Frank Thomas - COO
Scott Holmes - Chief Accounting Officer
Amy Sullivan - VP, Investor Relations
Bill Tanner - Lazard Capital Markets
AMAG Pharmaceuticals (AMAG) Presentation at Lazard Capital Markets 9th Annual Healthcare Conference November 13, 2012 8:05 AM ET
Good morning, I’m Bill Tanner, one of the biopharma analysts at Lazard Capital Markets. I’d like to welcome everybody to our 9th Annual Healthcare Conference. Hopefully it’s a valuable experience for you.
Very pleased to kick off the conference with AMAG Pharmaceuticals. Presenting for AMAG is Frank Thomas, who’s the chief operating officer. Also joining Frank is Scott Holmes, who’s the chief accounting officer, and Amy Sullivan, who’s the vice president of investor relations and corporate communications.
As we look at AMAG, very exciting story with Feraheme, with potential for expanded indications, and certainly from a business development standpoint the company looks to be well-positioned to continue to grow as an important commercial stage biopharma company.
So, Frank, thank you very much for coming.
Thanks, Bill, for inviting us to the conference. I’d also like to thank Lazard for the opportunity to present this morning and to help kick off the conference. Welcome to those of you in the audience and participating via webcast.
I’m excited to be here today to give you an update on the business and how we intend to drive growth in the months and years to come. In the past year, AMAG has completed a transformation, one that has allowed us to remake our management team, our cost structure, our strategy, our culture, and I think our employees have a renewed sense of purpose for our shareholders and the patients who benefit from the product.
Before we begin, let me remind you that I’ll be making some forward looking statements throughout the presentation, and I refer you to our SEC filings, which outline some of the risks associated with our business and those of the industry.
This overview provides a good framework for how I’ll spend my time with you today. Our lead product is Feraheme, which is an IV iron replacement therapy that was approved in 2009 for the treatment of iron deficiency anemia in patients with chronic kidney disease, or CKD. We have exclusive rights to Feraheme in the U.S. and we’re marketing the products with our proprietary sales force. We also have a full complement of reimbursement, managed markets, and medical affairs professionals to round out the commercial organization.
So after a quick overview of the product, I’d like to review some of the progress that we’ve made in recent quarters, including the success we’ve had recently internationally with our partner, Takeda, where we’ve just launched the product in several countries. Then I’ll update you on our ongoing development and regulatory activities to expand Feraheme’s label to include a broader group of iron deficiency anemia, or IDA, patients, and then I’ll close with the financial information and a quick review of our 2012 milestones.
So just to touch on our strategy, at AMAG the strategy is to become a profitable, multiproduct specialty pharma company. We’re going to accomplish this by leveraging our commercial and our financial assets. We have a great building block in Feraheme as you can see, and we’re building off a much stronger base today than we had at the beginning of 2012.
Our commercial infrastructure, which is shown here in dark blue, and the relationships that we have with customers in the hematology-oncology space, and in hospitals, are driving revenue growth here in the U.S. But the next row of building blocks in this slide also depicts our strong balance sheet and a management team that knows how to execute. The layer above describes four distinct growth opportunities for Feraheme, which I’m going to talk about in detail today.
First, continued growth in the current indication for Feraheme in patients with IDA and kidney disease. On a year to date basis, we’ve grown that business by more than 19% over 2011. Second, we plan to expand the label to include other IDA patients. And by doing this, we’re going to double the market opportunity and the revenue potential for Feraheme. The third area of growth for Feraheme is the IV iron market expansion, which we believe is large and an underserved market. And last, as I just mentioned, the global expansion of Feraheme is underway.
So the relationships we’ve built in heme-onc and hospitals with Feraheme are important, as we work to expand the label and for additional products that our current sales force could promote, products that we’re currently working hard to acquire or end license, and those new assets are depicted at the top of this graphic.
So if we look at Feraheme today, we think it’s well-positioned in the market. The slide shows many of the benefits of Feraheme over some of the older IV iron, but the benefits are simply captured in the title on this slide. Feraheme is as easy as 1-2-3. Physicians can administer 1 gram of iron in 2 rapid injections, approximately 3 days apart. The patient’s hemoglobin rises, their anemia resolves, and most importantly, patients feel better.
Feraheme has an excellent efficacy and safety profile, and today physicians and patients have confidence because we’ve now dosed over 5,000 treatments since the launch in 2009. And we’re fortunate to have a sales force that has the largest share of voice in the IV iron market.
So now let’s spend a few minutes jumping into the commercial opportunity and our recent performance. As background, on this slide the pyramid depicts our view of the size of the Feraheme market opportunity in the U.S., and you can see that our current focus, in dark blue at the top, is really just the tip of the iceberg.
This dark blue area represents the current annual IV iron market for chronic kidney disease in patients with IDA, which represents about a $200 million sales opportunity. And the light blue is the market expansion opportunity that we have with today’s label. The light blue layer consists of more than 1.6 million patients who have been placed on oral iron therapy, many of whom are struggling or have stopped taking oral iron altogether. And these patients remain anemic, with a significantly impaired quality of life.
The green areas I’ll talk about a little bit later. They represent the future opportunity for Feraheme with the broader, all iron deficiency label. So you can see that there’s plenty of opportunity for AMAG and Feraheme.
What I’d like to do next is to highlight that the existing referral patterns to heme-onc and hospital outpatient are the same across are the same across the spectrum of anemia management. Most patients who are referred for IV iron are sent to one of these two sites of care, and they represent the largest users of IV iron outside of dialysis. So that’s why they’re very important targets for us.
So it’s very important, both with our current indication as well as the future expansion opportunities, that we continue to establish Feraheme as the preferred IV iron in these sites of care. Let me give you a sense of how we’re performing relative to prior years and relative to the IV iron market overall.
This graph shows provider gram demand with the colors representing the various segments in which we compete, for example heme-onc, hospitals, nephrology clinics, and others. And demand is up nicely from the third quarter of 2011, as demonstrated by the 11% growth compared to the IV iron market growth of 5% over the same period. And that’s what’s driving the increasing share in this market, which is now at about 14%.
So we’re growing faster than the market, with an evolution index of 106, which is simply our growth of 111 divided by the market growth of 105. We think the evolution index is important because it answers the question of are you gaining share from your competitors. And the answer for Feraheme continues to be, yes we are.
But we’re not satisfied with this growth. In fact, this week our sales force has come together for a national sales meeting to roll out the plans for the rest of 2012 and into 2013 to provide for better execution and to continue to deliver meaningful sales growth in the years to come.
Let me spend a little bit of time on our two largest segments. First, heme-onc. This segment represents 50% of Feraheme total provider demand, and here you can see the gram sales across the first nine months of 2010, 2011, and 2012, with the colors noting the gram volumes for each quarter. The line at the top shows our market share for the third quarter of each year, with the share numbers on the right hand side of the graph.
So we’ve had a good deal of success in the heme-onc segment over the last couple of years, and while we continue to grow in this segment, we still believe there’s room to expand. Today we have about a 26% market share in this segment, and we’ve been continuing to outpace market growth. In this case, our year to date growth in heme-onc is about three times greater than that of the IV iron market, 21% versus 7%.
And we think there remains still plenty of potential. In sites that are not yet familiar with Feraheme, we’re going to continue to drive access and awareness through our partner GPOs. And in accounts that are already using Feraheme, there’s opportunity to continue to take share from the competition by educating clinicians about the broad prevalence of CKD in their existing patient populations.
The other key segment is the hospital market, which represents about 40% of Feraheme total provider demand today. It’s a segment where we have driven strong growth, and its visible by the 34-35% growth rates that you see here, both year to date and for the third quarter versus one year ago. Our performance over the IV iron market growth remains high, with an evolution index here of 124 in the hospital segment. And this has led to an increasing market share of about 8% now.
Our success in the hospital segment has been driven by the sales team’s focus and dedication, combined with our success partnering with a select number of large, national hospital networks. This segment has had a longer selling cycle than the heme-onc segment, but the investment of time that we increased earlier this year in 2012 is paying off now, as you can see, with better numbers. And we’re working to expand our success to other hospital networks and continuing to drive growth in this segment.
So to summarize the commercial performance, we think we’ve done a very good job with Feraheme in the U.S., particularly in the last few quarters, reinvigorating growth in the brand after a rather tumultuous first half of the year. We’ve stabilized the organization and now have a right-sized sales force, which is smaller and more efficient than one year ago, but importantly we think it’s the right size to call on the right physicians, with the right frequency, and now with the right message. We’ve energized the team with a fresh message, and we’re on track to achieve double digit demand growth throughout 2012.
As we announced last week, there’s going to be four Feraheme clinical data presentations at the American Society of Hematology meeting in December, and these presentations will provide some new data on Feraheme, including efficacy and safety data from the Phase III studies in broad IDA patients. They’ll also include patient-reported outcomes data that I’ll talk about in a few minutes, and we’ll also present results from a study by Mike Auerbach that evaluated a 1 g total dose infusion of Feraheme. And looking to 2013, you can see that we have a number of initiatives underway to drive further growth in the brand.
So let’s move on to Feraheme and some of the other expansion opportunities that I’ve been referring to. As I mentioned earlier, the broad label would immediately double our market opportunity, which represents approximately 8,000 g of IV iron today, or about $400 million annually.
The broad IDA patient population, in green here, is an area of high unmet medical need: patients that do not tolerate or have failed oral iron, for whom the only treatment option is currently the iron dextrans. These older first-generation dextran products have been around for decades, and often require inconvenient and lengthy dosing schedules, unlike Feraheme. Additionally, they have serious box safety warnings in their labels, which often discourage physicians from moving patients to IV iron from an oral iron.
Our SNDA filing for the broader label later this quarter will contain results from two large clinical trials which were successfully completed this year. These two Phase III trials are described on this slide here. The designs of the studies were based on discussions and input from both the U.S. and E.U. regulatory authorities prior to initiating them about three years ago. We’re on track to submit the SNDA by year’s end, and given a standard review, we expect to gain approval and potentially launch the product late next year.
These two trials also collected important data about patient-reported outcomes, using rigorous instruments to evaluate initial values and improvements in quality of life, energy, and vitality levels for the patients. And there’s some pretty exciting data from these studies that I’d like to share a little bit with you right now.
So this slide shows the results of one measure of patient-reported outcomes, known as the FACIT Fatigue Score. This is a validated instrument consisting of 14 questions that the patients answer relative to the energy level and the feeling of fatigue for the patients, both before and after treatment with Feraheme.
There’s two important takeaways from the data. First, these patients experienced dramatic improvements in energy scores with Feraheme by week five, moving from very low to almost the normal population. Our product delivered a clear and statistically significant clinical benefit to these patients.
But the other and perhaps more enlightening part of the data is just how poorly these patients felt at baseline, with fatigue scores that were comparable to those reported in other studies for anemic cancer patients undergoing chemotherapy. So we’re really surprised to see how poorly these patients actually felt at baseline, and the improvements that Feraheme delivered over the course of the five weeks.
All of these patients had tried to address their anemia with oral iron, since that was one of the entry criteria, and they had failed. As you can see from this slide, there’s over 4 million diagnosed patients currently with IDA, and most of these patients have attempted to treat their anemia with oral iron. So this is one of the expansion opportunities I talked about earlier, which is expanding the IV iron market.
Market research with physicians shows that at least one third of oral iron patients fail therapy, due to either intolerance or an inability to achieve the intended clinical benefit. While some of these patients are referred for IV iron therapy, still about 80% of these failing patients are told to keep trying. And as you can see, that’s a large population. More than a million IDA patients, which is shown in green near the bottom of this cascade.
We know that most of these patients will never be able to successfully tolerate oral iron, and we now know from the studies I just showed you that many of these patients feel chronically fatigued due to their anemia. And if we can just convert 10% of these patients who have failed, that represents an additional $100 million sales potential for Feraheme.
So let’s move on now to the fourth growth opportunity for Feraheme, international expansion. Rienso, which is the brand name of the product in Europe, has been approved and launched by Takeda in Canada, the European Union, and Switzerland, among a few other countries. And that brings us a total of now $33 million in milestones for this year, 2012.
Our successful international expansion also brings tiered, double digit royalties on sales in Takeda’s territories. And additional milestone payments will become due upon the broadening of the IDA label in Europe in 2014.
So four significant areas to drive continued Feraheme growth, but we’re not stopping there. We’re going to continue to build our commercial portfolio. As you’ve heard us talk about in the past, portfolio expansion is a high priority initiative for AMAG, and we want to leverage the balance sheet that we have today.
We’re currently focused on acquiring small to medium sized marketed products to leverage our current commercial footprint in the heme-onc segment or in hospitals. You can see some of the screening considerations here, and we expect that these products that we acquire and license will produce positive cash flow from day one. We have a dedicated team within the organization who are charged with executing on this initiative, and there are several opportunities under evaluation at this time.
Let me now spend the remaining time on our recent financial performance. In the past year, we’ve made significant changes to AMAG’s cost structure and commercial focus, which has translated into some positive financial performance that we’ve reported. Let me start with a discussion of Feraheme product revenues.
Looking at net U.S. Feraheme product revenues for the recent quarter ended, there was about 4% growth on a GAAP basis, but the product revenues in the third quarter of this year, as well as the third quarter of last year, benefited from changes in our estimated reserves. If you strip out these reserve reversals, the growth of just the U.S. products sold in the quarter was about 12%, and that’s shown here in dark blue.
Importantly, we’ve made significant improvements with regard to the pricing trajectory for Feraheme, and we’ve stopped the price erosion that has been taking place since the launch of the product. And let me discuss that now on the next slide here. This slide depicts our net effective price per gram for the last several quarters. And that is the revenue we realize per gram of Feraheme sold.
We took a price increase for the first time since launch in the second quarter of this year, and as you can see on this graph, our net effective price per gram hit a low point. But now, we saw in the third quarter the real benefits of that price increase and how it has positively impacted the dollars we realize on each gram of Feraheme sold.
Our objectives for the brand in 2013 and beyond are to continue to drive demand growth and to continue to gradually improve this net effective price per gram so that these factors have a compounding effect on our financial results.
So with the discussion of revenues and our pricing complete, let me just spend a minute or two on our expense structure, beginning with cost of goods. We made the decision in 2012 to get out of the drug manufacturing business and to move to a fully outsourced supply chain. It just isn’t efficient, we believe, to produce our own drug. So with this outsourcing decision, we expect that our cost of goods and our gross margins will significantly improve as a percentage of sales in 2013.
Our operating expenses are heading in the right direction, and this year, with the completion of the IDA program, we significantly reduced our R&D expenses. You can see here about 64% compared to prior year. And on the SG&A side, the rightsizing of the field sales force and our G&A infrastructure earlier this year has driven these expenses lower as well.
The growth we’re seeing in Feraheme, combined with the streamlined cost structure, has resulted in a 76% reduction in our net loss per share in the third quarter as compared to last year. We’ve made a great deal of progress this year in shoring up our business and the financials, which has put us nearer to our key goal of achieving sustained profitability.
So with a quarter left to go in 2012, we recently updated our guidance, which is shown here. We’ve improved the outlook for both revenues and expenses, and we’re looking forward to delivering on these financial objectives for the balance of 2012.
We’ve achieved a number of important milestones, and we have a number upcoming, so let me just spend a minute highlighting a few of the upcoming milestones. As I mentioned, we’ll be rolling out new data at the ASH meeting in Atlanta next month, and we’re on track to submit the SNDA in the U.S. for the broad IDA indication this quarter.
Commercially, we’ll continue to track the progress that we’ve made on Feraheme’s pricing strategy, and are improving revenue per gram. The international launches of Feraheme and Rienso are underway this quarter, and we’ll recognize our first royalties on product sales from Takeda. And last, we’ve been very busy in the business development area this quarter, and plan to update you as soon as we have meaningful information to share on this front, so stay tuned.
And I think with that, I’ll close my prepared remarks. I want to thank you for your time and attention, and I look forward to seeing many of you in one-on-one meetings throughout the conference. Thank you.
Bill Tanner - Lazard Capital Markets
Any questions for Frank?
Unidentified Audience Member
Can you talk a little bit about how your patent in Europe was recently invalidated? Does that affect your [unintelligible] rate? And how does that translate to your path in the U.S.?
Sure. There was a patent opposition filed, I think in 2010, related to our European patent. It was filed by Sandoz. We recently went before the opposition panel, and the decision was to revoke the patent. However, we feel very confident that we will appeal the decision, and that appeal process may take several years. But importantly, it really has no impact on the commercialization of the product in Europe.
Of course, since that patent opposition, Takeda has moved forward with the launch. We still have eight years of data exclusivity that would prohibit generic competition, and even beyond that, there’s an additional two years of market exclusivity for the product.
So we intend to vigorously defend the patent in Europe. We think it has merit, and we continue to move forward with the commercialization plans. No effect on the U.S. patents. In fact, many of the arguments in the opposition were some of the same arguments that we defended successfully in the U.S.
Bill Tanner - Lazard Capital Markets
Frank, as it relates to the growth in the heme-onc, can you give us some color on how much is attributable to increased numbers of physicians prescribing it, or increased usage by a given physician?
It really is a combination of both, Bill. We do track very closely the number of new users of Feraheme, and I think with some of the new energy that we’ve infused into the sales force, we have seen the number of new customers trying Feraheme start to increase over the past couple of quarters. I think importantly, there are a number of physicians where we haven’t yet penetrated those accounts, and we’ve started to use, in 2012, some of our GPO partners to help us gain access to those new accounts. And that really has helped drive some of the growth in new accounts. So it’s really split, I’d say roughly evenly, between existing accounts that are growing as well as new accounts coming under Feraheme. But clearly there’s an opportunity in both of those to both take more share from our competition and to drive more penetration in new accounts.
Bill Tanner - Lazard Capital Markets
And then as it relates to the PRO data, how would it be contemplated those data would be used? Would it be that they might be added to the label? Or at least published? Presumably there would be some way to utilize them from a marketing perspective?
Absolutely. We have a pretty robust publication strategy planned. It will start at ASH this year, but it’s really going to continue to roll out throughout 2013. We will have discussions with the FDA about the label, and whether any of that data would be relevant that we could include in the label, but at a minimum, we believe that having the publication strategy and being able to use those publications is going to be important for us moving forward. ]
Bill Tanner - Lazard Capital Markets
Okay, great. Frank, thanks very much.
Thank you very much, Bill.
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