have dialed into the audio-only teleconference, you can follow along with the slides, which can be found on our website under the Investor Information section. The conference call and slide presentation will be simultaneously webcast on the Investor Information section of the Antares website under the webcast tab. If you are currently unable to access our website, the conference call and slide presentation will be archived under the webcast tab at the conclusion of today’s call. Before we begin, I’d like to remind you that some of our statements made during this conference call will contain forward-looking statements within the meaning of the Safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. These statements are subject to certain risks and uncertainties and actual results could differ materially from those projected in any forward-looking statements. These forward-looking statements may include, but are not limited to the timing and the outcome of the FDA review of the QST new drug application and FDA approval of the same, statements concerning the market acceptance and revenue from sumatriptan injection USP; growth of prescription, and sales of OTREXUP, Teva and our ability to adequately and timely respond to the Complete Response Letter received from the FDA for the VIBEX epinephrine auto injector ANDA and approval by the FDA of the same, and any future revenue. The timing and outcome of paragraph four patent litigation related to Teva’s Teriparatide pen program, continued progress in ongoing development programs and actions by the FDA regarding the company’s product candidates and those of its third party partners including Teva’s ANDA’s for the Exenatide and Teriparatide pen’s and AMAG’s product in any future revenue related thereto, the timing and results of clinical research and development projects; and the timing of launch of products in development and future product revenue. Forward-looking statements provide Antares’ current expectation or forecast of future events. Factors that could cause actual results to differ are discussed from time-to-time in the company’s filings with the SEC on Form 10-K and in Antares’ periodic filings on Form 10-Q and 8-K and other filings made with the Securities and Exchange Commission. Links to these documents are available on the Investor Information section of our website and we encourage you to review these materials. Antares is providing this information as of the date of today’s conference call and does not undertake any obligation to update any forward-looking statements contained in this conference call as a result of new information, future events or circumstances after the date hereof, except as required by law or otherwise. The company cautions investors not to place undue reliance on these forward-looking statements. Joining me on the call today are Bob Apple, President and Chief Executive Officer; and Fred Powell, Senior Vice President and Chief Financial Officer. Let’s review the agenda for today’s call on Slide 3. Bob will begin with an overview of the 2016 highlights and then an overview of the accomplishments of the fourth quarter. Fred will then take you through the detailed fourth quarter and full year financial results and then Bob will give you a business update. After that we will open the lines up for your questions. Please now turn to slide number 4. I’ll now turn the call over to Bob Apple. Bob?

[Bob Apple:]

Thanks Jack and good morning everyone. Well if you live in the Northeast I assume you're in your pajamas and taking a call from your house due to the blizzard that’s happening as we speak. So if you guys hear what sounds like static on the line it's actually driving sleet on our windows and so I do appreciate your understanding if it becomes bothersome, but I would like to start today's call with a review of the many achievements over the last 12 months which helped drive record company revenues of more than 52 million for 2016 and a much overdue increase in our share price. Let's start with our most important and exciting asset in development, QuickShot Testosterone, 2016 was important year for this product as we said in a number of very aggressive deadlines for the completion of the 26 and 52 week Phase 3 PK and safety studies allowing us to move forward and submit an NDA ahead of our original projected filing date of early 2017. The PK data was extremely impressive and the safety data was consistent with the drug class. We submitted the NDA to the FDA in late December. The NDA was accepted as filed in February and the FDA has assigned an October 2017 PDUFA date. My congratulations to the Antares team for an outstanding effort. Another one of our milestone achievements in 2016 was the on-time delivery in the second quarter a fully packaged sumatriptan to our distribution partner Teva. Sumatriptan was a first combination AV rated product approved by the FDA for Antares. This represented a third product approved utilizing Antares injector device and the second drug device combination product approved by the FDA. Teva meets sumatriptan commercially available early in the third quarter and is now carrying pharmacies including Walgreens across the country. In the first six months on the market Teva has achieved over a 20%^ market share. The next exciting collaboration I would like to discuss is Exanotide. Teva announced early last year a settlement of their patent litigation with AstraZeneca relating to Byetta, an injectable form of Exanotide for Type 2 diabetes. As a result of this settlement Teva will be able to commercialize a generic version of Byetta in the U.S. beginning October 15, 2017 assuming FDA approval. Teva's ANDA is under active review at the FDA and we look forward to potentially bringing a lower cost generic alternative to the market in 2017. Our third collaboration with Teva is teriparatide, which is a generic form of Eli Lilly's osteoporosis drugs drug FORTEO. Teva's ANDA for the teriparatide was accepted by the FDA in the first quarter of 2016 and is under active review. As a potential AV rated generic this could be a significant revenue opportunity for both Teva and Antares. Our fourth collaboration with Teva is an epinephrine pen which is a generic form of Mylan's EpiPen. Teva received a complete response letter in February of 2016 and we have been working with them to formulate responses to the FDA questions. I'm happy to report that Teva has submitted their responses to the CRL and is working with the FDA toward a potential approval. Teva's guidance continues to be - that they will be able to launch an AV rated version of EpiPen in late 2017 or early 2018. Our partnership with AMAG pharmaceuticals is for their progesterone product Makena which is indicated for the prevention of pre-term birth. This was the first business alliance collaboration to utilize the QuickShot auto injector, the same device we're using for our once weekly testosterone product QST. You'll recall that this device was engineered to deliver highly viscous [ph] solutions like testosterone and progesterone to refine gauge needle [ph] subcutaneously. AMAG intends to switch patients from a weekly interim muscular injection to a subcutaneous injection. AMAG initiated a definite PK study in the fourth quarter of last year utilizing our QuickShot auto injector device and reported positive top line results in the first quarter of this year. Basing the results of this study AMAG intensive file and sNDA in the second quarter of this year and anticipates a six months review. Finally one of our key 2016 business priorities was to continue to grow our revenue line and shift our revenue mix towards increased product sales. Examining our full year 2016 top line results product sales were 77% of total revenue and product and development revenue combined was 97% of our total 2016 revenue. We reported full year revenue of 52.2 million, a double digit increase over last year and a record for the company. Before Fred reviews the full year financial results, I would like to turn to slide five and briefly review our fourth quarter achievements. We continued our year-long strong financial results in the fourth quarter both double digit sales growth that was driven by an increase in product revenue. Total product sales grew 8% versus the fourth quarter of last year and total revenues grew 20% versus the same period. In support of QST key opinion leaders presenting our PK and CP data from our 52 week Phase 3 study at the Sexual Medicine Society annual meeting this past November. Physicians attending this conference were impressed by our data and intrigued by the idea of a once weekly subcutaneous at home administration of testosterone. Finally we announced that our partner Teva had successfully completed the decentralized registration process in New York [ph] for teriparatide, generic form of FORTEO. This was our first approval utilizing our multi-dose pain platform. With that I'll now turn the call over to Fred Powell. Fred?

[Fred Powell:]

Thanks, Bob. Let's get started by looking at the details of revenues for the fourth quarter on slide number 6. Total revenue was $14.2 million for the three months ended December 31, 2016, compared to $11.8 million for the comparable period in 2015, representing growth in total revenue of 20%. Product sales were $9.7 million for the three months ended December 31, 2016 versus $9 million comparable period in 2015. Products sales represent sales of our proprietary products and devices or device components to our partners. The increase in product sales for the fourth quarter was primarily driven by sales of sumatriptan injection as well as the continued growth of OTREXUP which increased 25% versus the same period one year ago. Development revenue was $3.8 million for the three months ended December 31, 2016 compared to $900,000 during the same period in 2015. Development revenue represents amounts earned under agreements with partners in which we develop new products on their behalf. The increase in development revenue for the fourth quarter was primarily a result of the development of the Makena auto injector. Turning now to slide 7, total gross profit increased 29% in the fourth quarter of 2016 to $7.5 million compared to $5.8 million in the comparable period in 2015. The increase in gross profit for the fourth quarter is primarily related to the increase in OTREXUP sales and an increase in development revenue associated with Makena subcutaneous auto injector product. Total operating expenses decreased to $11.7 million in the fourth quarter of 2016 compared to $12.3 million in the same period of 2015 primarily due to an 8% reduction in sales, general and administrative expenses. It is important to note that in the fourth quarter operating expenses included $2 million NDA filing fee associated with QST. Net loss was $4.5 million in the fourth quarter as compared to $6.6 million for the comparable period in 2015. Net loss per share was $0.03 for the quarter ended December 31, 2016 compared to $0.04 loss during the same period in 2015. Turning to slide 8, full year 2016 product revenue increased a record 46% to $40.3 million as compared to $27.5 million recorded during the same period last year. The increase in total product sales was primarily driven by 96% increase in auto and pen injector device sales attributed to $9.1 million in sumatriptan injection revenue and $1.9 million or 14% increase in the OTREXUP revenue. Development revenue was $10.2 million for the year ended December 31, 2016 compared to $8.9 million for the year ended 2015. For the year ended December 31, 2016 development revenue included amounts from Teva for ongoing development of epinephrine, Exanotide and teriparatide all of which relate to ANDA's under active FDA review as well as amounts from AMAG for the Makena auto injector project. Total revenue through December 31, 2016 was $52.2 million, an increase of 14% over full year 2015 and a record for the company. On slide number 9, you will see an 11% decrease in gross profit for the year ended 2016 versus full your 2015 which is primarily due to the sale of fully packaged sumatriptan injection devices to Teva as well as the terminations of LEO Pharma agreement in June of 2015. For sumatriptan our contract with Teva requires us to ship sumatriptan at our cost and then as Teva sells the product into the market we recognize a 50

[Bob Apple:]

Thanks, Fred. Let's turn now to slide 10. As I mentioned in my opening remarks we closed out 2016 with the submission of a new drug application for QuickShot Testosterone and now have a PDUFA date in October of 2017. Assuming approval that will mean a late 2017 or early 2018 launch. With that in mind we must now proceed to develop a comprehensive launch plan. We believe that initial hiring of approximately 60 sales representatives who will focus on high [indiscernible] prescribing urologist, endocrinologist and primary care physicians should give us a great starting point from which to build. ** Assuming FDA approval we plan to begin hiring representatives in the fourth quarter of this year in order to successfully launch QST. We've already begun discussions with third party payers to determine pricing and formulate positioning and keeping opinion leaders in urology and endocrinology have expressed enthusiasm for the product given the strong PK data and safety profile. The latest symphony data shows monthly prescriptions for testosterone products in excess of 500,000 which translates to more than 6 million prescriptions written on an annual basis. We believe QST has the opportunity to be a first line therapy for treating testosterone deficiency to what we believe is potentially best in class PK data and patient compliance. We also believe that we can capture share from both the injectable and topical segments of the market based on our product profile as well as appropriate pricing relative to the market leaders. Turning now to slide 11, you'll see how impressive the PK data was from the 52 week study. This graph illustrates the mean testosterone data over the course of 52 weeks of treatment. The chart shows mean testosterone levels well within the acceptable range at the end of the treatment week prior to the patients next injection. We believe this is a very compelling data set as it shows a steady range of testosterone levels over the extended treatment period. Slide 12 shows a summary of patient compliance and satisfaction with QST in the 52 week Phase 3 study. With respect to the actual patient injection experience more than 99% of observed objections were reported as painless. Additionally, a validated psychosexual daily questionnaire was kept by patients and the results over 26 weeks showed overall improvements in sexual desire, enjoyment, performance, mood and other related domains. Turning to slide 13, sumatriptan continues to be another positive product recently launched by Teva utilizing our auto injector. Year-to-date revenue was 9.1 million a big driver in our 2016 increase in annual revenue. Teva continue to be pleased with the launch and market acceptance. On slide 14, we see continued growth of OTREXUP with fourth quarter revenue of 4.1 million. We are continuing to focus our sales and marketing efforts on product pull through and reimbursement. In the early part of 2017 shows continued prescription growth compared to 2016. The existing OTREXUP commercial infrastructure such as supply chain, medical affairs, third party reimbursement [indiscernible] positions us well for a strong QST launch. The next two slides cover progress in our alliance business. On slide 15, as I mentioned earlier Teva has now successfully completed the decentralised registration process for teriparatide in Europe and is awaiting marketing authorization on a country by country basis. Marketing authorisation and patent clearance are the only remaining barriers to launch in Europe. In the U.S. litigation between Teva and Lilly is ongoing pursuant to the paragraph we're filing while the FDA is conducting its ANDA review of teriparatide. The 30 month stake expires in August of 2018. Moving to slide 16, the team at AMAG took another step towards the submission of their sNDA for subcutaneously Makena with the announcement of positive top line results from a definitive PK study. The results were announced in February and AMAG anticipates filing their sNDA in the second quarter of this year with an anticipated six months review we were closely with them to manufacture and supply launch quantities of QuickShot auto injectors for final assembly and packaging. Now let's wrap up by turning to slide number 17. When I took this job last January, I expressed my frustration with the stock price and indicated to you that going forward we're going to focus on the things that we can control. In a short term that included continuing to grow OTREXUP, filing the QST NDA, a successful generic launch of sumatriptan with Teva and advancing alliance business projects. In addition to those operational achievements we also surpassed the 50 million annual revenue level for the first time. In summary, I believe much more progress is just around the corner. Our flagship assay QST has a PDUFA date of October 20, we will work closely with the FDA towards a potential approval. Sumatriptan is continuing to grow and we believe Teva is fully committed to expanding market share. OTREXUP revenue grew by 14% in 2016 and we continue to see prescription growth in 2017. Teva obtained a settlement for a launch certain date for Exanotide of October 15, 2017 pending FDA approval and AMAG reported that they plan to file their [indiscernible] sNDA next quarter. And finally teriparatide was approved in Europe and is awaiting marketing authorizations and patent clearance while in the U.S. the ANDA remains under active FDA review. With all we achieved in 2016 with our team and with our partners we now stand on the verge of the potential for five approvals in the next 24 months. In no particular order we anticipate the potential FDA approvals for QST, generic Exanotide, Makena, generic epinephrine, and generic teriparatide. We believe our plan for growth will result in increased shareholder value. We remain focused, execute against our plan and make meaningful progress on multiple fronts in 2017. Thank you very much for taking time to be with us this morning. Operator we have finished our prepared remarks. Could you now open the line for question and answer session.

[Operator:]

[Operator Instructions]. And we will take our first question from Matt Kaplan with Ladenburg Thalmann.

[Matt Kaplan:]

Now that the PDUFA date is set for October 20 for QST what are your plans to prepare for the commercial launch I guess late this year early next year?

[Bob Apple:]

So like I mentioned in the script you know we are going to - right now we're already branding the product internally as far as what's the message and you know working with keeping your leaders going out and meeting with them and really focusing on what's important to them. Also we are doing extensive work with third party pairs because we think that's a big area in today's environment is to you know whether or not a product is going to be successful is obviously is pull through reimbursement. So we're spending a lot of time with the major payers and PBMs to really get an understanding as to you know formulate positioning and pricing and things like that. So we're doing a lot of that work right now as we speak. From an execution standpoint on a sales side we are going to look to start hiring our district managers' probably second half of the year and with the intent of those district managers hiring about 60 representatives after the FDA approval sometime in the hopefully the October, November timeframe with a launch like I mentioned earlier in late 2017 early 2018. We're going to be focusing on the high decile urologist and endocrinologist as well as a high decline primary care docs who write a lot of prescriptions for testosterone products.

[Matt Kaplan:]

And just kind of shifting a little bit to the Teva partnered programs, how is the [indiscernible] in terms of its performing in the market. Can you talk a little bit about market share versus the competition at this point?

[Bob Apple:]

Sure I think the most recent weekly data is still has Teva around 22% of the market. I would say the biggest position Teva holds is in Walgreens franchise. I believe we're the only product in the Walgreens for sumatriptan injection. Obviously I think in order to grow the market share and like I mentioned earlier Teva is committed, we want to be in the next biggest chain which is CVS and hopefully will see some movement in that in the first latter part of this year or maybe the mid-part of the year. So the market share continues to grow, the device is being well received by patients and as well as the retailers and so things are moving along quite well and I think Teva has been happy with the market share gains that they've made in a very short period of time and like I said earlier they're going to - they are committed to growing that market share beyond where we are today.

[Matt Kaplan:]

And then one another question on the teriparatide, in terms of timing of the potential market authorizations in Europe now with approval, what can you share with us on that and then secondly with teriparatide the timing for the clearance of the patents how much longer does the IP go out for?

[Bob Apple:]

Right, so as far as the marketing authorizations I think that they're coming in on a country by country basis in the normal course. So I would say that the majority of the countries that they filed in will be approved by midyear this year just based on traditional timing of those kind of approval processes within the different countries within Europe. As far as the patent clearance, obviously there's litigation ongoing with Lilly in the U.S. but I'd also obviously include Europe as well because it's a global product and our deal with Teva FORTEO is global. I believe that there's patents in Europe that go out to 2018 and so the timing of the launch right now isn't exactly clear because of the litigation but what I can say is that there are some patterns that remain until 2018.

[Operator:]

We will take our next question from Anthony Petrone with Jefferies.

[Anthony Petrone:]

I want to go back to QST for a moment and Bob you mentioned coverage in your prepared remarks. I'm just wondering you know what point in time you know potentially do you think you'll see coverage, it sounds like you'll begin to build the sales force out first discussions, will be ongoing maybe concurrently but at what point in time do you expect coverage for QST?

[Bob Apple:]

Anthony, that's a difficult question in that, obviously you really can't have meaningful conversations with the payers until the product is approved which you know hopefully will be in October timeframe of this year but beyond that it really depends on the plan. There are plans that will cover us right out of the gate with or without a contract and of course there are plans in this country that actually won't cover anything for the first six months no matter what the product is. So it's really a mix of those type of plans that we're going to focus on trying to get coverage as soon as possible. I think our initial dialogue with the plans are that they understand the product as potentially coming to market, they understand that there are clearly some potential benefits of our product relative to the other products in the market and so they're actually actively having discussions with us regarding coverage. I think what's nice to where we are today versus where we were with OTREXUP up a few years ago is we already have an established third party payer segment within our company. We have national account managers that are calling on these plans for OTREXUP and actually why they have those calls they start to talk about the potential for QST coming into the market and so I think we're way ahead of where we were when we launched OTREXUP but clearly environment is the same where is third party payers, they have a lot of muscle and they are controlling prices as much as they possibly can but again we think with the value proposition of our product relative to the brand leaders we think we have a real opportunity here for patients and physicians and also payers to reap the benefits of a good product.

[Anthony Petrone:]

That’s helpful. And maybe looking ahead to the cadence of the rollout I'm just sort of wondering once your sales force goes out there and they begin to potentially convert patients over whether they're geotopical or other injectors, it seems to me that I guess it's once a week per patient and so I'm wondering extent of initial orders that you could potentially see and sort of who you'll be interfacing with on the other end of that, I'm assuming it would be Cardinal McKesson or Bergen.

[Bob Apple:]

Yes I think our QST is going to be very similar to OTREXUP in that as a four pack so you are going to get a prescription for a month and we are - I would say that majority of ourselves are going to be through the retail segment that's where the majority of the market is today, the six million prescriptions I mentioned is just the retail segment there is another segment that exists which is the just testosterone centers are tend to do direct buy and bill and we think there's an opportunity there but we really don't focus on that when we talk about the opportunity for QST, but I think that you know for the patient we fully expect that a new patient is going to have to use a generic gel initially just like any product in the market where there's generic available they tend to have to go through those first. The good news is with people on gels [ph] they tend to roll off of gels very quickly, the churn on gels is less than six months. So a patient will be available potentially to QST very quickly and so - but all of our marketing plans, all of our forecasts internally assume that a patient will have to use a generic - some form of generic testosterone before they get to us but again I think that we have a very strong value proposition for both the patient and physician with our PK data and the compliance data and so forth that we don't anticipate that being a major barrier for us for QST.

[Anthony Petrone:]

And then the last one for me, I appreciate the time here, it’s just sort of the cadence of auto injector product shipments with some of your partnered products and so for instance teriparatide, [indiscernible] Makena are all looking at potential clearances near term, but at what point will you begin to make meaningful shipments for commercial units? Will that happen sort of immediately after clearance? Is it something that may take a while after FDA clearance just a little bit more color there would be helpful.

[Bob Apple:]

Sure I think it really depends on the product. I mean you know as far as meaningful shipments I think we've already had meaningful shipments of EpiPen's you know we've had almost in excess of $18 million worth of EpiPen shipments to Teva for the prelaunch quantities and it's really a function of the product you know. Products like FORTEO and Byetta or a higher dollar value verses volume and so I think that you know higher value for us is going to be on the royalty side as opposed to device sales but obviously they're both still meaningful products globally and so I don't expect to see the same level of prelaunched quantities for those type of products but we are clearly going to see continued acquisition or you know purchases from Teva for those for the Pens. As far as AMAG is concerned again that's a function of the timing of the launch and their penetration with the auto injector verses the traditional vial, needle and syringe but I would say that obviously we will start to see more meaningful quantities after the approvals when our partners are know what's the timing of their launch and essentially the kind of forecast they're comfortable with, they'll be providing those to us over the next 6 to 12 months and we will start producing the product as we speak or producing the product we're actually making some now for some of those programs.

[Operator:]

We will take our next question from David Amsellem with Piper Jaffray.

[David Amsellem:]

Just a couple of questions. So first just a big picture question on the sales infrastructure, so you've rheumatology based infrastructure supporting OTREXUP and you're going to be building for the men's health [ph] setting to support QST. I guess the question is long term what do you want to be in terms of what kind of commercial organization you want to have or maybe put another way with you positioning QST as your flagship product, does that leave open the possibility that you may look to monetize OTREXUP and get out of the rheumatology space?

[Bob Apple:]

I mean we're especially a pharma company, I don't think it's unusual for specialty pharma companies to have more than one sales force focused on different indications or different target audiences. So our intention is to build a urology, endocrinology primary care sales force around QST, maintain the rheumatology sales force for OTREXUP. We don't have - there won't be a crossover between those wraps - there's nobody that shared in that call cycle and so what we're going to benefit from now with those two sales forces is you know obviously a shared management team of the overall sales and marketing functions, the shared trade third party pairs, all those ancillary services that are really important for successful launches or successful products. Beyond that we're going to look for other products to fill either one of those bags you know whether it's in the rheumatology or in the urology primary care bag you know we're going to look to either develop internally some more products for those bags as well as look outside for products that people might be looking to divest or co-promotion and things like that. So right now our intent is to have two sales forces addressing those markets for both the room space and the zero primary care space and we'll see where the opportunities come about on a go forward basis.

[David Amsellem:]

And then my second question is on OTREXUP, can you maybe elaborate on the extent to which you're seeing prior [indiscernible] had been somewhat problematic in the past - how is that trending in terms of 2017 and do you know see that still as a potential barrier?

[Bob Apple:]

I really don't see it as an increasing barrier if anything it's probably decreasing, we're seeing the payers and the physician getting much more comparable writing OTREXUP for RA. I think that we're seeing continued prescription growth. So I think that shows that people are getting it and the doctors are comfortable writing it and the payers are comfortable paying for it. The only thing I would say what we've done over the last 12 months or so is really focused on that pull through, really focused on making sure that when a doctor writes it the patients gets it and I think that has been helping our growth of OTREXUP both from a prescription standpoint and as well as you know dollar standpoint. We obviously provide rebates to the plans and it's been reasonable up to this point and we don't see that trend changing any time soon. So it's just a product that from a rheumatologist standpoint is you know they take time to get comfortable with writing products when you look at any other launch in that space other than biologics, the growth curve is slow but steady and right now that's what we're seeing and we expect to continue to see that.

[David Amsellem:]

And then last question just a housekeeping question, can you just use remind us what your economics are on Makena in terms of the royalty and also the device revenue?

[Bob Apple:]

Sure. In general terms our deal with AMAG is quite similar to Teva's transactions. We get a high single digit to low double digit royalty on their end sales of the Makena auto injector and from the product standpoint not only are we making the devices, we're going to package them for them a fully commercial package product for AMAG at a cost plus a nice margin on the value of that product. So it's a combination of device revenue as well as well royalty revenue.

[David Amsellem:]

So just a follow-up just for modelling purposes on that product, it probably works out too blended maybe low double digits or high single digits economics as a percentage of net sales is that a fair way to think about it?

[Bob Apple:]

We don’t tend to get that granular but with the highest value part of it being the royalty and that starting in the high single digits and going to low double digits I don't think your numbers are pretty close to you know what our expectations are.

[Operator:]

[Operator Instructions]. We will take our next question from John Vandermosten with Zacks.

[John Vandermosten:]

Just first question I just wanted to ask on the sales rep hiring, was just going to take place over few quarters and is it going to depend on how sales go - I just wanted to get a sense of how that might progress over you know for November assuming approval is granted.

[Bob Apple:]

The intent is that we would have a fully operational 60 person sales force by launch, that launch would be like we mentioned late '17, early '18. So if we receive approval on October of 2017 we would start interviewing the reps, we are actually probably already have a lot of the reps already in queue knowing who we want to go after and having them potentially waiting for just the approval to happen. So our intent would be I would say for arguments sake by January 1 we would have 60 reps and six district managers in the field ready to go, start detailing to the doctors assuming FDA approval in that October timeframe. And as the product progress, as the product starts to see increased sales value and volume then we will look to see whether or not we if there's a reason to over time increase that sales force based on the product sales.

[John Vandermosten:]

Okay, second question was just on the progress on the income statement. We're going to I am assuming a decline in R&D and obviously a pickup in sales expenses going forward and if you look at the fourth quarter and take out the filing fee, you know we're getting pretty closed to flipping positive on operating income. So maybe you can just point out kind of few things to think about in 2017 about when we would reach that inflection point?

[Fred Powell:]

Obviously we don’t give guidance for our financial statements, I will just say that starting off but you're right when you take a look at the financials that we have for the fourth quarter we had significant R&D expenses, the NDA filing fee but you have to remember in all of 2017 what we will have will be the build-up of the expenses for QST without having any matching revenues against that. So we will be putting out - getting the district managers, getting the sales reps, doing the sales marketing work, getting the sales ops all together in 2017 without any corresponding revenue against that. So we're not looking to see year 2017 being a profitable year, however we will continue to see expenses in the sales and marketing line continue to increase as we get ready for the launch. I wouldn’t expect much change on the on the G&A and we don't disclose with our product development that we have in-house ongoing. So we'll see where that line goes but for right now we're not looking to flip the profitability quite yet.

[Operator:]

We would take a follow-up question from Anthony Petrone with Jefferies.

[Anthony Petrone:]

Just a couple of follow-ups, maybe just the status of the pass through on by Bydureon to generic Byetta, I don’t know if there is an update there. And just I know again you don’t give guidance, I'm just wondering maybe a few of the drivers on the revenue line specifically the auto injectors and pen injectors is this sort of a quarterly run-rate sort of a blended average between the third and fourth quarter that we should be thinking about you know for 2017 and then maybe you know is there any sort of indication as to how development revenues may play out? Thanks.

[Bob Apple:]

So Anthony I'll take the first part of your question related to Byetta. So our Byetta product, our generic form of Byetta obviously is a we believe will be an AB rated to Byetta and so it will be substitutable at the pharmacy without any intervention by sales reps and things like that. Bydureon it will not be substitutable by Bydureon but Bydureon is a long acting Byetta essentially, Byetta is taken twice a day, Bydureon is once a week. We believe that based on the payer environment they may make patients step through generic Byetta before they get Bydureon. That remains to be seen you know there's no guarantee on that but based on what we've seen with OTREXUP there are clearly some plans that are I would say high cost control plans that will likely do something like that I just don't know how broad that type of step-through may occur in the marketplace. But to be clear it is AB rated to Byetta only. As far as the other question Fred is going to handle those as best as he can.

[Fred Powell:]

Sure. And your question regarding development revenue, I'll answer that one first you know we do continue to expect 2017 to be a good year for development revenue. We will have the Pen programs with teriparatide as well and Exanotide generating significant development revenue as will the Makena auto injectors. So we see development remaining strong and when it comes to the annualizing looking at OTREXUP as well as sumatriptan we certainly expect growth in 2017. So I think that's fair way to look at it.

[Operator:]

And ladies and gentlemen, that concludes today's question-and-answer session. Mr. Howarth I'd like to turn the conference back to you for any additional closing remarks, sir.

[Jack Howarth:]

Thanks Alan and thanks again for joining us on today's conference call. I understand that some people may have had a problem with the website link for today's call so we'll follow up and get the replay and slides posted as soon as we can and thank you for your patience. If you have any additional follow up questions you can reach me at 609-359-3016. That completes today's call.

[Operator:]

Ladies and gentlemen that does conclude today's conference. I would like to thank everyone for their participation. You may now disconnect.