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

Executives

Stephen W. Webster – Senior Vice President, Finance & Chief Financial Officer

Michael R. Dougherty – President & Chief Executive Officer

John P. Wilson – Vice President, Sales and Marketing

Dr. Eliseo Oreste Salinas – Senior Vice President, Research and Development & Chief Medical Officer

Analysts

Ling Wang – Brean Murray, Carret & Co.

Ian Sanderson – Cowen & Company Llc

Allyn Seymour – Columbia Management

Adolor Corporation (ADLR) Q4 2008 Earnings Call February 25, 2009 5:00 PM ET

Operator

Thank you for holding. Welcome to the Adolor conference call. At this time all participants are in a listen-only mode. There will be a question-and-answer session to follow. Please be advised that this call is being taped at the request of Adolor. At this time I would like to introduce your host for today's call Stephen Webster, Senior Vice President, Finance and Chief Financial Officer of Adolor. Please go ahead.

Stephen W. Webster

Good afternoon. Thank you for joining us. Today we will discuss our 2008 financial results and provide an update on the launch of ENTEREG.

Before we begin, let me remind you that certain statements on this call may be forward-looking and are subject to risks and uncertainties associated with our business. These statements may concern, among other things, guidance as to future revenue from ENTEREG, operations, transactions, prospects, intellectual property, litigation, the development of pharmaceutical products, clinical trials and the potential approval of our product candidates.

Additional information and risk factors affecting the company's business and financial prospects and other factors that could cause Adolor's actual performance to vary from our current expectations are available in the company's SEC filings. Investors with further questions should contact me at 484-595-1500. This conference call is being webcast via the Adolor homepage and it will be archived for one week after the call.

Also speaking on today's call will be Michael Dougherty, our President and Chief Executive Officer and John Wilson, who recently joined us as Vice President of Sales and Marketing. Following our prepared remarks, we will be pleased to answer your questions at which point Eliseo Salinas, our Chief Medical Officer will join us. Now, I will turn it over to Mike Dougherty.

Michael R. Dougherty

Thanks Stephen. Good afternoon everyone. And thank you for joining our call today. This is our year-end call and as such an excellent opportunity to offer you a brief overview of Adolor's accomplishments over the past year. 2008 was a year of fundamental change at Adolor, headlined by FDA approval of ENTEREG for the management of postoperative ileus following bowel resection surgery. ENTEREG is one of only 21 new molecular entities approved by FDA during 2008 and we are extremely proud of this accomplishment.

We are a fundamentally different and stronger company as a result of this approval. The medical need for a drug that accelerates GI recovery following bowel resection surgery is well established, colorectal surgeons consider postoperative ileus to be one of the most important factors affecting surgical outcomes, patient quality of life, and patient length of stay and there are good many patients that we believe made benefit from the use of ENTEREG.

Premiere reports that there are over 500,000 bowel resection surgeries performed in the United States in 2007. With our commercial partner GlaxoSmithKline, we launched ENTEREG last summer, as we have previously communicated, our initial focus in 2008 was on the hospital registration effort and we have make great strides in this area. As of December 31, we have registered over a 1,100 hospitals. Importantly this number includes about 45% of the 1,400 hospitals that perform the majority of bowel resection surgeries.

While registration is a necessary first step in our sales process, it is not alone sufficient to drive usage as many of you know, it takes time to build market acceptance for a new drug in the hospital. Each hospital's prescribing is influenced by a lift of accepted drugs called a formulary. The gatekeepers of this process are the Pharmacy and Therapeutics or P&T committees at each hospital. Over the past several months, the focus of activity relating to ENTEREG has shifted from registering hospitals to having ENTEREG considered for inclusion on hospital formularies.

I am pleased to report that ENTEREG is making solid progress on this front as well. As of December 31, we estimated that ENTEREG was included on formulary at about 300 hospitals. Approximately, two-thirds of these hospitals are among the largest 1,400 hospitals we are targeting. As we enter 2009 this activity continues with many P&T committee meetings scheduled in the coming months. Stephen will cover our financial results later in the call including sales, but let me touch briefly now on the headline for shipments of ENTEREG.

We were pleased to report today that net shipments in the fourth quarter were $1.6 million, up $1 million from the 600,000 we reported in the third quarter and bringing net shipments for 2008 to $2.2 million. GSK and we are working very hard to bring ENTEREG forward to the patients that we believe can benefit from its use. And with that I'm very pleased now to introduce John Wilson, our new Vice President of Sales and Marketing to provide some additional perspective on ENTEREG and the launch. John?

John P. Wilson

Thanks Mike. I appreciate the opportunity to share my initial assessment of ENTEREG, our commercial relationship with GSK and how we're doing in the early months of the launch. Let me start by saying that ENTEREG addresses a significant and serious medical need. As Mike mentioned, the surgeons performing bowel resections with whom we speak to a person sight POI is one of the most important issues affecting surgical outcomes and patient quality of life.

They now have at their disposal, a drug that has been clinically proven to accelerate GI recovery following bowel resections surgery. Our job is to see that targeted healthcare practitioners are aware of ENTEREG and the benefits to patients that it provides. Feedback regarding the clinical benefit to patients from using ENTEREG is positive. Surgeons who have incorporated ENTEREG as part of their standard practice for their bowel resection patients report meaningful differences and outcomes including a reduction in patient length of stay.

These kinds of results are why we're so excited about having ENTEREG available to physicians and patients. I'm also pleased to have GSK as our commercial partner. GSK has a strong commitment to the hospital marketplace with an excellent national hospital based sales force that calls on virtually every hospital in the U.S. Their relationships in the hospitals are strong and they carry a reputation of integrity and excellence. We have a great working relationship with GSK both at the senior level as well in the field.

Importantly, ENTEREG is key component of the GSK account manager's performance incentive. So, we know that the GSK sales representatives are committed to making this product successful. Our customers are the 1000s of hospitals in the United States that perform bowel resection surgeries. These hospitals are categorized by quintile. Based on the number of bowel resection surgeries they perform annually.

Our primary focus is on the 1,400 quintile two to quintile five hospitals that perform 80% of procedures. Our secondary focus is on the approximately 1,250 quintile one hospitals that perform the majority of the rest of the 500,000 plus bowel resections annually. We co-promote ENTEREG along side GSK in certain high value territories with our own 17% sales force. To-date, we are seeing measurable benefits from this co-promotion effort and has made the decision to increase the number of Adolor reps and our geographic reach in 2009. We expect this to number about 25 by mid-year, together with GSK, our sales team is focused on three key areas.

First, a focus on registration and P&T committee approvals in new hospitals. Second, initiating usage in hospitals that have recently added ENTEREG to their formulary. Third, driving consistent product reordering. In our efforts to provide broad support for ENTEREG, we have developed a field-based clinical and scientific interface for healthcare providers. This is accomplished through the Adolor Medical Science Liaisons or MSLs and the GSK Regional Medical Scientists or RMSs. Both teams are an integral part of the medical affairs departments of each company. These highly trained professional most are PhDs or PharmDs play a key role in responding to medical questions and discussing scientific data related to ENTEREG.

For 2009, we plan to increase the number of Adolor MSLs to ensure the highest level of clinical support. GSK and we are undertaking additional near term initiatives to further increase the awareness and acceptance of ENTEREG among hospitals and physicians performing bowel resection surgeries. These efforts will include for example studies intended to address pharmacoeconomic and health outcomes associated with the accelerated GI recovery.

In all, with the commitments made both by GSK and Adolor, our progress to-date and the feedback we are getting from ENTEREG users, we are enthusiastic about the prospects for ENTEREG in 2009 and beyond. I am convinced that we will be able to grow ENTEREG into a significant hospital product in the years ahead. Mike?

Michael R. Dougherty

Thanks John. Before we review our financial results, I would like to take a moment to recap some of the key developments of 2008 in our research and development programs. In our delta opioid receptor agonist program, we remain very enthusiastic and have high expectations. Our objective here is a broad one, to bring forward mu-opioid like analgesia without some of the complicating side effects of traditional mu compounds.

While we reported some early Phase II results late last year that were disappointing, we are already at work with Pfizer investigating the reasons for the high pharmacokinetic variability for 5859 that we think impacted these results. And firmly believe in the fundamental merits of both our delta compounds. We expect to initiate proof-of-concept Phase II studies likely in osteoarthritis and in neuropathic pain with new formulation later this year. In 2008, we made a substantial transition in our opioid bowel dysfunction program, discontinuing development of alvimopan and turning our full attention to ADL7445.

Like alvimopan, 7445 is a peripheral mu-opioid antagonist. We've seen promising safety and efficacy results with this compound in pre-clinical models and are tracking toward the submission of an IND in mid-2009. 7445 represents an exciting opportunity to address what is still a large and unmet medical need and we believe too that we bring a good deal of harden insight and expertise to this program. And finally our research and discovery group continues to perform at a high level.

2008 saw the nomination of a new pain compound as a development candidate within Adolor, an activity associated with this program has intensified. We expect to initiate tox activity later this year in preparation for an IND filing in the early part of 2010. Stephen Webster will now review with you our financial results. Stephen?

Stephen W. Webster

Thanks Mike. Total revenues for 2008 were $49.5 million, up from $9.1 million in 2007. 2008 revenues consisted of $1.2 million in recognized net ENTEREG sales and $48.2 million in revenues from our collaborations with GSK and Pfizer including a $20 million milestone payment received from GSK upon FDA approval of ENTEREG. Fourth quarter revenues were $8.4 million in 2008 versus $3.7 million in 2007, the increase is attributable to the $1.1 million in net product sales and increased collaboration revenue of $3.6 million.

As Mike mentioned net shipments of ENTEREG in the fourth quarter were $1.6 million up a 167% from 600,000 in the third quarter bringing net shipments for the year to $2.2 million. It is important to point out that while wholesalers do order this product for their hospital customers ENTEREG is drop-ship directly from the hospital from GSK’s warehouse. This results in shipment trends that directly track actual hospital purchases rather than the stocking of distribution channels.

Under our revenue recognition policy, we recognized net product sales of $1.1 million in the fourth quarter up 540% from a $168,000 in the third quarter. Net product sales recognized for the year were $1.2 million or 55% of net shipments. Our policy is to differ recognition of revenue associated with the first shipment of ENTEREG to each hospital customer, when an existing customer places a new order, we recognize product sales revenue in an amount equal to the lesser of the previous order or the new order. As of year-end we had a 185 reordering hospitals.

Operating expenses aggregated $84 million and $65.6 million for the years ended December 31, 2008 and 2007 respectively. Expenses in 2008 include cost of goods sold of $0.2 million, which consists of royalties due on net sales of ENTEREG and FDA products and establishment fees. R&D expenses increased by $11.1 million or 27% to $52.7 million in 2008 due to an increased level of spending on our delta opioid receptor agonist program with Pfizer and on our pre-clinical programs offset by reduced spending on our OBD program.

Selling, general, and administrative expenses increased by $7.1 million or 30% to $31.1 million in 2008 primarily due to increased expenses from the commercial launch of ENTEREG. Our reported net loss for 2008 was $30.1 million or $0.65 a share down from a net loss of $48.4 million or a $1.05 per share in 2007. Cash used in operations for the year was $35.3 million, which includes capital expenditures. We closed the year with a $131.9 million in cash, cash equivalents, and short-term investments. Our capital structure remains rather straightforward, we have no straight debt, no convertible debt, and no warrants outstanding. Finally, we had approximately 46.3 million shares outstanding at December 31.

Michael R. Dougherty

Thank you, Stephen. And before we open the call to questions a closing comment. This is Adolor's first financial call and our plan is to conduct these calls regularly going forward. We began this practice in difficult times for our economy and markets, and I want to assure you that we at Adolor will continue to be focused on the financial management of our business while at the same time ensuring that we make the appropriate amount of investment in ENTEREG and our promising pipeline.

With some challenging times now behind us, we are very much focused forward, and mindful of our strengths and assets, a healthy balance sheet, diverse development programs, attractive partnership arrangements, and most importantly a product now in the market that we have the opportunity to grow. We believe all of this represents a strong foundation on which to build our company.

We will now open the call to questions. Operator?

Question-and-Answer Session

Operator

(Operator Instructions). Your first question comes from line of Ling Wang at Brean Murray.

Ling Wang – Brean Murray, Carret & Co.

Hi. This is Ling on behalf of Jonathan. Thank you for taking my question. So, can you help us to get a sense of what sales for ENTEREG I mean what you expect the sales range to be and also I mean given are you are going to increase your sales people to be more aggressive on the marketing?

Michael R. Dougherty

Yes. Good afternoon. Thanks for the question. Maybe I will take the first question. This is Mike. And I will ask John to make some comments on the second question. And it's just too early to have a good fix on the near term up tick in ENTEREG. So, we are not today offering formal projections for 2009 what I can say is to repeat that by way of expectations for ENTEREG and that is that we and GSK continue to believe that this will become a significant hospital product and we are investing in the product accordingly with a national hospital sales force effort, a healthy marketing investment, further clinical and medical investments. So, that remains our expectation, but we are not going to be more precise than that for 2009 quite yet. So, with regard to the additional investment on the detailing side, I will ask John Wilson, our Head of Marketing and Sales to make a comment.

John P. Wilson

Thank you. The rationale for expanding our own representatives in double covered accounts with GSK representatives is really very straight forward, it works, we know that it works because the dual effort is more efficient in navigating what has become a complex formulary approval process, and it helps us navigate the establishment of the REMS program as well. We are confident that the two groups have worked very well together in the small number of institutions that we currently do and want to increase that model moving forward to extend that reach and double coverage and again some larger accounts.

Ling Wang – Brean Murray, Carret & Co.

Okay. Can you remind us how many sales people does GSK have for ENTEREG?

Michael R. Dougherty

They have a national hospital sales force and we think it numbers in the, up to a couple of hundred.

Ling Wang – Brean Murray, Carret & Co.

Okay. And you mentioned you're going to increase the 7% into 25 by mid-year. Is that going to stabilize at least, for '09 or still it's going to increase after that after the mid-year after the…

Michael R. Dougherty

Yeah. That's our plans as of today and our sense is that that maybe the maximum that we take that force to but we'll make real-time decisions as we have results in further periods.

Ling Wang – Brean Murray, Carret & Co.

Okay, great thank you.

Michael R. Dougherty

Thank you.

Operator

(Operator Instructions). Your next question comes from the line of Ian Sanderson with Cowen.

Ian Sanderson – Cowen & Company Llc

Good afternoon. Thanks for taking the question. Hopefully, you can hear me okay? Could you repeat your guidance of where you're standing in terms of formulary progress and secondly what your sense is in terms of formulary pushback those that are not putting you on formulary or asking questions, what those questions are?

Michael R. Dougherty

Sure. We can hear you fine Ian thanks for the question. What we said is in terms of formulary approvals that we've had 300 such approvals through year-end through December 31. And of that amount about two-thirds of them are in the high quintile accounts that we principally target. And with regard to the second part of your question I’d say that we are pleased with the pace here. As I’m sure you know this is a process that takes time and with regard to your question about pushback, most certainly we've had many more acceptances and approvals then not and where we do get pushback there is sometimes good reasons for that. There are institutions that may have policies not to consider new drugs until some number of months that a product is on the market or others want information that we can provide in the relative near-term. So, we are working our way through it it's, this is a process that's one hospital and one formulary at a time and we are quite pleased with the progress.

Ian Sanderson – Cowen & Company Llc

Okay. And is this a drug that will warrant they do in Medicare J code and where do you stand in that process?

Michael R. Dougherty

The reimbursement on ENTEREG is largely done out of the bowel resection DRG. So…

Ian Sanderson – Cowen & Company Llc

Okay.

Michael R. Dougherty

And, we think we have the kind of product that speaks to that reimbursement system very, very well.

Ian Sanderson – Cowen & Company Llc

Okay. So, this will be in within the same DRG code.

Michael R. Dougherty

Yes.

Ian Sanderson – Cowen & Company Llc

Just a procedure. Okay. Thank you. Actually one last question and that is just on the reformulation of the acute delta opioid agonist, where do you stand I think you had mentioned that you have already made some progress on the reformulation and can you talk a little bit about exactly what your approach is then to the fixing the PK issues and the PK variability?

Dr. Eliseo Oreste Salinas

Hi. It is Eliseo Salinas. Well yes, as we announced in December we had already made progress on the manufacturing in the CMC side preparing for this eventuality so we are very close, and we are now sort of preparing to initiate the Phase I clinical trial they are going to test this new formulations. That so we are on schedule with respect to the plan we announced on December, and we believe that this new formulation will enable us to initiate the proof-of-concept trial that we want to do in the second half of 2009.

Ian Sanderson – Cowen & Company Llc

Great. Thank you very much.

Michael R. Dougherty

Thank you, Ian. I understand we have one more question in the queue.

Operator

Your next question comes from line of Allyn Seymour with Columbia Management.

Allyn Seymour – Columbia Management

Management. Yeah. My question has to do with kind of the receptiveness of the doctors to marketing and how, if you can characterize how whether you've got some early adopters that are very excited about the drug or what’s your experience in terms of reordering from hospitals those kind of things that you might give us some insight as to sort of if you will the trajectory of the acceptance of the product?

Michael R. Dougherty

Yeah thanks Allyn for that and this is Mike. I will make a few comments and ask John Wilson to jump in Stephen did indicate on the call that we had in as of December 31, we had a 185 hospitals now reordering that's up from 50 hospitals reordering as of September 30, and of course that's the basis on which we recognized revenue and with regard to reception by physicians and healthcare institutions. We are pleased, I can tell you we are quite happy with each and every formulary approval, with each new hospital shipment. And we've made a good deal of progress, but at the same time, it's there is much to do and this is an opportunity that's really still all in front of us, there are over half a million bowel resections performed annually, we think ENTEREG can be big, big help to many of these patients and we've set our sites forward on growing this market. John you want to?

John P. Wilson

Yes. I'm very excited about the response we have seen thus far as I said in my opening comments. Two of the individual surgeons have been very favorable about the impact of ENTEREG those who have had the opportunity to use it and I think its clearly because to this point they recognized that POI is a significant need and the leisure like focus, which ENTEREG address it is certainly favorable to them.

Michael R. Dougherty

All right. Well I understand that will conclude our call for today. I thank everyone for attending. Have a good afternoon.

Operator

Ladies and gentlemen that does conclude our conference for today. Thank you for your participation.

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!

Source: Adolor Corporation Q4 2008 Earnings Call Transcript
This Transcript
All Transcripts