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The Medicines Company (NASDAQ:MDCO)

Q3 2008 Earnings Call

October 22, 2008 08:30 am ET

Executives

Robyn Brown - VP of IR

Glenn Sblendorio - EVP and CFO

John Kelley - President and COO

Clive Meanwell - Chairman and CEO

Analysts

Matt Duffy - BDR

Joseph Schwartz - Leerink Swann

Liana Moussatos - Pacific Growth Equities

Steve Harr - Morgan Stanley

Maged Shenouda - UBS

Jason Kantor - RBC Capital Markets

Biren Amin - The Stanford Group

Lucy Lu - Citi

Operator

Hello and welcome to The Medicines Company Third Quarter 2008 Earnings Call. My name is Lisa and I will be the operator for today’s conference. As a reminder, today’s call is being recorded and we will have a question-and-answer session immediately following the prepared remarks.

I will now turn the call over to Ms. Robyn Brown, Vice President of Investor Relations.

Robyn Brown

Thank you Lisa, and welcome everyone to The Medicines Company third quarter 2008 Earnings Call. I am Robyn Brown, Vice President of Investor Relations. This morning, I am joined by Glenn Sblendorio, our Executive Vice President and Chief Financial Officer, who will review our financial results and update our guidance for 2008; John Kelley, our President and Chief Operating Officer, who will provide an operating review and Clive Meanwell, our Chairman and Chief Executive Officer, who will moderate a Q&A session at the end of the call.

I would like to remind you that this conference call will contain forward-looking statements, which involve a number of risks and uncertainties. Important factors that could cause actual results to differ materially from those indicated by such forward-looking statements are identified in the Company’s SEC filings including the 10-Q filed with the SEC on August 11, 2008, which is incorporated here and by reference.

I would also note that during the call, we may refer to non-GAAP measures, which exclude the impact of the Curacyte Discovery acquisition, stock-based compensation expense and the non-cash provision for income taxes and the impact of the Nycomed transaction. Please refer to the non-GAAP reconciliation tables in our press release and the 3Q’08 conference call summary fact sheet on our website.

Now, I’ll turn the call over to Glenn Sblendorio. Glenn?

Glenn Sblendorio

Thank you, Robyn and good morning everyone. I will start this morning’s call with a review of the financial results for the third quarter, which includes the accounting treatment of our acquisition of Curacyte Discovery.

For the third quarter 2008 total worldwide net revenues were $88.1 million, compared to $62.2 million in the third quarter of 2007, an increase of 25.9 or 42%. US Angiomax net sales in the third quarter were $85 million, compared to $60.7 million in the third quarter 2007, an increase of $24.3 million or 40%. Approximately 60% of the increase year-over-year was due to additional sales volume and the remaining 40% related to price increases, which are supported by strong clinical and health economic data.

We are increasing our full year guidance for US Angiomax sales by $5 million to $325 million to $335 million up from $320 million to $330 million. International revenues increased $1.6 million to $3.1 million in the third quarter of 2008, compared to $1.5 million in the same quarter of 2007. During the third quarter we assumed responsibility for distribution in 18 of the 23 Nycomed territories. Transition of the remaining territories to Medco will be completed in the fourth quarter of this year.

On September 15, we launched Cleviprex and shipped initial gross wholesale orders that totaled approximately $10 million. We deferred revenue on these orders in the third quarter, and Cleviprex is a new product and we do not have enough history to estimate our gross to net adjustments or sales patterns. However, we reiterate our full year 2008 guidance for Cleviprex of $5 million to $10 million.

Total worldwide net revenues for the first nine months of 2008 were $254.3 million compared to $185.2 million in the first nine months of 2007, and increase of $69.1 million or 37%. There were no significant changes in inventory levels for Angiomax at the wholesalers, which remained within our targeted range of four to six weeks. Cost of revenue was 25% for the third quarter 2008, compared to 26% for the third quarter 2007. The positive change in cost of revenues is predominantly due to higher gross margin on international sales which we now recognize a 100% and continued favorability in our gross to net adjustments for Angiomax which were below 7% for the quarter.

During the quarter, we completed the acquisition and integration of Curacyte Discovery GmbH and the lead compound which is being developed for the prevention of surgical blood loss. The total cash paid for the acquisition was $23.7 million, which included that the purchase price of $22.9 million and other capitalized cost associated with the acquisition of approximately $800,000. $21.4 million of the purchase price was expenses in-process research and development during the quarter and the remaining purchase price was allocated to net tangible assets.

The after tax impact net of an $8.2 million tax benefit was a loss of $13.2 million or 25% per share in the quarter. R&D expense increased $25.4 million to $44.1 million, compared to $18.7 million in the third quarter of 2007. This was primarily due to the following; $21 million - $21.4 million related to in process R&D that I just spoke it for Curacyte. Increased cangrelor spending of $2.9 million as our two Phase III clinical trials CHAMPION PCI and PLATFORM continued and an increase of $1.5 million in connection with lifecycle initiatives and expanded business development efforts.

SG&A expenses for the third quarter were $42.9 million, compared to $55.5 million for the same quarter in 2007, a decrease of 12.6% or approximately 23%. However, the 2007 SG&A number included $28.1 million a one time expense resulting from the re-acquisition of our Angiox distribution rights from Nycomed.

Excluding this one time expense for the third quarter, 2008 increased $15.5 million, this increase was related to three items, Cleviprex pre-launch activities of approximately $5.9 million. The addition of 100 professionals in both the US, which was primarily field force and Europe primarily related to our commercial build out, which amounted to approximately $7.5 million and $1.6 million increase in stock-based compensation.

Total stock-based compensation was $6 million in the quarter, compared to $4.1 million in the third quarter of 2007, an increase of $1.9 million. Stock-based compensation is included in cost of revenue, R&D and SG&A of 4%, 17% and 79% respectively in the third quarter of 2008.

Other income, which includes interest income and gains and losses on foreign currency was approximately $1.1 million, compared to $2.7 million in the third quarter of 2008. The decrease of other income of approximately $1.6 million was primarily due to lower rates of return on our cash and investments.

In the third quarter of 2008, we recorded a tax benefit of $6.6 million and pretax losses of $19.8 million. The recorded tax benefit during the third quarter was primarily result of our Curacyte Discovery acquisition. In the third quarter of 2007, we had a pretax loss of $25.5 million associated with Nycomed transaction and recorded a tax benefit of approximately $1.9 million.

Moving on to net income and earnings per share, for the third quarter we reported a GAAP net loss of $13.2 million or $0.25 per share as compared to a net loss of $23.6 million or $0.46 per share in the third quarter of 2007. Our non-GAAP net income for the third quarter of 2008 was $8.5 million or $0.16 per share. This compares to non-GAAP net income in the third quarter of 2007 at $6.3 million or $0.12 per share. Non-GAAP net income excludes the Curacyte Discovery acquisition, the Nycomed transaction, stock-based compensation expense and non-cash income taxes.

For the first nine months of 2008, we reported a GAAP net loss of $4.3 million or $0.08 per share, compared to $19.8 million or $0.38 per share for the same period in 2007. Non-GAAP income for the first nine months of 2008 was $35.4 million or $0.68 per share compared to $19.6 million or $0.38 per share for the same period in 2007.

Before updating on our guidance, I would like to touch on three balance sheet items as of September 30, 2008. Cash and investments totaled $206 million, compared to $222 million at December 31, 2007. Non-operating disbursements for the acquisition of Curacyte Discovery as well as Nycomed and Cleviprex milestone accounted for a significant portion of the decrease.

Accounts receivable were $42.9 million at September 30, 2008, which included approximately $10 million or initial Cleviprex orders by the wholesalers and accrued expenses, have declined or decreased $19.5 million from December 31, 2007 to $54.3 million primarily as a result of payments related to the termination of our distribution agreement with Nycomed.

We have updated our guidance for the following. US Angiomax sales have been increased by $5 million to $325 million to $335 million. R&D expenses have been increased to reflect the impact of the $21.4 million of in process research and development related to the Curacyte Discovery purchase, plus approximately $2 million to $3 million of additional anticipated 2008 R&D expense at Curacyte Discovery, which I had discussed with you previously on our August 6th announcement call, and approximately $2 million associated with various company product development efforts that were previously not planned.

We are also increasing SG&A by $5 million, related to the accelerated European expansion, which includes the formation of a field force prior to the end of the year. These changes to guidance also impacted both GAAP and non-GAAP EPS and I would ask that you refer to the detailed worksheets that we have included in our third quarter press release or the fact sheet posted to our website for additional information.

Before I turn it over to John, I would like to summarize four key financial highlights. Angiomax sales continue to grow. Second, we continue to invest in Europe as a future of revenue opportunity. Third, as part of our ongoing strategy, we acquired Curacyte Discovery, leading a fourth product in developing capabilities. And last, we launched our second product, Cleviprex, and expect sales in the fourth quarter. John?

John Kelley

Thanks, Glenn. Good morning everyone, and thanks for joining us for the call this morning. I am pleased to provide you with an update on a very strong and eventful quarter for The Medicines Company highlighted, as Glenn said, by increased demand for Angiomax and the further penetration of the market as well as the approval and launch of Cleviprex. I would also like to discuss the recently announced results of the HORIZONS AMI trial, one year pharmacological results, which we believe make Angiomax the worldwide treatment of choice, for primary PCI.

Quarter three has traditionally been a slow quarter for Angiomax volume. However, this year we saw 15,731 boxes shipped to hospitals. A 4% increase over Q2 and a 15% increase over end user demand in Q3 of 2007. Gross sales, according to third-party audits, were $90.6 million in Q3 of 2008, a 4% increase over Q2 and a 34% increase over the same quarter last year. Year-to-date, gross sales of Angiomax are $253 million, 25% higher than the same timeframe last year.

Angiomax continues to increase share across all segments of the market. Share of all patients undergoing a PCI in July of 2008 was 48.3%, compared to 41.7% at that time last year. We break that down by diagnosis Angiomax share of stable angina is now 62.3%, up from 54.8% last year. Unstable angina is now at 54% up from 47.8%. Non-STEMI is now at 41.5% increasing from 36.9% and STEMI is 26.7%, up from 19.6%.

Our strategy has been and will continue to be increasing patient share focusing on the higher risk patient population. The publication of the HORIZONS AMI trial 30 day results in the New England Journal of Medicine in May added to the existing wealth of data that demonstrates the positive attributes of Angiomax in all types of patients undergoing PCI, from stable angina to STEMI.

Last week at the TCT meeting, the one year follow-up data were presented. The one year results demonstrated that Angiomax reduced cardiac mortality by 43%, and improved overall survival by 31% at one year. This is the first trial of pharmacological therapy to demonstrate the mortality benefit in STEMI patients undergoing PCI.

The studies principle investigator, Dr. Greg Stone was quoted as saying "The findings on this large landmark trial represent a giant step forward in the treatment of heart attacks by demonstrating that this drug and device regiment produces a significant reduction in the risk of cardiac mortality. Improves overall survival and reduces major bleeding complication". Dr. Stone went on to say "These data again demonstrate the bivalirudin is a better treatment option than conventional therapy for STEMI patients undergoing primary PCI". This strategy could save thousands of lives each year if incorporated globally into routine practice.

We believe that this wealth of data gives us the ability to continue to penetrate the PCI market in the United States. We also believe that this data will drive use of the Angiox in Europe. We'll continue with our efforts to build our European organization. Right now we have 62 medicine company associates working in Europe including the 23 associates who are now part of Medicines Company.

Our sales organization has been defined and we now have a head of European sales onboard as well as manage in four of the seven regions that we have designed. We also have been making progress in hiring sales representatives. Our Clinical Science Management team has also progressed, so the European is in place and four of the eight identified positions are filled. We have Marketing Associates in each of the key countries as well as Medical Directors in most. We hope to have completed the bulk of hiring for sales divisions by early in 2009.

Now moving on to Cleviprex, the product was approved for marketing in the United States on August 1st and we launched the product on September 15, 2008, placing $10 million in gross sales in the wholesaler pipeline. Cleviprex is indicated for the reduction of blood pressure when oral therapy is not feasible or desirable. The product has been made available in 50ml and 100ml ready-to-use vials each packed in a box for 10 vials - a box of 10/50ml is 1450 and 2900 for the 100ml.

As we discussed in our previous call, we have increased the size of our sales force from 123 territories to 177. All of our representative have been trained about Angiomax and Cleviprex and began selling those products on September 15th. Right now, the concentration is on getting Cleviprex added to hospital formularies. Reception from physicians has been positive with high interest in using the drug. It is too early into launch to have much data to share with you at this time but we look forward to updating on you on our progress on future calls.

Finally, with respect the cangrelor Phase III program, CHAMPION PCI has reached 7400 to the planned 9000 patients. CHAMPION PLATFORM is now at 3600 to the planned 6500 patients. We planned to present interim analysis information on this program in fourth quarter when we get interim data from both trials from the review committee.

And now, I’d like to turn it over to Clive.

Clive Meanwell

Hey, thanks very much, John. And a strong quarter, successful in terms of revenue growth with Angiomax, Angiox and the Cleviprex launch promising more and I think also a commitment to our future with the Curacyte acquisition cangrelor progress on the trials and we look forward to taking some questions now.

Question-and-Answer Session

Operator

(Operator Instructions). We’ll take our first question from Matt Duffy with BDR Research.

Matt Duffy - BDR

Good morning, and thanks for taking my question. Just John, I'm wondering if you could give us some additional color on exactly how you’re positioning Cleviprex, what kind of targeting you’re doing, whether it's cardiovascular procedures, the ER, those types of emergent situation, just some additional color of what you really are trying to get folks to added to formulary what particular uses and then how you want docs to use it?

John Kelley

Sure. Thanks Matt. We are concentrating on those areas primarily where we have strong data, so as you know the data that’s been published in is out right now, it looks at the use of the product in cardiac surgery as well as the velocity trial which was done with emergency room physicians. We are looking for a physician who would be willing to try the product and willing to be the spokesperson for formulary review. So in addition to working with the pharmacy and the members of the formulary review committees we are concentrating on cardiac surgeons, on anesthesiologists, and on emergency room physicians.

Matt Duffy - BDR

Okay. And for the various usages that you’re pursuing there, what does the cost per patient look like, do you think? What's your best estimate at this point?

John Kelley

We estimate that we will see somewhere in the range of three to four vials per patient in whether ER or cardiovascular surgery?

John Kelley

Well, it depends. If you are in cardiovascular surgery, it's probably going to be a little bit less than that. If you are in the ER, it could be a little bit higher than that. So, on average around three to four vials per patient is what we are estimating.

Clive Meanwell

Matt, this is Clive. I think those data came out of our Phase III trial program, and it will be interesting to see how those can led into real life patients. But that's the best data that we have got right now.

Matt Duffy - BDR Research

Okay. Great, thanks. And on the European front, so you are going to have your reps in place early next year. What kind of timeline do you expect over there for them to really start having impact on the marketplace?

John Kelley

Well, we hope immediately. Obviously, we are actually doing a fair amount now with the folks that we have on the ground. We have medical science people in place. We have got medical directors in place and we are in the process of making sure, that we are communicating with key opinion leaders, and that we are making sure that people are aware of the data that's available on the product. We’ve got representatives, that have been hired, that will be starting later this year. We have got a number in the UK. They are actually going to be going through training, yet this year, and they should be in place to begin selling at the beginning of the year. As we hire additional representatives, quite honestly, it differs a little country-by-country, in terms of contracts that they currently have in place and how long it takes them to get out of where they are currently working if you will, and join us. But, we hope to have the bulk of the sales force in place by January, have them trained in January and have them effective immediately.

Operator

Our next question comes from Joseph Schwartz of Leerink Swann.

Joseph Schwartz - Leerink Swann

How much [ELPHA] do you plan on spending in the interim analysis for cangrelor? And is there just one interim analysis or there are other two interim analysis for each of the two Phase III trials? And do you need to have both Phase III trials at 75% enrollment to perform the interim analysis.

Glenn Sblendorio

In the past I think we have described this as one analysis. I’ll say we now at the point, where we can do 70% and 50% on the two trials and I don’t think we have discussed the ELPHA spent in the past and I don’t think at the moment with the celebration is going on, but it would be the right to comment on that, but certainly there is both trials been looked at.

Joseph Schwartz - Leerink Swann

Okay. Just trying to handicap, how I might think about this. How is the trial power to show a certain fact size at the final enrolment figure then?

John Kelley

Yes, I think we described, before that the PCI trial has a power to show a 22.5% risk reduction and the platform trial was about showed 25% risk reduction both with more than 80% power. I think we have talked about that previously.

Operator

Our next question comes from Liana Moussatos with Pacific Growth Equities.

Liana Moussatos - Pacific Growth Equities

Hi John, could you repeat the penetration rates for the different stages of PCI patients?

John Kelley

Sure.

Liana Moussatos - Pacific Growth Equities

It’s in the platform current patient enrolment?

John Kelley

Okay sure. I will go a little slower, sorry about that. So, the overall share for all patients undergoing PCI and this is for July of 2008, which is the latest data we have, 48.3% last year at this time that was 41.7%.

Stable angina was 62.3%, last year it was 54.8%. Unstable angina is 54%, last year 47.8%. Non-STEMI 41.5% versus 36.9%, STEMI is 26.7% up from 19.6%. CHAMPION PCI at 7400 patients, CHAMPION PLATFORM is at 3600 patients.

Liana Moussatos - Pacific Growth Equities

Great, thank you.

John Kelley

You’re welcome.

Operator

Our next question comes from Steve Harr with Morgan Stanley.

Steve Harr - Morgan Stanley

Yes, just on cangrelor, the enrollment is probably a little bit slower than you'd expected, is still reasonable I think about these data potential be an ACC or is now second half '09 event? What you expect to communicate around the interim analysis, as you are going to communicate, so that presumed that the data will remain blinded to the company and then only the [BSMB] when too many trials actually start?

John Kelley

That we’d anticipate enrollment as time would be before ACC and as far as what we talked about, I think we can't really comment until we get the data and you are right we will remain blinded to the actual data. That's correct.

Operator

Our next question comes from Maged Shenouda with UBS.

Maged Shenouda - UBS

Can you provide an update on the parent situation with Angiomax?

Glenn Sblendorio

Yes, I can. We continue to advocate in this Congress change in the patent law that would allow PTO to have more discretion in considering like filings and that's yes, our sense for a quite while now and we’re continuing to advocate for that change in the law in this Congress.

Maged Shenouda - UBS

Okay. Our consultancy that the chances of getting something for through in this Congress are pretty slim I guess, what's your view of that?

Glenn Sblendorio

I think the chances are pretty slim. They have improved the odds haven't they? Based on what they usually say. Maged, it’s very, very difficult to read this. Obviously, Congress is a busy place. They have a lot going on as we all know and it’s always been hard for us to handicap this, but it's always been easy for us to advocate for it.

Maged Shenouda - UBS

So if we were to look at one bill you’d attach it to, you’d attach language to, which bill would that be?

John Kelley

Well again, I think it would be up to our legislative colleagues. Beside that if they decide it’s the right thing to do, it's not something we really control. So we’ll just continue to hammer away, the reason why the law should be changed and we’ll leave it to our legislative friends down there to figure out how to do it.

Operator

And we’ll take our next question from Jason Kantor with RBC Capital Markets.

Jason Kantor - RBC Capital Markets

Thanks for taking the question. I want to get back to this, at the interim look, is this - so basically, there are two outcomes where we’re either going to stop the trial and find out [what the] success, or we’re just going to hear that everything is continuing as usual. Is that correct?

John Kelley

Well again, I think it's - I think, when you’re this close to something I don’t think it is wise to try and comment and second guess to committee, so as we said earlier we don’t have a comment on the interim analysis for the program until we have all the information.

Jason Kantor - RBC Capital Markets

Right, but you're going to be blinded, so what’s the mandate of the committee in terms of this interim analysis.

John Kelley

There’s a complex set of documents that dictate what they should look at and I'm sure they’ll follow those steps and certainly we will, under the rules of engagement there we will not know the details of the data.

Jason Kantor - RBC Capital Markets

Is it possible at the interim to decide that you want to make the trials bigger in order to get more power, is that an option for you?

John Kelley

Well we’ve covered that in the past on a number of occasions and I think we’ve always said that the trial has a variety of mechanisms, sort of adaptation, but as to what’s going to happen, I think it would be difficult to comment on that at this stage.

Operator

Our next question comes from Biren Amin with The Stanford Group.

Biren Amin - The Stanford Group

Thanks for taking my questions. I was wondering if there was some seasonality in the third quarter numbers. It seems there are a number of boxes sold, grew quarter-over-quarter by 4% and also regarding guidance, the high end of the sales range seems to suggest 4% quarter-over-quarter growth rate in Q4. So, again, will there be some seasonality in Q4 as well?

Glenn Sblendorio

Yes, Biren, typically in the third quarter, the seasonality we've seen is a little bit flat to second quarter. In fact, I think every year I've been here, we've pretty much had quarter-on-quarter flat or slightly down. Typically, I see it come back up in the fourth quarter. This year, as you said, the box count remained pretty strong and we saw it actually go up slightly, a 4% over the second quarter. That might be a reflection also of the fact that more of our business is moving into the higher risk patient population, in which there is less seasonality associated with it, and we would anticipate that as we go into the fourth quarter, we would continue to see the business increase as we have in the past. So I think that's one of those fuss behind the increase in guidance.

Biren Amin - The Stanford Group

So, I guess, would you consider guidance to be fairly conservative?

Glenn Sblendorio

I think the word I have been quoted as using in the past is prudent. I think it's reflective of where we think the product is going to be.

Operator

And our next question comes from Lucy Lu with Citi.

Lucy Lu - Citi

Thank you. Just wondering what kind of trends are you seeing in PCI procedure volumes in the United States? And I have a follow-up.

John Kelley

Sure Lucy. I think many of our colleagues in the stent companies have been quoted recently as saying that they have seen a stabilization in the marketplace, and actually somewhat of a return to volume, which is I think what we're seeing. Nothing that you would say as a robust rebounding of the marketplace, but certainly not the downward trend that we were seeing a year ago. I think we have been fortunate enough that we continue with our data to increase our share and as the market has comeback somewhat, and particularly, we've seen a return of volume in a stable angina patient. We have been able to increase our business as that has come back.

Lucy Lu - Citi

My follow-up is Angiomax, which obviously have benefited from price increase. I'm just wondering how much more room do you have in terms of additional price increase, for the remaining of this year or maybe next?

John Kelley

I'm not going to comment on what we're going to do about price, but I think that if you look at the data that we have pretty strong data that demonstrates that we deliver a significant economic value to hospitals. When hospitals do their own analysis I think they have been able to determine because they have a shorter length of stay typically with Angiomax, as well as the reduction in cost associated with bleeding that they see with other therapies. They can stay somewhere between $1000 to $2000 per patient. I think that was also substantiated in the economy analysis that was done as prospective design in the ACUITY trial. Certainly if someone where to do the economic analysis around the data that comes out of ACUITY and the lives saved over the course of the year by using Angiomax in primary PCI. I think there will be a very strong economic story there also, so I believe we have more room.

Glenn Sblendorio

I think, it was very interesting to hear the experts talking at TCT, and the comments to try to compare and contrast this level of mortality benefit at one year versus other important drugs that we use routinely such as [Stachens]. Obviously, drug [Cyclobutyl] provide a mortality benefit of number of years. In the worst case scenario, in the diabetic patient, that until we provide about a 1.5% mortality improvement after four years of therapy. Here we have a 1.7% mortality benefit after one year of therapy with a one shot of the product in hospital.

So, I think that it compares very favorably in health economic sense delivering value into the healthcare system. We also remember that traumatic excitement of TPA many years ago we launched $2400 of vial treatment with a 1% mortality improvement of 30 days maintained at 0.9% of one year. Again when we compare to trust the value we are delivering to the system relative to other important drugs that we have tried? We are very grateful for this. I think we are doing very well and that provides a basis for working with our customers to make sure that they appreciate that value.

Operator

And we have a follow-up question from Steve Harr with Morgan Stanley.

Steve Harr - Morgan Stanley

I’d like a bit of an update of how things are going in cangrelor in terms of hospital formularies and when you expect to have meetings and how necessary it is to get through the formulary committees to start the real sales processing.

John Kelley

Steve, this is John. I assume you mean Cleviprex.

Steve Harr - Morgan Stanley

Yes Cleviprex. Sorry cangrelor we know we are not near that, yes.

Glenn Sblendorio

I'd like to just make a statement that we haven’t approached any formularies about cangrelor yet.

John Kelley

Okay. We are in the process of going through the formulary review and I think as you know in many hospitals they have prescheduled meetings and you need to get on the schedule. So, right now we've had about 20 some hospitals review the products and put it on formulary. There are somewhere upwards of 200 hospitals scheduled to review the product in the coming few months and of course we are working to increase that number on a daily and weekly basis with our sales force.

Some hospitals are willing to put the product in and to allow physicians to access to it and try it, before they actually added to formulary. Other hospitals, who are pretty adamant that they don't want the product in the hospital and don't even want the product, discuss with physicians until it has been added to the formulary. So, each hospital is different. We are working through each one of those, but we are pretty confident that we can present compelling information on the product to I think the formulary access.

Glenn Sblendorio

I think it’s fair to say that of the ones that so far discussed formulary, nobody is rejected, which is great because we've had other launches well that wasn’t the case at least one another launch I think it wasn’t the case. I think as well, your question is a good one. I think we need to modulate expectations in terms of, this is a hospital launch. It takes time and we have to work through with each hospital, to determine exactly what their needs and requirements are and that’s going to take us a number of months. So, I think that’s a good way of modulating the expectations.

Operator

And we have another follow-up question from Maged Shenouda with UBS.

Maged Shenouda - UBS

Hi, thanks for taking my follow-up. Can you just remind us of the secondary endpoints in the cangrelor CHAMPION trials and more specifically will you be measuring outcomes such as death after six months or one year?

John Kelley

Yes, I think the way that trials been represented in the past, it shows that we’re looking at pretty conventional endpoints in the trial, death MI, [rehospitalization] and bleeding events its pretty standard stuff actually.

Maged Shenouda - UBS

How to six months and one year?

John Kelley

Oh I'm sorry. There is a one year follow-up in the trial, yes.

Maged Shenouda - UBS

Great, thank you.

John Kelley

Both trials.

Operator

You have a follow-up question from Jason Kantor with RBC Capital Markets.

Jason Kantor - RBC Capital Markets

Hi, thanks. Could you just explain a little bit better how and when you’re going to be recognizing the Cleviprex revenue?

Glenn Sblendorio

Sure. Jason you’ve seen in the press release and also what I spoke about before, we put $10 million into the wholesaler channel next to those orders from the wholesaler and we decided with less or a little bit more than 10 days of actual selling activity not to use John’s words prudent to, to recognize any revenues. What we’ll look at in the fourth quarter and I think John gave the overview on the formulary plan is, we’ll look at fall through in the fourth quarter and at the end of the year, we’ll make the termination, what inappropriate level of inventory is based on that fall through.

So, as I said before, we will take a close look at what's happening over the next three months before we actually recognize any revenue. I think that's probably the most prudent and conservative way to look at revenue recognition.

Jason Kantor - RBC Capital Markets

So, is the goal to only recognize revenue, when it leaves the wholesaler, or when you ship to the wholesaler?

Glenn Sblendorio

No. It will go to what I’d call a more conventional method, which is to recognize revenues based on pull-through, in a reasonable amount of inventory in the channel. As I stated before, we did reiterate guidance to give you somewhat of a benchmark of 5 to 10 for the year. I know it's a wide range, but as Clive said, since the hospital launch and it does require formula approval, so a lot to happen in the fourth quarter.

Jason Kantor - RBC Capital Markets

The 5 to 10 is your estimation of what end user demand is going to be not (inaudible).

Glenn Sblendorio

Remember, we always, when we give guidance, it's always on a GAAP basis. So, it would be a combination of what the end user has plus some reasonable amount in the channel.

Operator

We have a follow-up question from Joseph Schwartz with Leerink Swann.

Joseph Schwartz - Leerink Swann

Hi, thanks. I was just looking for a little bit more detail on the incremental $4 million to $5 million of expenses in R&D. What are those funds being spent on?

Glenn Sblendorio

Sure, Joe. Of the 4 to 5, 2 to 3 is related to the Curacyte acquisition, actually R&D that we will be doing in the fourth quarter. We actually spent a little bit in the third quarter since we closed in August, the balance in the fourth quarter. The additional 2, so that's 2 to 3 at that Curacyte discovery, the additional 2 relates to some incremental programs around lifecycle initiatives.

Joseph Schwartz - Leerink Swann

Okay. And then the $5 million for accelerated European expansion of the sales force, what are the metrics there for sales field force and managers?

Glenn Sblendorio

The organization that we have put together, we envision ultimately consists of Head of European Sales, also about seven regional managers, and a total of about 70 representatives. We also have a clinical science and manager group, similar to what we have in the United States, so one head there with eight clinical managers supporting them. Then we've been in addition to that, filling out the rest of the organization, with marketing managers in countries, medical directors, regulatory people, and so on and so forth.

But on the sales force, it's one head seven regional managers and about 70 representatives.

Clive Meanwell

And Joe, it's Clive again. Just back to the additional R&D related to mainly (inaudible). I think one of the things that we sort of slipped into here that we haven’t stressed a great deal because we try to get our arms around. It has been - we are now in the research game. We have there an incredibly modern facility. We have 23 experts in the development and discovery of serine protease inhibitors.

Serine protease inhibitors credibly important information in acute thrombosis. We do anticipate from their library of molecules to be able to pick out molecules that we may about take forward into clinical programs, but have the kind of attributes that we know are needed even beyond Angiomax as drug, so we're very excited about that and I think this, taken on this research capability, it's starting to build backwards in the value chain is important to The Medicines Company.

Operator

Follow-up question from Biren Amin with Stanford Group.

Biren Amin - Stanford Group

Yes. Thanks for taking that follow-up. Can you give us maybe a little bit of more color on Cleviprex's pharmacoeconomic strategy and when you compare it to Cardene and tablets like Nicardipine?

Glenn Sblendorio

Sure. Well, first of all, I think that the primary focus and benefit of the product is the fact that it is an extremely rapid-on and rapid-off product, which allows the physician to have precise control of blood pressure. The data that we have and that we are featuring with physicians is the fact that in all of our clinical trials we've been able to achieve, very rapid blood pressure control within minutes and about 90% of patients that's the rate of efficacy that I think is unsurpassed by any of the other IV and hypertensive agents that are available.

So what means is fewer less time and effort to get to blood pressure control, less need to add additional agents or stack additional agents on top of the agents that they are primarily picking, so they often start with something that is a fairly weakly or hypertensive. And then add additional things to it, to try to get out pressure under control. I think the other thing that’s important is that the product is not metabolized by the liver and the kidney, so it allows through a degree of safety and comfort for the physicians to use it. All those things I think add up to us being able to demonstrate that the product offers cost advantages over other agents.

There is also I think something that we're going to learn a little bit over time, that I believe that in terms of use of drug because of the features I just highlighted that there is actually less drug use than might be the case with other IV and hypertensive where they are doubling, tripling, and quadrupling the amount of drug that’s being put into our bags to try to get the amount of drug into the system up and get a higher degree of efficacy without increasing volumes that's been given to the patient, so that's a little something and little work we need to do overtime.

John Kelley

So I think just as a general level of that we've always being very committed to value based pricing and we are going to be just the same with this drug and we believe that it will provide over value equations as Angiomax has. Where you know in fact we were selling obviously (inaudible) and I think we've demonstrated a huge commitment to help the economic outcomes work with our customers and time and time again we've been able to demonstrate that and I think there is every reason to believe that we're going to do the same with that customers with this drug as well.

Joseph Schwartz - Leerink Swann

Great, thank you.

Glenn Sblendorio

Well, I think we’re out of questions, and we want to thank you very much for your interest and efforts and we’ll keep at it and look forward to updating you in the next quarter. Thanks so much indeed.

Operator

And that concludes today’s teleconference. Thank you for your participation, have a good day.

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Source: The Medicines Company Q3 2008 Earnings Call Transcript
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