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Acorda Therapeutics, Inc. (NASDAQ:ACOR)

Q4 2012 Earnings Call

February 13, 2013 08:30 AM ET

Executives

Tierney Saccavino - SVP, Corporate Communications

Ron Cohen - President and CEO

Dave Lawrence - CFO

Analysts

Chris Raymond - Robert Baird

Salim Syed - ISI Group

Joel Sendek - Stifel Nicolaus

David Amsellem - Piper Jaffray

Geoffrey Meacham - JPMorgan

Phil Nadeau - Cowen and Company

Operator

Welcome to the Acorda Therapeutics Fourth Quarter and Full Year 2012 Financial Results Conference Call. (Operator Instructions). Please be advised that this call is being taped at the company's request. I would now like to introduce your host for today's call Tierney Saccavino, Senior Vice President of Corporate Communications at Acorda Therapeutics. Please go ahead.

Tierney Saccavino

Good morning everyone and welcome. With me today are Dr. Ron Cohen, our President and Chief Executive Officer; and David Lawrence, our Chief Financial Officer. Before we begin, let me remind you that this presentation includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical facts regarding management's expectations, beliefs, goals, plans or prospects should be considered forward-looking.

These statements are subject to risks and uncertainties that could cause actual results to differ materially including our ability to successfully market and sell AMPYRA in the U.S.; third-party payers, including governmental agencies may not reimburse for the use of AMPYRA or other products at acceptable rates or at all, and may impose restrictive prior authorization requirements that limit or block prescriptions; the risk of unfavorable results from future studies of AMPYRA or from other research and development programs including diazepam nasal spray or any other acquired or in-license programs; we may not be able to complete development of, obtain regulatory approval for or successfully market diazepam nasal spray or other products under development. The occurrence of adverse safety events with our products; delays in obtaining or failure to obtain regulatory approval or to successfully market FAMPYRA outside the US and our dependence on our collaboration partner, Biogen Idec, in connection therewith; competition, including the impact of generic competition on ZANAFLEX CAPSULES revenues; failure to protect our intellectual property or to defend against the intellectual property claims of others or to obtain third-party intellectual property licenses needed for the commercialization of our products; failure to comply with regulatory requirements could result in adverse action by regulatory agencies; and the ability to obtain additional financing to support our operations. These and other risks are described in greater detail in Acorda Therapeutics filings with the Securities and Exchange Commission. Acorda may not actually achieve the goals or plans described in its forward-looking statements, and investors should not place undue reliance on these statements. Forward-looking statements made in this presentation are made only as of the date hereof, and Acorda disclaims any intent or obligation to update any forward-looking statements made as a result of developments occurring after the date of this presentation.

Now on a housekeeping note for the Q&A, we are going to ask that everybody limit themselves to one question. And I am going to turn the call over to our CEO, Ron Cohen

Ron Cohen

Thanks Jenny, good morning, everyone. On today’s call I'll provide an update of AMPYRA's fourth quarter and our full year performance. I'll also review revenue from ZANAFLEX and our ex-U.S. partnership with Biogen. And then I'll also provide an overview of the upcoming milestones for our product development programs. Dave will then provide the financials for the quarter and review our 2013 guidance and I'll then summarize we will open up call for questions.

To recap AMPYRA's sales performance in 2012, net sales for the fourth quarter were $72.7 million and an approximate 27% increase over Q4 2011. A full year AMPYRA sales were $266.1 million which is approximately 26% over 2011 full year sales. We are very pleased with AMPYRA's performance during the year and as our 2013 guidance indicates, we see additional growth for the brand in 2013.

Turning to our additional sources of revenue, combined full year net revenue from our ZANAFLEX franchise was $23.5 million. Now this included net revenue from ZANAFLEX capsules and tablets of $13.2 million, revenue from Actavis authorized generic capsules of $7.2 million and $3.1 million in sales of generic capsules to Actavis.

In the fourth quarter of '12, net revenue from our ZANAFLEX franchise was $5.2 million which included net revenue from ZANAFLEX capsules and tablets of $1.6 million, revenue from Actavis authorized generic capsules of $2.5 million and $1.1 million in sales generic capsules to Actavis.

We received $7.1 million in FAMPYRA royalties from Biogen for the full year and $1.3 million in the fourth quarter based on net sales outside the US with Germany comprising the majority of overseas sales. As a reminder, Biogen has stated that the expect pricing to be finalized in Germany in Q1 of this year. FAMPYRA is now available for commercial sales in more than 15 countries with additional launches in regulatory filings expected in 2013.

Moving to our product development programs, we believe we have one of the most interesting pipelines in the neurology space. We have five programs including AMPYRA that are in clinical testing or expected to be by mid-2013.

In December 2012, we completed the acquisition of Neuronex Inc.; this added an important pre-NDA stage product, Diazepam nasal spray to our pipeline. This is a treatment for people with epilepsy who experience cluster seizures which are also known as acute repetitive seizures that are not controlled by their anti-epileptic medications. We had a pre-NDA meeting with the FDA last year. Pending additional clinical and CMC data, we plan to submit an NDA later this year and based on our discussions with FDA, we're proceeding with a 505 B2 filing using Diastat as the reference drug. Diastat is a rectally administered form of Diazepam and we believe that the nasal spray formulation offers a more accessible and socially acceptable alternative for both current Diastat users as well as people who have previously not used Diastat because of its mode of delivery. We'll be presenting PK data on Diazepam nasal spray in a poster at the American Academy of Neurology meeting in March. We anticipate that our current infrastructure can support sales and marketing of the product and market planning is underway.

We also made notable progress in our clinical stage pipeline programs in 2012. Our clinical team did an excellent job of advancing our AMPYRA lifecycle management programs. We initiated proof of concept studies in post stroke deficits and cerebral palsy and we expect to announce results of both studies in the second quarter of this year. We also completed a GGF2 Phase 1 clinical study in heart failure in 2012, which was a does escalating trial designed to test the maximum tolerated single dose. We plan to present the three month data from that trial in a platform presentation at the American College of Cardiology meeting in March. We're also going to discuss the results with FDA before proceeding to a multiple dose study.

In addition, we expect to begin enrolling patients in clinical trials for AC105, an acute spinal cord injury and RIGm22 in MS by June of this year. Several weeks ago we announced that we received a $2.7 million Department of Defense contract to support the AC105 trial.

Now I'll turn the call over to Dave for a review of the financials and our 2013 guidance. After that I'll come back with a closing summary and then we'll open the call for your questions. Dave.

Dave Lawrence

Thanks Ron. Total revenue for the fourth quarter ended December 31st 2012, was 81.5 million, compared to 72.6 million for the same quarter in 2011. Full year 2012 total revenue was 305.8 million compared to total revenue of 292.2 million in 2011 which included 25 million in milestone revenue relating to Biogen Idec conditional approval from the European commission for FAMPYRA.

Total operating expenses including $6.1 million in share-based comp expense for the quarter ended December 31, 2012 was 80.1 million compared to 59.6 million and 5.4 million in share base compensation expense for the same quarter in 2011.

Full year operating expense in 2012 were 280.2 million including 21.4 million in share base compensation expense compared to 257.2 million and 19.3 million in share base compensation expense for the full year 2011.

Total operating expenses in 2011 included 15.5 million in accounting adjustments related to ZANAFLEX CAPSULES. In the fourth quarter of 2012, we determined that we would be able to utilize our deferred tax asset therefore releasing our valuation allowance.

Our conclusion was based on the guidance provided by ASC 740 under GAAP and resulted in recording of a nonrecurring income benefit in the fourth quarter of 132.7 million and a deferred tax asset of 136.7 million.

We were pleased to have delivered on all our 2012 financial guidance. Our AMPYRA net sales ZANAFLEX and ex-U.S. AMPYRA royalty revenue as well as R&D and SG&A expenses were all within our 2012 guidance ranges.

In the third quarter of 2012 as a result of changes in the timing of several R&D programs, we reduced our R&D guidance from 50 to 60 million to approximately 45 million excluding share base compensation and future expenditures related to the (inaudible) acquisition.

Actual 2012 R&D expenses adjusted for these items totaled 45.3 million. We closed 2012 in a strong financial position with cash, cash equivalence and investments totaling 333.2 million, an increase of approximately 37 million over our cash and investment balance at the end of 2011.

Turning to 2013 financial guidance, in January we provided guidance for 2013 of AMPYRA net sales between 285 and 315 million. Guidance for other revenue sources of 25 million includes revenue from AMPYRA royalties and ZANAFLEX sales and royalties from authorize generic. It also includes 9.1 million in amortized AMPYRA licensed revenue.

We provided 2013 R&D guidance between $60 and $70 million and SG&A guidance between $170 and $180 million. A substantial portion of the increase in spend in SG&A and R&D over 2012 is related to additional spend on diazepam nasal spray; a product that could be launched in 2014. It's important to note that we have reduced AMPYRA commercial spend as a percentage of sales for 2013.

We expect to be cash flow positive in 2013 but at a lower level in 2012 due to investments needed for diazepam nasal spray.

Now, I'll turn the call back over to Ron.

Ron Cohen

Thanks Dave. So to summarize, in 2012 we grew AMPYRA sales. We implemented development programs for additional indications for AMPYRA. We also acquired an exciting pre-NDA product in diazepam nasal spray and we advanced our pipelines so we expect to have three additional clinical stage products in 2013.

And also worth noting, we're continuing to focus our business development initiatives on late stage or commercial stage products that have the potential for near term accretive value. And with that, we'll open the call for your questions. Operator?

Question-and-Answer Session

Operator

(Operator Instructions) The first question comes from the line of Chris Raymond, Robert Baird; please go ahead your line is open.

Chris Raymond - Robert Baird

Just a question on the guidance. So you highlight the fact that the Biogen result the pricing for FAMPYRA in Germany. But that was after you initially provided the $25 million guidance number. Should we just take from that, there is really not enough upside to revamp the guidance or do you think there is upside going forward? Thanks.

Ron Cohen

We built into our guidance the expectation of the results that Biogen has. So there will be no change to the guidance at this point.

Operator

Thank you and the next question comes from the line of Mark (inaudible) please go ahead your line is open.

Salim Syed - ISI Group

This is Salim here in for Mark. I'll start jump straight into my question, so on Diastat you've mentioned before $100 million in branded peak sales. I am just curious, were there any other drugs when Diastat was peaking at, with the market width and what the sales were for that. I am just trying to get like…

Ron Cohen

Not to our knowledge, no. As far as we know Diastat was and actually remains the only approved and available at home rescue if you will, for cluster seizures or acute repetitive seizures.

Operator

And your next question is from Michael Yee of RBC Capital Markets, please go ahead.

Unidentified Analyst

This is [Sharmin] on behalf of Mike. With the upcoming stroke trial readout, can you help as understand what the hurdle is to go forward in terms of response rates and magnitudes of response, magnitude of efficacy in each of the end points please? Thank you.

Ron Cohen

Yes, we really can't. Because you wind up getting into a very complex series of conversations. We have several different outcome measures that we're looking at, functional outcome measures that involve the upper extremities, the lower extremities, gait and mobility as well as, some more global measures. So, you have several different measures in the trial and it really is going to depend on what the signals look like for any given outcome or combinations of outcome. So we really can't say in advance, we can't draw a bright line, and say if it looks like this side of the line, no, and if this side of the line, yes. We're going to have to wait and see the data, talk to the clinicians and make a determination and hopefully if we have a positive signal, it'll be obvious enough that we come out and tell everyone why we're moving forward.

Unidentified Analyst

Understood, so if I may, how good of a correlation do you see with responses in the different endpoints, and so if a patient let's say, responds in upper extremity do you expect a response in other measures that is lower or gait.

Ron Cohen

Yes, we can't say at this point, this is the first time we've actually studied this in humans with stroke. We can talk to you about how it correlates in rats. It correlates terrifically in rats, but that's all we can say right now.

Operator

And the next question comes from the line of Joel Sendek with Stifel Nicolaus. Please go ahead, your line is open.

Joel Sendek - Stifel Nicolaus

I've a question on Diazepam. I'm wondering about the timeline both to get the CMC data and if you can give us any more details about what that data is, the clinical and the CMC data and then the filing under 505(b)(2) what’s timeline for that, thanks.

Ron Cohen

We haven’t broken it down any more than to say we expect to file this year, so we expect to file near the end of this year and in terms of the data we’re waiting for, we’re not getting into detail on it but there is one clinical study that’s finishing up and then there is some standard CMC type data that we need to have for any NDA that we’re waiting to complete so beyond that I can’t give you more detail except to say that at this point, getting those data we expect to file NDA this year.

Operator

Thank you and next question comes from the line of David Amsellem of Piper Jaffray. Please go ahead. Your line is open.

David Amsellem - Piper Jaffray

So wanted to come back to the market opportunity on diazepam, how you thinking about the peak sales opportunity given that one, there is generically available diazepam rectal gel and then number two Upsher-Smith is developing a nasal spray formulation of Midazolam for cluster seizures and I believe that’s in page three.

Ron Cohen

Right, so generic or not, rectal gel is used by minority of the patients who could benefit from an at-home rescue for cluster seizures for the reasons that we’ve talked about and I think most people on the call can probably into it.

Number one, it’s very unpalatable say use a rectal gel and use a plunger and do all that stuff you have to do through the rectal administration route.

Secondly, particularly for older children and adults, it’s actually physically difficult, you have someone who has just had a seizure or is in the middle of having cluster of seizures and to have someone turn them over and pull their pants down and administer the gel is not an easy or pleasant experience. so the result is that a lot of people, most people, most adults and even older children wind up defaulting to go into the emergency room and getting an IV there of Diazepam or whatever they give them.

So we don’t see the generic Diastat as being any different from the branded in that respect in terms of what the market need is. As you point out, Upsher-Smith is developing a potential competitor in the space using different benzodiazepines Midazolam because that does not exist for the indication currently as Diastat does with Diazepam. They have to do a full board Phase III program under an ordinary NDA rather than a 505(b)(2). Our understanding is that they are recruiting in their Phase III trials and assuming we both were to get to market, we would be competing in this space. We think the market is large enough to handle that. Obviously we'd love to get to the market first and right now if we can follow our NDA on schedule this year, we think we would be in a lead position.

Operator

And the next question comes from the line of Geoff Meacham of JPMorgan please go ahead, your line is now open.

Geoffrey Meacham - JPMorgan

Once we are manufacturing for Diazepam. So, is there a device component to the 505(b)(2) Ron, is that right and if so, what are the gaining factors you can talk about with respect to finishing the CMC section and are you guys going to manufacture it?

Ron Cohen

Well we are going to contract to manufacture it. Obviously we don't have our own device manufacturer but we have contractors to do that and we qualified them so that's an ordinary part of the NDA. The FDA is quite familiar with intra nasal devices of various kinds so we don't see this as a special gaiting factor. It would be a gaiting factor only in the event that there was something wrong with the manufacturing or something that we haven't accounted for just the usual.

But our clinical regulatory teams have been working on this for some time and right now we feel based on everything we're seeing, we should be able to file this year.

Geoffrey Meacham - JPMorgan

So, really it's not a matter of clearing the device manufacturers, just a matter of getting the CMC data all together, is that a fair characterization?

Ron Cohen

Yes, I think that's fair, I think that's reasonable.

Operator

And the next question comes from the line of Phil Nadeau of Cowen and Company, please go ahead. Your line is open.

Phil Nadeau - Cowen and Company

Just two brief financial housekeeping questions. Could you guys give us an update on where your NOLs stood at the end of 2012 and what your expectations are for test taxes in 2013 and beyond. And then second the Zanaflex line is kind of lumpy and it's not that big of a deal, but it's not clear to me why that is. Could you give us some sense of what determines that kind of quarterly pattern of Zanaflex sales and royalties. Thanks.

Dave Lawrence

Sure, so the NOLs at the end of '12 were approximately a 194 million. We are not giving guidance on our 2013 effective tax rate at this point Phil, because we just need better visibility into what that might look like this year. As far as Zanaflex goes, you know, I don't have a good answer about the lumpiness, it definitely tails off during the year. We had higher revenue Q1 and then the generics fit in. So, I think overall, it was downwards sloping for the year and there may have been some lumpiness.

Ron Cohen

Maybe I can chime in, just to remind everyone what Dave just said, but just to emphasize it, the first quarter was obviously much better than the rest of the year because some of that were still selling branded drugs, so you can really discount the first quarter completely from any pattern and then there's a general sloping down which you expect after a drug goes generic, so it doesn't just fall off the table all at once. You get a pretty big hit up front but then it continues to decline until it reaches some low steady state over time. So it's not unexpected and actually worth reminding everyone, we were able to mitigate some of that by having Actavis originally Watson, now called Actavis, launch an authorized generic, so we're able to keep some of the revenue that we otherwise would have lost.

Operator

And the next question comes from the line of (inaudible) Capital, please go ahead your line is open.

Unidentified Analyst

Regarding AMPYRA data for post growth deficits and cerebral palsy, which one will be reported first within this year and also could you update us on the status of once daily formulation of AMPYRA? Thank you.

Ron Cohen

We haven’t broken down the order except to say that we expect both of them will readout, both of the trials will readout in the second quarter, so that’s the best we can tell you right now and then I’m sorry the other question.

Unidentified Analyst

The once daily formulation of AMPYRA.

Ron Cohen

Yes, we are continuing to work on that and that’s moving along. We have a couple of outside formulator groups that we’re collaborating with both of them are developing prototypes or have developed prototypes and we’re continuing to progress with those programs.

Operator

Thank you very much good question. I would now like to turn the call back to Dr. Cohen for closing remarks.

Ron Cohen

Only that this concludes our call and thank everyone. Have a great day.

Operator

Thank you so this concludes our call. Thanks and have a great day.

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