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Edited Transcript of PFNX earnings conference call or presentation 11-Mar-19 8:30pm GMT

Q4 2018 Pfenex Inc Earnings Call

San Diego Mar 14, 2019 (Thomson StreetEvents) -- Edited Transcript of Pfenex Inc earnings conference call or presentation Monday, March 11, 2019 at 8:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Evert B. Schimmelpennink

Pfenex Inc. - CEO, President, Secretary & Director

* Susan A. Knudson

Pfenex Inc. - CFO

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Conference Call Participants

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* Jason Nicholas Butler

JMP Securities LLC, Research Division - MD and Senior Research Analyst

* Tsan-Yu Hsieh

William Blair & Company L.L.C., Research Division - Senior Research Analyst

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Presentation

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Operator [1]

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Greetings, ladies and gentlemen, and welcome to the Pfenex Fourth Quarter and Fiscal Year-end 2018 Results and Business Update Call. (Operator Instructions) As a reminder, this conference is being recorded.

I would like to remind you that some of the statements made during the call today are forward-looking statements, including statements with respect to our development and commercialization plans for PF708, Px563L, RPA563, PF743, PF745, our CRM197 program and our other product candidates; the expected regulatory pathways for our product candidates and our ability to satisfy the filing requirements for specific regulatory pathways; the expected timing and phases of our future clinical trials; the expected timing of our regulatory submissions and any potential future commercial launch; potential partnering opportunities [for] our product candidates; the potential to receive future payments under our collaboration agreements; expectations for potential milestones for our product candidates; studies for our products and programs; potential growth opportunities and strategy; our ability to execute on our plans and drive shareholder value; and our future expectations with respect to the sufficiency of our cash and cash equivalents.

Actual results could differ materially from those contemplated by our forward-looking statements, and reported results should not be considered as an indication of future performance. Please look at our filings with the SEC for a discussion of the factors that could cause our results to differ materially. Additional information will also be set forth in our annual report on Form 10-K for the year ended December 31, 2018, to be filed with the SEC. The forward-looking statements on this call are based on information available to -- earlier today, Pfenex released financial results for the year ended December 31, 2018. Pfenex earnings release and corporate presentation are currently available in the Investor Relations section of our website.

It is now my pleasure to introduce your host, Pfenex CEO, Mr. Eef Schimmelpennink. Eef, you may begin.

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Evert B. Schimmelpennink, Pfenex Inc. - CEO, President, Secretary & Director [2]

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Thank you, Jamie, and good afternoon, everyone. Welcome to the Pfenex Fourth Quarter and Fiscal Year-end 2018 Results and Business Update Call. I'm Eef Schimmelpennink, President and CEO of Pfenex; and I'm joined by Susan Knudson, our Chief Financial Officer.

During today's call, I will discuss the significant advancements of our development portfolio in 2018 and provide an overview on our strategy to build shareholder value. Susan will discuss financial results, after which, I will open the call for Q&A.

Looking back at 2018 and the significant successes across our 4 lead programs, I'm very pleased with the team's hard work and dedication during this exciting time for Pfenex. Looking ahead, we are excited by the opportunities for Pfenex in 2019 as we believe we have set a path for our programs that can change Pfenex from a clinical-stage biotech company to a commercial one.

Let me take a minute to review our achievements in 2018 as well as discuss what we expect for 2019. I'll walk you through each of the 4 distinct potential value drivers in our pipeline, including PF708; our Jazz partnership; our anthrax vaccine candidates; and our CRM197 partnerships with Merck and Serum Institute of India.

Our main focus continues to be PF708, which we are developing as a therapeutic equivalent to Forteo, which achieved $1.6 billion in global sales in 2018. Mid-2018, we announced the positive results for our Phase III study, which shows comparable overall profiles between our elite drug candidate, PF708, and Forteo, up to 24 weeks of daily injection in osteoporosis patients.

During the remainder of 2018, we made significant headway in further advancing the program, resulting in submitting the NDA in December. In February of this year, the FDA notified us that the NDA was accepted and sufficiently complete to permit a substantive review, and they set a PDUFA goal date of October 7, 2019. Additionally, the day 74 letter indicated that the FDA is not planning to hold an advisory committee meeting to discuss the NDA. We believe this puts us on track to enter the U.S. market as early as the fourth quarter of 2019, subject to FDA approval and other factors.

Working with us through the NDA process, our commercialization strategy for PF708, is our development and licensing partner, Alvogen. Alvogen has proven to be a valuable partner, and we're able to leverage their extensive regulatory supply chain management and commercial expertise through the NDA process. This is key as upon the receipt of a FDA approval, Alvogen would assume responsibility to manage the supply chain and commercialize PF708 in the United States.

As a reminder, Pfenex is eligible to receive an additional $25 million in support and regulatory milestone payments through its U.S. licensing agreement with Alvogen. Pfenex may also be eligible to receive a 50% gross profit split on U.S. sales if PF708 is rated as therapeutic equivalent or else, otherwise, GF split up to 40%.

From a competitive standpoint, we believe that Pfenex currently is the only company that is seeking approval of a recombinant [lead arrived] teriparatide in the U.S., and we believe that the generic competition to Forteo in the near term is likely to be limited.

We also believe that our development of PF708, including our clinical data and any future U.S. regulatory decisions, can be leveraged toward seeking regulatory approval in certain international markets. As such, we have expanded our collaboration with Alvogen in Europe, Middle East, South Africa and rest of the world, excluding those areas covered by existing partner agreements for PF708.

This expansion centralizes the development, regulatory and commercialization activities of PF708 and leverages Alvogen's global supply chain and market access experience to maximize potential of commercial success in these markets. Combining these operational capabilities with the favorable financial terms of the agreements makes partnering on regional commercialization for PF708 the optimal strategy.

In certain countries and geographies, Alvogen will support their efforts through commercialization partners. For example, in Europe and Switzerland, they will work with Theramex, a leading global specialty pharmaceutical company dedicated to women's health and built around what was previously termed as women's health portfolio. And in MENA, they will work with SAJA, a Tamer Group Company and the current distributor of Lilly's Forteo. Under the terms of these agreements, Alvogen will be responsible for the local activities through Theramex, SAJA and its other commercialization partners as well as overseeing any clinical development, regulatory litigation, commercial manufacturing and commercialization. We believe that this expanded collaboration agreements shows us -- allows us to maximize the potential commercial success of PF708.

Under the expanded Alvogen agreement, we are eligible to receive a gross profit split of up to 60% on product sales of PF708 in Europe, Middle East, Africa, North America, North Africa and rest of world, depending on the geography and cost of goods sold. We also believe our other partner for PF708, NT Pharma, which has an exclusive license to commercialize PF708 in Mainland China, Hong Kong, Singapore, Malaysia and Thailand, will be able to leverage our clinical data and U.S. regulatory decisions to advance their efforts in these territories.

As a reminder, Pfenex is eligible to receive payments of up to $22.5 million based on the achievement of certain development, regulatory and sales milestones under the NT Pharma agreement. We may also be eligible to receive double-digit royalties on net sales of PF708, subject to regulatory approval. NT Pharma is responsible for any further developments required to garner regulatory approval as well as all commercialization activities in these Asian territories. We believe that the progress made in the PF708 program in 2018 and the potential milestones for 2019 make it a very exciting program.

Let me now turn to our collaboration with Jazz Pharmaceuticals, for which we are developing PF743, a recombinant crisantaspase, and the ongoing development of PF745, a recombinant crisantaspase with half-life extension technology. We continue to make good progress on both of these products, and we believe that our success on these programs to date is evidence of the unique capabilities of our technology platform.

Looking ahead, we're optimistic in our belief that these programs can generate meaningful development milestones. As a reminder, under our agreement with Jazz, we can earn up to $225 million in milestone payments, of which we have received approximately $36 million to date.

Looking ahead, we are still eligible to receive an additional $189 million in development and sales milestone fees, of this, $30 million are development milestones, $34 million are regulatory milestones and $125 million are sales milestones. We are also eligible to receive tiered royalties on worldwide sales of any products resulting from the collaboration. We remain enthusiastic about the potential benefits that these programs can bring to patients and look forward to updating you as we progress.

Our anthrax vaccine programs, Px563L and RPA563, our third potential revenue driver, are additional examples of the versatility of Pfenex' capabilities. Both Px563L and RPA563 are novel anthrax vaccine candidates under development by Pfenex to address the U.S. government's needs for additional supply of stable- and dose-sparing anthrax vaccine. These programs are fully funded by the U.S. government under a $145 million advanced development contract with BARDA. Again, we saw significant opportunities to advance this program in 2018.

In the second half of 2018, BARDA approved additional funding for analytical work and a nonclinical animal study. With these new data at hand, the company held a Type C meeting with the FDA in December 2018 to discuss Px563L's potency release method. An in-process review meeting was held in January 2019 with the Public Health Emergency Medical Countermeasures Enterprise or the PHEMCE Milestone Decision Authority, the MDA. We believe these 2 meetings are helping create a pathway which could potentially trigger the next option periods for GMP manufacturing and preparation for a Phase Ib/II study in late 2019. This will be subject in each case to continue funding by BARDA, which is determined based on scientific progress which we showed in the IPR meeting as well as overall portfolio prioritization by the U.S. government. We'll keep you informed as more information becomes available.

Moving to our fourth potential revenue driver, our carrier protein, CRM197, a non-toxic mutant of diphtheria toxin. We announced updates on this program during 2018, which included clinical updates from our development and commercial partnerships with both Merck and the Serum Institute of India. We are pleased to be able to share in June 2018 that Merck announced that they began multiple Phase III studies of PVC-15 (sic) [PCV-15], its investigational polyvalent conjugate vaccine for the prevention of pneumococcal disease, using our CRM197.

In January of 2019, Merck announced that it received breakthrough therapy designation from the FDA for the prevention of invasive pneumococcal disease in pediatric patients, 6 weeks to 18 years of age. Our potential benefits in this Merck program results in a commercial therapy -- if this Merck program results in a commercial therapy, it could be meaningful as we're eligible to receive annual fees, milestone payments and a tiered royalty based on net sales for all products developed by Merck that use CRM197 produced via the Pfenex Expression Technology platform.

We also have an agreement for CRM197 with Serum Institute of India or SII, which is the world's largest vaccine manufacturer by number of doses produced. SII has built a dedicated facility to produce our CRM197, which SII is using in 2 conjugate vaccines that are in advanced Phase III development, including Pneumosil, a 10-valent pneumococcal conjugate vaccine. SII recently announced that Pneumosil completed a Phase III program in which all primary and secondary objectives were met.

Following a review of the complete study report and product dossier by the Drug Controller General of India, SII announced that it received an export license for Pneumosil. SII presented the pivotal Phase III data to the vaccine prequalification team of the World Health Organization and received their approval to submit the complete dossier in the January 2019 WHO prequalification slot. The prequalification process could take up to 12 months to complete.

The commercial market is expected to include India and other lower middle income countries under the Gavi advance market commitments. We are eligible to receive a tiered royalty based upon net sales by SII. As mentioned, we have bought an undisclosed partnerships in various stages of development and continue to sell non-GMP and GMP-grade CRM197 to vaccine development-focused fellow partners.

The momentum we have built across our robust pipeline of assets over the past year is truly exciting. Most importantly, we believe we are positioned for a transformational year in 2019 with several important milestones on the horizon that could signal a move towards becoming a commercial company and create value for our shareholders. We also see the success of these late-stage programs as further validation of our Pfenex Expression Technology.

Looking out longer term on our current portfolio direct spend, we believe PF708 operations will be largely transferred to our partners by end of 2019. Our Jazz development cost will remain limited. BARDA, if continued, is fully funded and CRM197 is a finished product produced and managed by SII. This is currently and will continue to provide us with the opportunity to use our talented team and direct our financial resources to develop both new pipeline candidates and expands partner collaborations. I see many opportunities for future growth.

I will now turn the call over to Susan Knudson, our Chief Financial Officer.

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Susan A. Knudson, Pfenex Inc. - CFO [3]

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Thank you, Eef. And now I'll go over our financial highlights for the fourth quarter and full year ended 2018. Total revenue decreased by $14.5 million or 81% to $3.4 million for the 3 months ended December 31, 2018, compared to $17.9 million in the same period in 2017. Total revenue for the year ended December 31, 2018, decreased by $13.9 million or 48% to $14.9 million compared to $28.8 million in 2017. The decreases in revenue were primarily due to significant development achievements and milestones related to the restructuring of our Jazz collaboration that occurred in the fourth quarter of 2017.

Our cost of revenue decreased by $0.6 million or 34% to $1.1 million for the 3 months ended December 31, 2018, compared to $1.7 million in the same period in 2017. Cost of revenue decreased by $0.2 million or 3% to $5 million in 2018 compared to cost of revenue of $5.2 million in 2017. The changes were primarily due to the decreased activity in 2018 related to our BARDA or anthrax government contract.

Our research and development expenses decreased by $1.9 million or 27% to $5.3 million for the 3 months ended December 31, 2018, compared to $7.2 million in the same period in 2017. The decrease resulted from a recognition and support payments from Alvogen related to PF708, which offset our R&D expenses.

Research and development increased by $2 million or 6% to $33.9 million in 2018 compared to research and development of $31.9 million in 2017. The increase was primarily due to increased activity for PF708 to satisfy the clinical and manufacturing filing requirements for the NDA, which the company submitted to the FDA in December of 2018.

Our selling, general and administrative expenses increased by $0.2 million or 6% to $3.9 million for the 3 months ended December 31, 2018, compared to $3.7 million in the same period in 2017. Our selling, general and administrative expenses decreased by $1.9 million or 10% to $15.8 million in 2018 compared to $17.7 million in 2017. The decrease was primarily due to higher expenditures related to the separation of former officers in the first half of 2017, which included legal and compensation expenses.

As of December 31, 2018, the company had $56.2 million in cash and cash equivalents. We believe that this existing cash and cash equivalents will be sufficient to meet our anticipated cash needs for at least the next 12 months.

Now I'll turn the call back over to Eef for closing remarks.

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Evert B. Schimmelpennink, Pfenex Inc. - CEO, President, Secretary & Director [4]

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Thank you, Susan. We are very excited by the opportunities we see ahead for the company in 2019, and I want to thank the Pfenex team for their hard work. The 4 solid programs in our pipeline getting momentum towards generating value for Pfenex and our shareholders, we see this as a pivotal point in our history. We believe Pfenex is on its way towards transitioning from a development-stage company to a commercial entity. In addition, we continue to look for new ways in which to leverage our Pfenex Expression Technology. I see many opportunities for the future growth as we look to drive shareholder value, and we keep you apprised of future developments as we are able. This will conclude our prepared remarks.

I would like -- now like to ask Jamie to open the call for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question today comes from Jason Butler from JMP.

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Jason Nicholas Butler, JMP Securities LLC, Research Division - MD and Senior Research Analyst [2]

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First one, just on PF708, can you just give us an overview of your Alvogen's commercial manufacturing plans and commitment?. And just give us a sense of why you think the CMC section of the NDA is derisked.

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Evert B. Schimmelpennink, Pfenex Inc. - CEO, President, Secretary & Director [3]

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Absolutely. Thanks, Jason, for that question. So we've not disclosed the CMOs that we're working with to produce and ultimately commercialize -- or produce commercial material for PF708. They are all U.S. based. And we feel very confident on their standing with the FDA, and as such, we look forward with confidence to any pre-approval inspections that might be coming our way. We have, to date, produced a significant number of batches with the various CMOs. What we're seeing is that we are consistently able to produce high-quality product, as such, we're in the middle of completing our validation and even signing to produce commercial material. So in short, we have high confidence in our supply chain. We're seeing excellent results as we're in the middle of trying to produce our launch quantities.

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Jason Nicholas Butler, JMP Securities LLC, Research Division - MD and Senior Research Analyst [4]

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Great. Then for CRM197, can you give us any color on the market opportunity for Pneumosil and what Pfenex' upside would be from this commercial opportunity? And I guess, more broadly speaking, you have the partnership with Merck. You also mentioned the undisclosed partnership. How do we think about the overall opportunity for your CRM197?

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Evert B. Schimmelpennink, Pfenex Inc. - CEO, President, Secretary & Director [5]

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So we see it as a very significant and material opportunity for the company. Obviously, the opportunity is very different in nature for Merck compared to SII. The Merck opportunity is largely a U.S. one, although we do expect for them to move the product into other regulated markets as well. And as you know, they are intending to go head-to-head with Pfizer's PREVNAR. PREVNAR is currently generating about $6 billion in revenue. And I think analysts' predictions for the Merck products vary between sub-$1 billion to significantly over billions. Definitely, Merck positions this as a potential blockbuster on their end. Having said that, Pfizer is coming out with a 23 valent, which is behind Merck's but will definitely also have an impact in the market. So we are -- as I'm sure you also are looking at how this market will develop and assume that as the quarters go by, Merck and their analysts will start to get a little bit more color there. We've not precisely indicated the royalty percentage that we're entitled to, but we have indicated that this is lower single digit, as you would normally see in this adjuvant -- in the adjuvant space. Now turning to SII. It's a very different dynamic. Those volumes are very high. As we've mentioned, SII is the world's largest vaccine producer in volume and set up to be a very significant player for this product as well. This volume is mostly WHO and Gavi volume. As I've mentioned, very high volumes but significantly lower pricing, as you would expect. But still, the combination of those 2, also, again, will provide for a significant opportunity for the company. And we're currently working with SII to see what that forecast is.

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Jason Nicholas Butler, JMP Securities LLC, Research Division - MD and Senior Research Analyst [6]

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Great. Helpful. And just a couple of quick follow-ups. For -- Can you give an update on where you are in the tech transfer for the Jazz partner programs? And then, Susan, any additional details you can give us on what you think trends or trajectories in the OpEx lines would be for '19 versus 2018?

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Evert B. Schimmelpennink, Pfenex Inc. - CEO, President, Secretary & Director [7]

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Okay. Jason, let me take that first one and then hand over to Susan. So let me start off by saying that around the Jazz partnership, Jazz is really in the lead of any communication on the status on their end. And just as a reminder, our part of the development of both 743 as well as 745 is -- completed the development of the program, at with point which -- at one point, sorry, it will move over to Jazz. So I'll stick to what I said earlier and also what Jazz has provided in their earnings. So as you know, we finished the development on our end of 743 mid-last year, at which moment, the product went to Jazz. It's very clear from all the statements that this is a very important product for Jazz, and they continue to state that they are very committed to get this to the market as soon as possible. They also stated that they believe that they have a clinical and regulatory strategy to get this product to the market quickly and promised to continue to make progress. Well, they are making progress and have continued to make updates throughout the year. They've also stated that they have full freedom to operate to bring this product to the market, that was in light of a potential termination of the contract that they currently have with Porton. And I think very importantly, they've now given insight that they believe that, from a clinical perspective, what they would need to show to get this product approved is the ability to deliver a appropriate amount of product in a safe way, no need to do full Adcom-driven clinical trials. But -- and again, I quote here that they believe that these [phase] would be more PK- and safety-driven in nature, again, rather than a full Phase III outcome trial. So all that, we believe, underlines why we are excited about the product, especially in light of the fact that many patients that are really in need of this product currently do not have access because of the current challenges that Jazz has with their current partner.

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Susan A. Knudson, Pfenex Inc. - CFO [8]

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Great. Jason, and now I'll address your question on the OpEx in '18 versus '19 and any trends that we may be able to point you to. So -- and I'll start out again, while we haven't given forward-looking guidance, what we have said is that our burn over the course of '18 is -- and as you can see, averaged about $12 million-plus a quarter. And we've said that we anticipate that to continue through the course of 2019, again, still largely driven by 708 as we take it across the finish line for potential approval. An important piece to step back on and as we describe our programs, and Eef touched on it just moments ago in the earnings call, when we look at what drives our OpEx other than core burn, it is still largely 708. We've also described that, that burn will largely diminish once post-approval and the transition of the program fully over to Alvogen, as it is the full P&L responsibility for Alvogen and for Pfenex, it becomes just a revenue opportunity. On our other programs, including Jazz and CRM197, essentially, de minimis spend on our part, and that's been the case for 2018 and '19 and will continue in the ensuing years. And then lastly, touching on BARDA, that's a fully funded program. So again, it's fully funded. We see a small percentage of profit to the bottom line. Adding all those up is kind of a sum of the parts. What we look at is, again, while that 708 will start to decrease in the OpEx, we will begin to bring new programs forward as we begin to build up a pipeline. I think most importantly, we will be mindful of our spend. And we don't envision that our OpEx would increase from what we have seen in '18 and what we anticipate that we will see in '19 as well.

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Operator [9]

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(Operator Instructions) Our next question comes from Andy Hsieh from William Blair.

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Tsan-Yu Hsieh, William Blair & Company L.L.C., Research Division - Senior Research Analyst [10]

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Very much look forward to hearing additional update throughout 2019. So one, I just want to double check my understanding with the pneumococcal disease market dynamics. So it's my understanding that there's 3 segments: you basically have the infants; you have the young adults, adolescents with high risk; and then you have the elderly population. It appears to me that Pfizer, with a new 20-plus valent candidate -- vaccine candidate, they're actually foregoing the potentially biggest market, the infants, since they typically receive about 4 doses versus 1 for elderly population. Am I thinking about this correctly?

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Evert B. Schimmelpennink, Pfenex Inc. - CEO, President, Secretary & Director [11]

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So I think, primarily, it will be a question, obviously, to ask Pfizer around their strategy. What we have seen, and even with Merck, is that companies sometimes stagger their entry into clinical trials. And while -- give that the difference in time for Merck was very minimal, they also started or added their infant trials a little bit later in their program. So potentially, that's something that happens with PREVNAR 25 as well. So I think we would need to ask Pfizer on what their overall prediction for the market is. Clearly, the infant population and the vaccination program run by the government is a interesting and a relevant segment. One that, I think, more importantly for us, Merck is definitely targeting. That is what is holding Merck's current portfolio and products back and definitely, again, that they intend to fill with the product that we're working on together with them.

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Tsan-Yu Hsieh, William Blair & Company L.L.C., Research Division - Senior Research Analyst [12]

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Great, that's helpful. And the bigger picture question. So Commissioner Gottlieb -- or former Commissioner Gottlieb was such a champion for the generics manufacturers. So it's kind of a, I guess, rhetorical question. So do you think there's going to be material changes to the approach with a new commissioner? And how is Pfenex positioned in the post-Gottlieb era?

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Evert B. Schimmelpennink, Pfenex Inc. - CEO, President, Secretary & Director [13]

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No, great question and indeed, a little bit of, I guess, speculation. What we do know is that over the last couple of years, indeed, Gottlieb has been a great fulfillment of, what, generics and by the companies who are doing it and actually has made quite a few indirect remarks that would point at what Pfenex is doing, what is PF708 and very clearly has stated several times that his ambition and intention is to ensure that generic competition would come to more complex products like Forteo. So he is definitely championed that. We feel that has given us quite a bit of tailwind in our negotiations and discussions with the FDA. And I think a key example is the -- what we feel is a very good outcome on a -- with a PDUFA date of October 7 for our product here. So I think he's definitely champion to what we've been doing. And I don't think that there will be an impact on our end with him leaving the agency. I think we are so far advanced and see our interactions with the FDA, which are, obviously, intense at this moment now that we are nearing approval, that's really a intense to -- obviously based on the data being accurate enough to provide products like ours to -- with a marketing authorization. Going forward, my assumption is that the impact that he's had on the FDA in the last couple of years has been very significant and that any -- that the new commissioner will definitely follow suit there. I think it would be difficult to see somebody changing that paradigm. So I think, overall, he's had very good inputs or very good support for us in an indirect way, and sorry to see him go.

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Operator [14]

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(Operator Instructions) And ladies and gentlemen, at this time and showing no additional questions, I'd like to turn the conference call back over to management for any closing remarks.

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Evert B. Schimmelpennink, Pfenex Inc. - CEO, President, Secretary & Director [15]

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Thank you, Jamie. With that, we can close the call. Thank you, everybody.

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Susan A. Knudson, Pfenex Inc. - CFO [16]

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Thank you.

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Operator [17]

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And with that, we will conclude today's conference. We do thank you for attending today's presentation. You may now disconnect your lines.