Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)

The Medicines Company (NASDAQ:MDCO)

Q4 2008 Earnings Conference Call

February 18, 2009 8:30 am ET

Executives

Dr. Clive A. Meanwell - Chairman, Chief Executive Officer

John P. Kelley - President and Chief Operating Officer

Glenn P. Sblendorio - Executive Vice President and Chief Financial Officer

Robyn Brown - Vice President, Investor Relations

Analysts

Mona Ashiya - J.P. Morgan

Joseph Schwartz - Leerink Swann

Matt Duffy - BDR Research

Liana Moussatos - Pacific Growth Equities

Steve Harr - Morgan Stanley

Lucy Lu - Citigroup

Maged Shenouda - UBS

Operator

Good day ladies and gentleman, and welcome to The Medicines Company fourth quarter and full year 2008 earnings conference call. My name is Mary and I will be your operator today. (Operator Instructions). I would now like to hand the call over to the host for today’s call, Robyn Brown, Vice President, Investor Relations.

Robyn Brown

Thank you Mary, and welcome everyone to The Medicines Company fourth quarter and full year 2008 earnings call. This morning I am joined by Dr. Clive Meanwell, our Chairman and Chief Executive Officer, who will discuss our strategy and moderate a Q&A session at the end of the call; John Kelley, our President and Chief Operating Officer, who will provide an overview of 2008 operating results; and Glenn Sblendorio, our Executive Vice President and Chief Financial Officer, who will review our financial results, update the status of the Targanta acquisition, and provide guidance for 2009.

I would like to remind you that this conference call will contain statements about The Medicines Company that are not purely historical, and all other statements that are not purely historical may be deemed to be forward-looking statements, which involve a number of risks and uncertainties. Without limiting the foregoing, the words ‘believe,’ ‘anticipate,’ and ‘expect’ and similar expressions including our 2009 guidance are intended to identify forward-looking statements.

Important factors that can cause actual results to differ materially from those indicated by such forward-looking statements are identified in the company’s SEC filings including the Form 10-Q filed with the SEC on November 10, 2008. Copies of our SEC filings can be obtained from the SEC or by visiting the Investor Relations section of our website.

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, 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 2008 conference call summary fax sheet on our website.

Now, I will turn the call over to Dr. Clive Meanwell.

Dr. Clive A. Meanwell

Good morning to everybody. Our plan has been to build a leading critical care hospital medicines business not only in the United States, but now worldwide. In 2008, we made substantial progress. We aim to deliver economically dominant products. This is now a basic requirement to lead market share in the 2650 hospital institutions that provide more than 80% of worldwide critical care services. Our plan is working; with just $298 million of net shareholder equity, we have built a portfolio of development compounds and commercial hospital products. We have also built an organization that today serves 1200 hospitals in the US, we’ve geared up for 550 more in Europe, and over the next 5 years we expect to reach most of the remaining 900.

With these assets and capabilities, we delivered 58% compound annual growth rate in net revenue since 2001, more than $100 million in positive operating cash flow since 2006, and 33% KEGA in operating profits for the last three years by which I mean the money we made from operations excluding certain non-cash items and deal costs. We believe going forward we can deliver sustainable growth and I would like to give a medium-term perspective on The Medicines Company for you.

Our current business plan, which is the basis for our medium-term projections and outlook, includes the following assumptions and estimates. Angiomax net revenue in the United States grows quarterly until the entry of generic competitors in September 2010. We assume the list of generic competitors will not be long, but nevertheless, for planning purposes, we also assume an aggressive 50% generic erosion curve based on published information and our analysis of historical data for similar products.

Angiox and Angiomax net revenues outside the United States grow until the currently projected EUX sensitivity period ends in 2015. Now that we are working in Europe, we are in a better position to estimate that XUS revenue for Angiox can grow to $200 million per year.

Based on these estimates, Angiomax plus Angiox worldwide sales are expected to grow until the fourth quarter of 2010 in this scenario, max out around $500 million that year, then remain in the range $325 million down to $280 million dollar per year from 2011 through 2015 while US sales erode due to generics and XUS sales continue to grow under exclusivity provisions that are already in place. In this scenario, we will continue to support the brand competitively worldwide.

Other sources of revenue should also be considered in the medium term. Even after a slow start, which we also saw in the early months for Angiomax, as we have stated previously, we expect Cleviprex to grow annual net sales to $200 million by the fifth full year after launch. Assuming success with clinical trials and regulatory approvals, which are of course subject to risk, other sources of revenue may be anticipated by 2011 from cangrelor and our planned acquisition of Targanta provides us with another phase III compound that has the potential to reach the market the following year in the United States.

By our estimates, this plan provides more than 20% annual top line growth for the next two years, then potentially about a 20% decline for the year 2011 before re-growth at a similarly healthy rate beyond. In this basic case, the firm does not face a revenue clip after US exclusivity for Angiomax expires, but rather a revenue gap that we believe can be overcome. This is hardly a new kind of industry challenge. All products lose exclusivity sooner or later and it’s one we believe we can manage based on our experiences and knowledge in the industry.

So, how might we bridge the gap? In our view, there are several ways. First, I have to say we are not convinced the 2011 scenario will play out yet. We continue to advocate for a change in the Patent Law in Washington based on winning policy argument. Legislation that would enable PTO to consider our situation has been enacted twice in the House of Representatives and once passed the jurisdiction of Senate Committee. Our advocacy for legislation continues. Of course, even if we get our own patent term restoration from PTO, Angiomax exclusivity will run out around 2015, and so all our activities to build the portfolio are essential in any case.

Second, if we do not get patent term restoration, we have preserved our ability to pursue all other available remedies. In fact, the Chairman of the House Subcommittee on Intellectual Property urged us publicly to “take action against the law firm.” The circumstances of late filing of our application has been described in public, and we, together with a number of legal advisors, believe that legal negligence claims are supported strongly. We would expect to be made whole in the timeframe that would support our business objectives.

Third, in any case, we expect to compete in the post generic marketplace. We’re not going to disclose our ongoing and planned approaches, but we believe we are in a position to deliver value and innovation into the market alongside our colleagues from the generic industry. Unfortunately, it would be unlikely if we could do any more significant clinical trials for new indications in the US, which patent restoration might otherwise enable.

And fourth, we will continue to seek additional assets and opportunities beyond our current portfolio to add to our revenue in the near term. We have one of the most successful and focused hospital critical care sales marketing and medical teams, and we are prepared to go after a range of deal arrangements in several geographies.

These four main strategies could each provide some or all of the financial bridge across the gap. There may be additional opportunities and we’re taking a deliberately conservative approach to our current business plan, if you will, assuming the worst. It’s a motivating challenge and we’ll stay on it for you pursuing all options thoughtfully and actively.

And with that broad mid-term overview let me hand it over to John Kelley for a specific review of the 2008 business results.

John P. Kelley

Good morning everyone. I’d like to start my comments this morning by highlighting our accomplishments in 2008 and move onto discussing our key goals for 2009. Angiomax continues to grow robustly. After raising our revenue guidance twice during 2008 for Angiomax/Angiox, we finished the year in the top range of our guidance with net sales of $348.2 million, a 35% increase over 2007.

U.S. sales of Angiomax increased by 31% to $334.2 million, up from $255 million, while international sales of Angiomax/Angiox increased by $11.1 million to $13.6 million compared to $2.5 million in 2007. In 2008, we had an 11% increase in boxes to be shipped to our distributor. We also ended 2008 at less than 4 weeks of inventory in the channel.

This growth is being fueled by compelling new clinical and economic data. The one year results of the HORIZONS AMI trial were presented at TCT in Q4 and demonstrated that Angiomax reduced cardiac mortality by 43% and improved overall survival by 31% at one year. The 30-day results were reported in the New England Journal of Medicine in May and we look forward to the publication of the one-year results shortly.

Meanwhile, the availability and awareness of the data from the presentation are already driving a change in protocol across the United States. Major centers in New York, Boston, Vermont, and Minnesota, to name a few have already adapted Angiomax as their drug of choice on the protocol for heart attack patients. We expect this trend to continue, which represents an opportunity for substantial growth in 2009.

In addition, the economic analysis to the ACUITY trial were published in the Journal of the American College of Cardiology in Q4 demonstrating that a strategy of using Angiomax alone was economically superior to the combination of heparin plus the IIb/IIIa inhibitor. These results are consistent with findings in the REPLACE-2 study. While impressive, many customers would prefer to see real world data gathered from their own institutions. There are many cases where this data has been generated and has always reinforced a substantial cost savings associated with Angiomax.

We now have data from the Premier Hospital System’s database on 545,000 patients undergoing PCI. Once again, the results demonstrate the economic and clinical benefits of using an Angiomax alone strategy. Angiomax is associated with significant reductions in bleeding and mortality and with cost savings ranging from $660 to $916 per patient. Overall, this implies the potential to save at least $300 million per year in US hospitals if Angiomax is adopted universally.

We believe that this data will also drive the use of Angiox in Europe and we saw some of this uptake in sales in Q4 of 2008.

The benefits seen in the HORIZONS AMI trial are also impacting protocol for the treatment of heart attack patients in major hospitals across Europe including hospitals in Berlin, Munich, etc. We are seeing significant uptake in business in France as well as Angiox being placed in formulary for the 60 hospital clinics in Paris that represents 10,000 PCIs per year. In the UK, Angiox has been added to the protocol as first line therapy for heart attack patients and patients at high risk to bleeding in hospitals in London, Leeds, Birmingham, Belfast, as well as in Dublin, Ireland.

This growing recognition of the clinical and economic value of Angiox illustrates our progress in Europe, which we expect to continue in 2009.

As of December 2008, we have assumed all responsibility for distribution of Angiox from Nycomed. All of the necessary legal structures are in place for us to operate across the EU. We now have a total of 78 associates in Europe and our goal is to complete the build up of our EU infrastructure in 2009. We have completed all of our work on our pediatrics program for Angiomax in the United States as requested by the FDA. We plan to submit these data to the agency in Q2 and we have met all of their requirements for the program and anticipate that subject to FDA review, we will be granted an additional 6 months of exclusivity.

Now, I would like to move on to Cleviprex. As you know, Cleviprex is one of 21 NDAs approved by the FDA in 2008. We provided guidance that we would book $5 million to $10 million in revenue in 2008, which we did not do. We did place approximately $10 million worth of products in the wholesaler channel and because we have not yet established a consistent pattern of demand for the product, we have chosen to book sales for those boxes of Cleviprex that have been ordered by hospitals, a total of $400,000 in 2008.

We had anticipated greater movement of Cleviprex in the hospital based on a contracting strategy that provided a discount to those hospitals ordering the product before the end of 2008; however, the unexpected launch of a generic nicardipine from Teva at a substantially discounted price prior to our launch and the difficult economic conditions facing hospitals at the end of the year negated that contracting strategy. We do feel that we are making significant progress with Cleviprex, but getting the product on formulary is a slow process.

Based on benchmarking data that we have monitored, we believe we are on par with other hospital product launches and ahead where we were at this time in the launch with Angiomax. We have focused our sales force in approximately 700 US hospitals that constitute the bulk of the opportunity for Cleviprex. Our goal is to achieve formulary acceptance in 400 of these targeted hospitals in 2009. To date, we have 110 formulary wins with another 350 reviews currently scheduled for the first half of the year. We have further divided our target list into 4 tiers with the most important 12 hospitals in tier 1 representing 10% of total national volume. In this group, we have already secured 5 formulary wins in purchasing contracts with another 5 contracts pending.

We are most encouraged by the acceptance of the product by healthcare professionals. Users report that the product performs exactly as promised providing rapid precise control of blood pressure in a wide range of medical and surgical patients, in operating rooms, ICUs and CCUs, and neurointensive care units.

A leading academic center on the west coast has added Cleviprex to formulary for use in cardiac surgeries. Large institutions on Long Island have adopted the product for use in the CCU and ICU. At a hospital in Missouri, Cleviprex has been adopted as the drug of choice in treating stroke patients. The results we have seen to date reinforce our belief that Cleviprex will be a $200 million product in the US 5 years after launch. In addition, we have also filed for regulatory approval of Cleviprex in Canada, Switzerland, Australia, and New Zealand and will be submitting for review in the EU by the end of February.

Finally, the Cangrelor CHAMPION Program has now enrolled over 12,800 patients with CHAMPION Platform at 4470 and PCI at over 8300 patients. This program is now being conducted in 23 countries at 550 hospitals. We anticipate completing enrollment in these trials by this summer with a target of filing an NDA by the end of 2009.

Now briefly, I would like to touch on our goals for 2009. As we look forward to the year, we have a number of key priorities that we will be focused on. Drawing the revenue of the Angiomax and Angiox will again be at the top of our list. With a very a strong clinical as well as economic data that we have generated, we believe that we can increase revenue to $425 million to $440 million in 2009. Obtaining formulary approval for Cleviprex and driving demand will also be a key focus. We anticipate that we can achieve 400 formulary win and achieve $10 million to $19 million in top line revenue.

Turning to our pipeline products, completion of the Cangrelor CHAMPION Program and filing of an NDA is another priority. We also aim to complete the Targanta transaction and progress oritavancin into phase 3 trial, and finally, we expect to progress CU-2010 into human trial. We will keep you updated on each of these priorities throughout 2009.

Now, I would like to turn the call over to Glenn.

Glenn P. Sblendorio

Good morning everyone. I will cover the full year 2008 financial highlights, which are characterized by another year of top line growth and increase in non-GAAP earnings and continued cash flow from operations that has provided funding to build our infrastructure and to acquire new products. I will also provide 2009 financial guidance and an update on the status of the proposed Targanta acquisition.

Summarizing John’s report, total revenues for 2008 was $348.2 million, an increase of $90.6 million or 35% compared to $257.5 million in 2007. Cost of revenues were 25% for the full year 2008, in line with our expectation and inventory levels at the wholesalers at year end were slightly below four weeks.

R&D spending was $105.7 million during 2008, which includes a one-time in-process R&D charge related to the Curacyte discovery acquisition of $21.4 million during the third quarter of 2008. R&D spend, which was at the lower end of our guidance increased $28.4 million or 36.8% from 2007. Excluding the one-time in-process R&D charge related to the Curacyte Discovery acquisition, R&D increased $7 million during 2008. This increase is primarily related to the continued investment in the cangrelor clinical trial.

SG&A for the full year was $164.9 million, which was slightly above our financial guidance and represented a $23.1 million increase over 2007. Excluding the one-time charge of $28.1 million for the reacquisition of the Nycomed rights in 2007, the increase was $51.3 million. This increase was attributed to the following four items; an increase in the size of the US field force, prelaunch expenses for Cleviprex, the build out of our European commercial infrastructure, and increased promotional activities. These investments were made to drive both current and future revenue growth.

Stock based compensation was $22.8 million in 2008 compared to $15.4 in 2007, an increase of $7.4 million or 48%. Other income, which is largely investment income earned on our cash and investment portfolio was $5.2 million for the full year. This was slightly below our guidance due to foreign exchange losses in the fourth quarter. The effective rate of return on our portfolio was 3.4% for 2008.

For the full year 2008, we reported a GAAP net loss of $8.5 million or $0.16 per share as compared to a GAAP net loss of $18.3 million or $0.35 cents per share for 2007. This was below our guidance of $0.03 to $0.10 loss per share largely due to the deferral of the Cleviprex revenue as John mentioned.

Non-GAAP net income for 2008 was $37.2 million was $0.72 per share which was within the full year of guidance that we provided of $0.68 to $0.83. Non-GAAP income was increased by $12 million or $0.23 per share, a 48% increase over 2007. I would ask that you refer to our fourth quarter and full year press release for additional details.

Now an update on the status of the Targanta proposed acquisition. The tender offer is set to expire on Tuesday, February 24, 2009. Provided that the minimum number of shares required under the offer are tended, we expect to close the transaction on Wednesday, February 25, 2009.

On our January 13th call we provided an overview of the proposed accounting required by financial counting standard code #145R accounting for business combinations. Under the new rules in-process R&D is capitalized and amortized once an asset is placed into service and contingent consideration like our milestone payments are recognized on the acquisition date at fair value. Changes in fair value related to contingent consideration will be recorded in our current operation as adjustments to operating expenses. Also, deal costs which were previously capitalized are now expense as incurred.

We provided some preliminary expense guidance which we believe is still appropriate but we will update our expense guidance during the first quarter call. If we do complete this transaction in the first quarter, we expect to record deal related cost and restructuring charges associated with this transaction in the range of $8 to $10 million as required by the new accounting rules. These one-time charges could have a negative impact on our first quarter results.

Clive outlined a longer term view in his summary, but I would like to provide specific financial guidance for 2009. As in prior years, we provide details to assist you in updating your models both in our press release and in materials posted to our website this morning. The guidance that was reviewed does not include the financial impact of our proposed Targanta acquisition.

For the full year, we expect top-line revenue growth in the range of 25% to 33% or $435 to $464 million, specifically US net revenue for Angiomax of $395 to $405 million. Based on past experience, we expect US Angiomax revenues in the first half to be in the range of 44% to 48% of the anticipated full year net revenue. In the second half of the year, Angiomax revenues are expected to be 52% to 56% of the annual total.

International net revenue for Angiomax/Angiox is expected to be $30 million to $40 million, and US net revenue for Cleviprex of $10 million to $19 million. Cost of revenue is expected to be 28%. This increase from 2008 is due to an increase in the projected Biogen royalties.

For R&D and SG&A, we will provide financial guidance with and without stock-based compensation. Research and development spending is expected to be $75 million to $80 million. R&D is expected to be $79 million to $84 million including stock-based compensation. Selling, general, and administrative expenses are expected to be $170 million to $175 million. With stock-based compensation, SG&A is expected to be $186 million to $193 million. Total stock-based compensation is expected to be $20 million to $22 million of which 80% is included in SG&A and approximately 20% in R&D.

Investment income is expected to be $3 million to $5 million assuming a rate of return of approximately 2%.

We also expect an effective tax rate between 45% and 50% as we continue to invest in Europe with no offsetting tax benefit. During 2009, we will continue to optimize our tax structures with increasing base of business and operations in the EU. We do not expect to pay any significant cash taxes in 2009 as we continue to utilize our net operating losses.

GAAP net income is expected to be $26 million to $31 million or earnings per share between $0.47 and $0.57. For purposes of calculating EPS, we are assuming 54 million shares outstanding on a fully diluted basis. And finally non-GAAP net income is expected to be $66 million to $78 million where non-GAAP earnings per share of between $1.22 and $1.44.

The anticipated 2009 non-GAAP net income amounts exclude stock-based compensation and non-case income taxes.

Now, I would like to turn the call back to Clive for the wrap-up.

Dr. Clive A. Meanwell

Despite difficult times for our hospital customers, we believe that strategy, portfolio, sequence of opportunities, and capabilities can deliver growth far into the future. As we have reviewed today, we would be come in later in an attractive, well-defined worldwide market. Operating profits are growing. We have used our positive cash flow to invest selectively. We have a strong balance sheet with no debt, and over the next 2 years, we anticipate continued growth in global revenue and operating profit.

So, increasing sales in Angiomax in the United States, Angiox in Europe, and initially modest but linear sustained Cleviprex sales curve, modest increase in operating expenses enabled by our focused approach, entrepreneurial culture, and flexibility of cost structure.

The potential 2011 US Angiomax growth gap can be mitigated by anyone or several of a number of practical and realistic mitigators including continued growth of Angiox in Europe, potential legislative change to enable patent term restoration, legal remedies seeking financial compensation, Angiomax product innovation, competitiveness in a post-generic Angiomax market, progress with our development portfolio including cangrelor and later CU-2010, and finally other sources of medium term revenue in the specialized hospital critical care market. We continue to work on all of these.

And with that, let me ask Mary to open up the lines for questions.

Question-and-Answer Session

Operator

(Operator instructions). We have a question from Mona Ashiya from J.P. Morgan.

Mona Ashiya - J.P. Morgan

Two questions, one on cangrelor; I was wondering at this point, is there any potential for the trial size to be increased by the data monitoring board, and then related to that also, I understand your agreement with AstraZeneca for cangrelor says that you have to file by year end, and I am wondering how confident you are that you can do that; and then, the second question is actually on Angiomax, any strategy behind the lack of price hike this year?

Dr. Clive A. Meanwell

On the cangrelor situation, for the trials, the DSNB would not be the group that would change its sample size, it would be the interim analysis review committee. The answer is, yes they could, although that is at their discretion, and as far as the year end target where AstraZeneca is concerned, I think we are quite comfortable with that. Now, back to the Angiomax price, John, any strategy behind not taking a price increase yet?

John P. Kelley

I think that the honest answer there is we felt that given the economic situation at the end of 2008 and the feedback we are getting from hospitals in terms of their budget decisions that was not an appropriate time to announce the price increase. That’s not to say that we won’t consider that throughout the year. We believe that the data that we have demonstrates there is considerable economic savings for hospitals when switching to Angiomax and we believe that we have plenty of opportunity to continue to move the price forward and we will look for the appropriate time to do that.

Operator

Our next question comes from Joseph Schwartz from Leerink Swann.

Joseph Schwartz - Leerink Swann

I was wondering on cangrelor also how the patient disposition has been trending, I know that you took the interim look rather and there was an opportunity to change the enrollment disposition of the patients, but in terms of the high-risk patients, those with STEMI or diabetes in particular, how does that look versus Trident?

Dr. Clive A. Meanwell

First of all I should say that we routinely monitor the entry characteristics of patients in these trials. It doesn’t require that you take an interim look to look at that. So, what I’m talking about is not an interim look. The protocol was shifted a while ago to make sure we got sufficient high-risk patients. I believe the diabetic population would be quite similar to the tried on trial in its proportion somewhere between 25% and 30% of patients is not atypical, and then in terms of other high-risk features, I think we are certainly recruiting patients with high-risk features of ACS.

Joseph Schwartz - Leerink Swann

What are your models, assume in terms of the background hurdle for 600 mg versus 300 mg of Plavix, how much higher is that hurdle to clear in terms of superiority versus non-inferiority, what’s required for the study to succeed?

Dr. Clive A. Meanwell

Well, I have to say that the direct comparison between 300 mg and 600 mg of Plavix has not been adequately performed yet, so it’s speculative. We do believe that most physicians believe that 600 mg is more effective than 300 mg. We have evidence of that from the HORIZONS trial for example.

There is evidence from the AMIDA trial, and of course is a large study currently ongoing under the Oasis Group which is asking that question properly with an adequately powered sample. So, any estimate is pure speculation, so I’d rather not give it, because I don’t know the answer, but we just assumed going forward that 300 mg would not be considered the adequate standard of care by many clinicians especially with generic Plavix being available, and that would be an important thing for us to take into account in that study.

Honestly Joe, I’d love to give you an estimate of that but I honestly don’t think anyone has an accurate one. You will know when the trial is finished, meaning the Oasis trial, but I think we do believe that 600 mg might be a tad better than 300 mg but we can’t prove it.

Joseph Schwartz - Leerink Swann

How about the non-inferiority versus superiority, what will be required?

Dr. Clive A. Meanwell

Well, I think that as we’ve said in other calls, the challenge with using Plavix at all as your comparator is that nobody has established beyond reasonable doubt that any dose of Plavix in the acute setting is better than nothing. Now, again many many doctors, probably most doctors believe that to be the case that preloading Plavix, either 300 mg or 600 mg provides you quite an effective anti-platelet effect during PCI. If you look at the cure PCI data in particular, that effect of Plavix was achieved only after a median of 10 days of Plavix preloading. So, it’s somewhat uncertain, it was around 17% to 18% effect at about 48 hours, if I recollect properly.

The other study that did try to address this is of course the CREDO study which was led by our own Steve Steinhubl who now works here, and I think even Steve would agree that while it showed a nice trend that the preloading Plavix might help, it didn’t give definitive answers to the fact, but again, it looked to be about 18%. This sounds great for guidelines and may be even great for clinical practice but the FDA might not find that sufficiently compelling with which to construct a non-inferiority hypothesis, meaning preservation of benefit, and so we’ve always felt that it would be best if we could show superiority over the Plavix control in any study we perform, and that may or may not be achievable for us with the clinical trial.

On the other hand, we also have the second trial being a placebo control non-preloaded patient group, and obviously the trial would not be subject to that kind of question. So, the program has been designed to try and get at that issue, but again, I don’t have any insights that would be helpful at this point.

Next question comes from Matt Duffy with BDR Research.

Matt Duffy - BDR Research

John, a couple of questions; the Angiomax US number, the increase from going from the third quarter to the fourth quarter, it seems like it is a little bit less than it has been in prior years, and I wondered if you might give some color on that.

John P. Kelley

So, the question again is from the third quarter to fourth quarter?

Matt Duffy - BDR Research

Yes.

John P. Kelley

Well, I think that typically as we look at the fourth quarter, what you’ve seen in past year, you’re going to see the impact of buying as we’ve routinely announced price increases in December to be taking place early in the year, we did not do that this year. So, I think that the demand that we saw in December was solid and in line with what we’re seeing as pull-through at hospitals. I think that as we get into this year, we are seeing a pretty strong start to the year based on the fact that we don’t have hospitals sitting on inventory that they bought in at the end of last year.

Matt Duffy - BDR Research

And on the Cleviprex front, the formularies where you’re going on are they restricting it’s use into specific areas, and if so, what areas are those?

John P. Kelley

It’s a mixed bag, Matt. We are getting, in some hospitals, full access and other hospitals we’ve been restricted to formularies for use in cardiac surgery. It really depends on a hospital by hospital basis as to what advocacy you can build within the hospital, who are the people that are going to go and request it and defend it at the formulary review committee. So, as I said in my remarks, we’ve got some places where that’s been in stroke patients, other places are the ICU, CCU, other places are cardiac surgery. What’s I think encouraging to us is that it is across the broad and we are seeing use in many different areas and not being niched in just one area.

Dr. Clive A. Meanwell

I think one of the challenges that that brings, Matt, is that we have multiple stake holders in the hospitals who potentially want to use this drug, and when you go to PNT committees you obviously need a champion and the question is who do you take? Do you take the cardiac surgeon, the anesthesiologist, the ICU doctor, the ED doctor, the chronic care doctor, or do you take all of them?

And I think some hospitals need all of them to line up and some are happy to have one of them, and I think that is the challenge of complexity compared with, say, Angiomax where the only thing you have to do is get the interventional cardiologist on board and you’d probably be okay. So, it’s a great opportunity of breath and it obviously is underscored by the enormously favorable label we have, but it’s going to take some time to sew through.

Operator

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

Liana Moussatos - Pacific Growth Equities

Can you talk a little bit about the pipeline data timing for CHAMPION you mentioned completing enrollment in the summer and filing in NDA by year end, so, where between those two do you think you’ll release top-line data, and also, when do you think you’ll start clinical trials for oritavancin and CU-2010, and can you just talk about your expected design for those? And then, you mentioned that you’re still building infrastructure in Europe in 2009, can you talk about that status?

Dr. Clive A. Meanwell

Let’s start with your first question if we may, what was that again?

Liana Moussatos - Pacific Growth Equities

The timing for the CHAMPION trial, when do we expect top-line release?

Dr. Clive A. Meanwell

Obviously, we tend to run our trials pretty tightly meaning that we have cleaned up data pretty quickly off the last patient visits and so on. So, I think whenever our recruitment ends, you’d expect us to get some insight into the data within 60 to 90 days. So, that would be a broad set of parameters for you, that is, as we approach the end of recruitment, add on that many days and that’s when you can imagine we’re working with the data. How we get to announce will I think will be driven by what the academic investigators what to do; I mean we try to respect their wishes in terms of meetings and so on. So, that’s the first question. What was your second question, please?

Liana Moussatos - Pacific Growth Equities

Can you talk about the timing and a little about design for the clinical trials for oritavancin and CU-2010?

Dr. Clive A. Meanwell

We did cover the oritavancin in a little bit more detail; but just to recap the key points there, obviously we feel that the product needs more robust data in MRSA patients. We think that one of the key challenges the product ran into with the FDA was insufficient data in MRSA, very promising data and certainly the simplified trail which had shown the valuable one single dose of the drug in MRSA patients was fairly convincing, but we do believe that for the FDA another trial would be needed in skin and soft tissue patients including a good number, shall we say, 50% plus of patients having MRSA.

Now, to the design, we would anticipate having a 3-arm design and obviously this is all subject to going to the FDA and getting their support, and the three arms would potentially be a control group which we assume today would be vancomycin, a randomized group that gets the so called standard dosing of oritavancin to IV for a number of days, and then a third group that would look at the single dose of oritavancin measurement that was so successful in the simplified trial, and obviously we find that to be quite an interesting and very exciting potential way of using the drug. So, three arms, skin and soft tissue, plenty of MRSA patients, non-inferiority with a 10% margin.

I should also mention that obviously the drug is currently under review by the European Medicines Evaluation Agency (EMEA), and Targanta team and currently working through the EMEA questions. Again, as we said before, we haven’t really taken a strong position as to whether or not we believe that colleagues at Targanta will pull this off in Europe, they certainly believe it’s in with the shot, and that would be sometime later this year that we expect to get news on that. I think we’ve been somewhat guided because we don’t know the full details of the EMEA interactions yet, but we are obviously hoping to get involved as soon as the transaction closes.

And then lastly, I think your question on CU-2010; CU-2010 for those who aren’t familiar with it is a pre-entry into man molecule which currently has shown very promising activity in reducing blood loss in cardiothoracic surgery, particularly in dog models of cardiopulmonary bypass. Obviously, the market we’re looking at here is what was formerly the Trasylol market, the aprotinin market, which is the time Trasylol was taken off the world market by Bayer was approximately a $450 million run rate and growing quite rapidly. There is no really good drug right now.

In fact, the lysine analogue is a rather poor drug that Trasylol had been overtaking, they use very rapidly, but now there’s nothing we hear from surgeons all over the world, that they are missing having a drug like this, and so we’ll be going into human studies this year, initially in a normal subject group who will need the usual safety and pharmacology studies to be done, and then in a phase IA study and then phase IB study which would be undertaken in patients undergoing cardiothoracic surgery on bypass.

So, those are the two studies we need to do in order to move forward for a phase II proof of clinical concept trial. The data from dog models which is somewhat predictive, reasonably predictive even, has been very impressive.

Liana Moussatos - Pacific Growth Equities

When do you think you’ll start both the oritavancin trial and the CU-2010 phase IA?

Dr. Clive A. Meanwell

The oritavancin trial I’m hoping we’re going to start later this year of course and get it underway; that is one of our corporate objectives as John mentioned. Assuming the deal closes we get the trial underway; I’m hesitating because I don’t want to put out a date until we’ve had a chance to look with our colleagues from Targanta and get the deal closed, but we will update you as soon as the deal closes as to what that looks like. As far as CU-2010 is concerned, we’d hope that to be in the first half of the year.

Liana Moussatos - Pacific Growth Equities

And then the status of the infrastructure build in Europe, a little more detail?

Dr. Clive A. Meanwell

We have about 75 people on board if you include the 21 in Life SIG and I think we’re fully staffed up in the UK and France, maybe one or two people; we’re building out a very aggressive team in Germany right now, and Italy will be the fourth major group. We also have coverage in Benelux and Scandinavia, we have the supply chain all up and running, and also the legal structures and financial controls all set up from our headquarters in Europe. We had about 6 offices, small ones, throughout Europe.

Liana Moussatos - Pacific Growth Equities

About when do you think you’ll finish building the infrastructure; at first half?

Dr. Clive A. Meanwell

I think most people who have started up companies in Europe like this and I was involved in the Amgen startup in Europe many years ago. As you start with the core ideas, you put the core issues in place and then it takes 2, 3, or 4 years to refine it to get it to how you want it, but I think our biggest pillars and struts of the organization will be in place by the fall.

Operator

Our next question comes from the line of Steve Harr with Morgan Stanley.

Steve Harr - Morgan Stanley

A couple of questions; first, what’s your view of launching an authorized generic in United States?

Dr. Clive A. Meanwell

It’s a possibility. We realize this legislation flying around that may or may not make that easy. It’s certainly something we would contemplate. We haven’t done so in any great depth yet that we will be in a position to comment on, Steve, but one of the many many options one could consider.

Steve Harr - Morgan Stanley

Second, what are the data that you’re using to support pediatric exclusivity?

Dr. Clive A. Meanwell

We have worked with the FDA over the last 2 or 3 years actually to firstly enable them to make a request of us; they made a very specific request of what their data requirements were. They wanted the data in a whole range of children’s age groups from neonates all the way through to young adults basically. We have performed a study exactly to their specification and signed off protocol that is being completed. Actually, we did the study in children and neonates who have been categorized and undergoing cardiac interventional procedures of one kind or another for things such as congenital heart problems. The study was completed, went extremely well; the doctors loved the drug.

Obviously it is not a huge market for us, but we have more than met, we believe, the requirements both in terms of patient numbers, quality of data, and conduct of the trial for the agency, and we’re currently writing up the study with a view to submitting it to the agency in the first half of the year, which is in plenty good time for them to accept it and grant the pediatric exclusivity that we seek.

Steve Harr - Morgan Stanley

Did you learn anything from (prazigrel) and the panel given that we saw all the data and had a nice discussion of the FDA’s views of different risks and rewards?

Dr. Clive A. Meanwell

I think we did. I think it was a very fascinating interaction all around and we did learn a lot. I was struck by the FDA’s continued lack of appreciation for the importance of bleeding, that’s something which we think the agency needs to catch up on. On the other hand, I thought Lilly’s team did a brilliant job of presenting the data relative to KOL. So, the risk-reward debate was pretty good. I know there were some controversies.

I think that the main issue is going to be segmenting patients who best benefit from a whacking dose of P2Y12 inhibition versus those who need something a bit more gentle, and obviously, that’s going to be potentially important for us in the world of cangrelor should that ever come to market. So, interesting and important.

Operator

Our next question comes from Lucy Lu from Citigroup.

Lucy Lu - Citigroup

In terms of patient enrollment for the CHAMPION PCI study, is this still a 9000-patient trial, and basically what was the verdict of the interim analysis at 70% of the enrollment, I assume that’s happened already?

Dr. Clive A. Meanwell

We’ve gone past the 70% enrollment. The trial is continuing to enroll. At the moment, the expectation is that we’ll complete enrollment of 9000 patients.

Lucy Lu - Citigroup

And then just a couple of mechanical questions in the CHAMPION study; the first one is, which definition of major bleeding do you use in the CHAMPION trial; because I know there are a couple of different ways did you find major bleeding, just wanted to understand which one you are using?

Dr. Clive A. Meanwell

Yes, that’s right. I don’t have it all in front of me, it’s quite detailed, but I think in summary, we believe that a 3-gram drop in hemoglobin with an on-site transfusion that those things represent major bleeds. We have not used the acuity hematoma definition in the trial; that was somewhat controversial, but by and large, anything more than a 3-gram drop in hemoglobin we consider major. That’s quite similar to what we’ve done historically, in REPLACE, in ACUITY, in the (BIDDLE) trial and in HORIZON.

Lucy Lu - Citigroup

And the second one is in the CHAMPION study do you use the localized or central labs to measure biomarkers to define MI?

Dr. Clive A. Meanwell

Trial is studied using local laboratory parameters.

Lucy Lu - Citigroup

Okay, so basically every study, they all use local labs?

Dr. Clive A. Meanwell

Yes.

Operator

Your next question comes from the line of Maged Shenouda from UBS.

Maged Shenouda - UBS

Your thoughts about contingency plans if the cangrelor trials don’t work?

Dr. Clive A. Meanwell

We have contingency plans for all our trials; that’s why we do trials. What are the contingency plans if trials don’t work? Well, usually you look at the data very carefully and usually you try to determine whether there are any reasons that you can understand why the trial didn’t succeed in its endpoints, I think, and then you have to make the determination is it something that’s the design and engineering issue or is that the drug doesn’t work, and the contingencies then are to shoot it in the back of the head and forget about it or do another study, and I think until you see the results, it’s pretty hard to do anything other than speculate about contingencies, I think it’s a little early.

Maged Shenouda - UBS

I guess I phrased that incorrectly. I mean contingency plans for the company if, let’s say you shoot the product in the back of the head as you said?

Dr. Clive A. Meanwell

Okay, you mean in the way of restructuring or something?

Maged Shenouda - UBS

Yes, or how you are thinking about M&A, or you have a fair amount of cash and valuations are pretty low right now…

Dr. Clive A. Meanwell

No, I think, as I mentioned earlier, obviously we’re hoping that cangrelor will be a contribution to the company’s growth in the future, but there are many many other things we need to be looking at and are looking at now to make sure we have as many short-term goals as possible. I don’t think it’s reasonable to rely on any one drug to secure the future of any one company.

So, whilst I am excited about cangrelor and looking forward to seeing some results, I for sure would not rely on one drug, and our goal in the last three years has been to get as many sources of revenue or potential revenue as we can without diluting shareholders any more than is absolutely necessary, and without overpaying for assets which sometimes can happen.

Glenn P. Sblendorio

I just want to comment on one of the themes of today’s call and I think the last call we had as well including the Targanta overview on January 13th was that in the business model, and I think Clive said it very well today is a strategy to build the business in acute care which gives you a couple of product opportunities. We can’t assume that all of the products that we bring in or put into development are going to succeed. It’s just contrary to the law of averages. So, we’re going to continue to build the portfolio, and that’s why I think we spend a lot more time today and on the last call, and will continue to talk about the strategy to build the business.

Dr. Clive A. Meanwell

Right now what I am hearing from the financial community is two big binary events, the patent and cangrelor, and certainly those are very important events for the company; no question, but I think our goal is to make sure that we’re not reliant on any one or two events as a business, and I think I just want to reiterate some of the things I said in my summary which would maybe help the answer.

We did re-acquire Angiox deliberately because we saw a huge potential in Europe and we believe that’s more visible now than it was. I still believe that looking at Washington makes sense to try to get relief of PTO. We have major opportunities in our view for legal remedies based upon the circumstances of a late filed application for the Angiomax patent and those kinds of issues are not going to be trivial financially at in terms of what we would expect. We do plan to play in the post-generic Angiomax market.

We do, as you mentioned, have other products such as cangrelor, and later, CU-2010, that have certain promise that we’re interested in, and then in addition we’ll continue our business development activities. Additionally, Targanta’s acquisition, we don’t think that unless something that we don’t expect happens in Europe with the EMEA, we don’t believe that oritavancin kicks in revenue wise until 2012. So, we’re not seeing that as a gap filler, but we are seeing that as a growth driver, medium to long term. So, those are the kinds of things.

The other thing you specifically mentioned which is restructuring or cost management; we’re very very very flexible on our resources. We don’t have manufacturing resources, we don’t have hundreds of manufacturing professionals in the company. We don’t have hundreds or thousands of sales force professionals around the world and we certainly don’t intend to have that. So, our cost structure is actually very lean, and we do a lot with the little, and we’re certainly not planning to lose any flexibility in terms of the way we spend money. So, if at any time in the company we have to tighten our belt, we can.

Maged Shenouda - UBS

Just a quick followup to your comments earlier about potentially a 50% drop in Angiomax sales with generic penetration; what are the benchmarks? I mean why wouldn’t it be 90%?

Dr. Clive A. Meanwell

If you look at the benchmark and if you look at the public data, it can be 90% if there are 10, or 11, or 12 generic entries; it wouldn’t typically be 90% if there are a small number of entries. I think my current belief is that it won’t be 9, 10, or 11 entries, it could be a small number of entries. So, that’s one of the things we see in the data.

The second thing is that we believe there are technical challenges which have to be overcome. And if you look at the IV drug analogue, a cumulative 50% haircut is actually rather a big one, and many would model it at 30%. So we’re taking the sharp end of that we think. These are speculations always in terms of what’s going to happen in the future, but we think there’s reasonable data to suggest a small number of entries will not give you a 90% hit.

Maged Shenouda - UBS

Would you lower your price then?

Dr. Clive A. Meanwell

As I said we’re not going to discuss our exact tactics at this stage, but we’re certainly going to compete.

Operator

There are no other questions in queue at this time and I would like to turn the call over to Clive Meanwell for closing remarks.

Dr. Clive A. Meanwell

Just want to thank everybody and we’ll keep you posted on all developments and appreciate the time this morning.

Operator

Thank you for your participation in today’s conference. This concludes the presentation. You may now disconnect. Have a great day.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

This Transcript
All Transcripts