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Cardiome Pharma (NASDAQ:CRME)

Q4 2012 Earnings Call

March 15, 2013 8:15 am ET

Executives

Jennifer Archibald - Chief Financial Officer

William L. Hunter - Interim Chief Executive Officer, Director, Chairman of Nomination Committee and Member of Compensation Committee

Karim Lalji - Chief Commercial Officer

Analysts

David Dean

Richard Deutsch

Operator

Good morning, ladies and gentlemen, and welcome to the Cardiome Fourth Quarter and Full Year 2012 Financial Results Conference Call. Please be advised that this call is being recorded. On the call today are Dr. Bill Hunter, Interim President, and Chief Executive Officer of Cardiome; Mr. Karim Lalji, Chief Commercial Officer; and Ms. Jennifer Archibald, Chief Financial Officer of Cardiome.

Before proceeding with the call, I will first read the company's forward-looking statement disclaimer.

Statements contained during this conference call relating to future results, events and expectations are forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995. These forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the company or industry results to be materially different from any future results, performance or achievements expressed or implied by such statements. Such factors include, among others, those described in the company's annual report on Form 20-F.

I would now like to turn the meeting over to Ms. Jennifer Archibald, Chief Financial Officer of Cardiome. Ms. Archibald, please go ahead.

Jennifer Archibald

Good morning.

The net loss for the year ended December 31, 2012, with $18.3 million compared to a net loss of $27.9 million for the year ended December 31, 2011. The net loss for 2012 was largely due to restructuring charges, expenditures spent on clinical development efforts and preclinical research projects, as well as other operating costs. The loss in 2012 was partially offset by the recognition of an $11.2 million gain on the settlement of debt to Merck. The net loss for 2011 was largely due to expenditures incurred on clinical development efforts, preclinical research projects and other normal operating costs.

The revenue for 2012 was $0.8 million, a decrease of $0.7 million from $1.5 million in 2011.

Research and development expenditures were $6 million for 2012, as compared to $15.2 million for 2011. R&D expenditures consist of clinical development expenditures and research expenditures. Clinical development expenditures for 2012 were $0.9 million, as compared to $6.5 million for 2011. The decrease of $5.6 million in expenditures was primarily due to reduced costs for vernakalant IV as a result of the termination of the ACT 5 clinical trial.

Research expenditures for 2012 were $5.2 million, as compared to $8.7 million for 2011. The decrease of $3.5 million in expenditures was primarily due to the restructuring initiatives which eliminated our internal research activity.

General and administration expenditures for 2012 were $9.6 million compared to $11.5 million for 2011. The decline was primarily due to a decrease in wages and benefits as a result of our workforce reductions during 2012.

Amortization was $1.2 million for 2012, as compared to $1.1 million for 2011. Interest expense for 2012 and '11 was $4.3 million and $2.2 million, respectively. The increase in interest expense was due to a higher outstanding balance owing to Merck during fiscal 2012 as a result of our $25 million draw.

Related balance sheet items to note. We ended the year with cash and cash equivalents of $41.3 million, accounts receivable of $978,000, accounts payable and accrued liabilities of $4.4 million.

2012 highlights. Notice of termination from Merck. We -- Merck gave us a notice, termination of both our collaboration and license agreements. The terminations will be effective after the notice period pursuant to the terms of the collaboration and license agreements. The transition of vernakalant from Merck to us is a multi-step process, and the activities relating to this transaction is ongoing. We expect these activities to continue throughout 2013. Upon the effective dates of the terminations, we will have exclusive global rights to vernakalant IV and vernakalant oral.

Strategic realignment of our company from an R&D-focused to a commercially focused company. Restructuring charges related to our restructuring include employee termination benefits, idle-use expenses and asset impairment due to redundant assets.

And lastly, the settlement of debt -- of our debt with Merck. In December 2012, we reached an agreement with Merck to settle our debt obligation. Under the terms of the settlement agreement, we will pay Merck $20 million on or before March 31 to settle our outstanding debt of $50 million, plus accrued interest of $2 million owed to Merck. The settlement between us and Merck will terminate the credit facility, and upon payment of the $20 million settlement amount, we'll release and discharge the collateral security taken in respect of the advances under the line of credit. We paid $7 million of the $20 million settlement amount to Merck during 2012, which settles $17.5 million of the original outstanding debt obligation. And as a result on that settlement, $11.2 million gain was recorded.

Subsequent to yearend, the settlement agreement was further amended, which allowed us to pay the remaining balance of the settlement amount. On March 1, 2013, the company paid the remaining $13 million of the debt settlement amount to Merck, resulting in an additional gain on debt settlement of $20.8 million. With this final payment, all outstanding debt obligations are extinguished and Merck has released and discharged the collateral security taken in respect of the advances under the line of credit.

NASDAQ listing. I'd like to give an update on our status there. The NASDAQ listing qualifications staff granted us an additional 180-day period in which to regain compliance with the minimum $1.00 bid price per share requirement, which ends on April 29, 2013. If a reverse stock split is necessary to regain compliance, we must complete this split no later than 10 business days prior to April 29, 2013.

On March 4, 2013, we provided notice to our shareholders of a special meeting of shareholders scheduled for April 3 to ask for authorization to effect a share consolidation of the outstanding common shares at a consolidation ratio of up to 10 common shares being consolidated into 1 common share. This is subject to the board's authority to decide not to proceed with the share consolidation.

I will now turn over to the operational review, to Bill Hunter, our interim CEO.

William L. Hunter

Thanks, Jennifer.

Just a quick note on the NASDAQ side. All of you should have, or if you have not, you'll receive the package for the upcoming shareholder vote. I think it's all our belief that continuing to have the NASDAQ listing is a strategic asset for the company. And so I'd strongly encourage the shareholders to vote in favor of that, allowing the board to take whatever steps necessary in a potential consolidation in order to retain the NASDAQ listing. Obviously, if you have any questions or have any thoughts around that matter, both Jennifer and I are certainly around to answer those questions for you.

So I think at the end of the year, it's always a good time to step back and have a little look at what has occurred over the last year. And then we're going to spend a fair bit of time when we hand it over to Karim and talk about what we're going to do in the coming year.

Obviously, the last 4 or 5 years of -- for the company have been particularly trying, in particular the last 2, 2.5 years. And no need to necessarily dwell on this, but a number of things have kind of moved the company in certain directions. And now I think it's incumbent upon management to try and take control of that situation and head us in a different direction.

I think, about this time last year when the oral program was not advanced forward by Merck, it certainly put the company in a situation where its strategic future was in doubt. There was a concern among ourselves and among our shareholders as to what the future of vernakalant was going to be, both on the oral and IV side. The U.S. IV program was in limbo, the oral program didn't have a definitive timeline going forward. And really, what had meant to be a broader program was now somewhat restricted to the IV program in Europe. Obviously, the stock trailed that and followed that sequence of events, and by mid-summer, I think the company was in a particularly vulnerable position in the sense that we had a significant R&D expenditure as the company had been aligned to become a next-generation ion channel company to follow on vernakalant. We had a burn rate in the $2 million to $3 million per month range. We had limited amounts of our own cash, and we -- certainly, we did have cash, but that was through the line of credit, and ultimately, it had to be repaid with interest back to Merck. We didn't necessarily have the right strategic focus in the event that vernakalant ended up not being in the long-term plans of Merck. And certainly, we felt that a lot had to be done.

And so I think that we've made some significant strides in the last 6 months, the last half of the year. I think it really was a tale of 2 halves of the year, the first half being some changes in our corporate partnership arrangements and some changes in the strategic focus of what we thought the vernakalant asset was going to look like. And in the second half, I feel we really took charge of our destiny and started to make some positive strides towards a new reality for Cardiome. We made some changes on the management side. We obviously went through a significant downsizing. We took the burn rate of the company down dramatically. We did that right away. Regardless of what happened with vernakalant, it was clear that we couldn't continue to focus on preclinical work or focus on R&D work, particularly as we faced the maturity date on our debt. Putting borrowed dollars into assets that were unlikely to generate cash prior to the repayment time of the debt was not going to be a good or viable long-term strategy so we downsized substantively and got to a size that allowed us to figure out what we're going to do and see where we ended up as a company.

We had some discussions with Merck. Merck was very open with us and very collaborative in terms of expressing where they thought vernakalant did or may not fit into their future. And we respect the fact that they came to a quick and thoughtful decision as to what to do, I think a decision that was not only in the best interest of -- potentially for Merck but certainly in the best interest for us in terms of figuring out where we needed to go. In September, as you know, the asset came back to us.

And then once again, thank you, if you will, to our former partner Merck in terms of sitting down and helping to set the company up for success. And I think, respecting the investment that they have made in vernakalant and trying to make sure that that asset could be moved forward in a meaningful way commercially, we were able to renegotiate the debt and I think put us in a position where we can actually take a shot at commercializing this and certainly, on one hand, not having any discontinuity between the handover between Merck and Cardiome and allowing the patients and physicians to have continued access to the drug but also allowing Cardiome the necessary assets to build out an organization and being in a position to sell the drug ourselves and get some momentum behind the brand as it transitioned over to us.

So a lot of changes: a downsizing, significant expense reduction, followed by the asset reacquisition, followed by retiring a line of credit. I think it's a very important thing to Cardiome in the long term that we are now completely debt-free and we have approximately 2 years of cash in which to go forward and execute on our business plans. So over those 6 months, I think the execution was at a very, very high level. Personally, I'm quite happy with how things came out. I think, considering where we were in July, things have gone about as well over the last 6 months as we could have anticipated. And I think we're all very much looking forward to 2013 now that that's all behind us and where we can go and build this going forward.

So I know one of the most common questions we get when we talk to people is -- look, Merck is an absolute top-tier pharmaceutical company. They have enormous resources. They certainly know about the marketing and promotion of drugs and drugs in the cardiology space in particular. So what is Cardiome, as a small entity, going to be able to do what Merck couldn't do? And why is vernakalant going to be successful in your hands and move from where it was over the last couple of years? I don't know that there's any one answer to that, but certainly there are couple of things that have happened in the last 4 or 5 months that we think are important to the brand and are things that we can take forward to clinicians and use to illustrate what we think are the real value propositions of BRINAVESS in Europe.

One of the first things that we think is quite impactful was the inclusion of BRINAVESS in the ESC Guidelines. The European Society of Cardiology is, in my opinion anyways, the most influential body in Europe with respect to the practice of cardiology, both general cardiology and interventional cardiology. And I think they're widely followed. The guidelines are well thought out. They are multinational in nature. Clinicians from throughout Europe come together to form these types of things and come up with best practice. And so I do believe it is nontrivial that BRINAVESS was placed into these guidelines and, in fact, was placed above amiodarone and is a first-line therapy. This really only came to the forefront towards the end of August and was really only announced in September, and it came really just before the handover of the drug from Merck to Cardiome. And so this really hasn't been out there and been promoted. It hasn't really been advanced. It hasn't been used as an introduction to clinicians. It hasn't been used to validate BRINAVESS in the clinical field. And so I think we all feel very good about having this at our disposal. And we think it will be a good door opener in terms of talking to people and explaining not just that we think that this should be a first-line therapy for a pharmaco conversion but that the most important regulatory body also concurs.

Secondly, we're starting to see what I would call real-world data coming out of the clinicians that have been using the drug on a regular basis. So one of the things -- I mean, clearly when you go into clinical trials and you do a variety of different studies, everything is very, very tightly controlled and you have an idea how your drug works and where it works and what its efficacy rates are. But once the drug gets out into the community at large and clinicians start to use it and start to learn more about it, it's not uncommon for you to find that there are populations or subpopulations of patients that respond well or, in some cases, don't respond well, but you start to figure out a little bit about how your drug functions in the real world. One of the things that we found most interesting, as we started to learn more about what had happened commercially in the last couple years and meet with people who had been extensive users of BRINAVESS, is we came across a group in Malmo, Sweden, headed by Steve Miller, who is a cardiologist there who has a very particular interest in cardioversion and the treatment of atrial fib and how to streamline patients as they come through a busy ER in that area, and he has treated a lot of patients, several hundred patients. So we had one user who had, in many respects, as much experience using the drug as, in fact, some of our clinical trials previously. And what he found is that the drug, if you look at the label, the label on the drug says that it's about 50% as effective over a 7-day period, and certainly all the clinical data supports that. But as he was treating more and more patients and he was developing his own algorithm for how to manage atrial fibrillation, what he found was that if he was able to get patients into the emergency room quickly; if he was able to train his recurring patients, if you will, and train his ER staff to recognize things very expeditiously and get people to the ER quickly and efficiently; and particularly if he could get them within 24 hours of when they had first gone into atrial fibrillation, in 48 hours at the very most, he found that those patients seem to be really quite responsive to BRINAVESS. And in fact, he was getting success rates in excess of 80% and, in fact, better in some cases in patients under 24 hours. And so quick presentation seemed to be a really important part of the treatment algorithm, and in those patients, it looked like BRINAVESS was very highly effective.

And so starting to tease out within that 7-day period when the right window to treat people might be, I think the drug is probably useful in all patients across that, but starting to see which patients within that group might be even better suited to the drug is a little bit of the art, if you will, of practicing medicine. And I think that really drives a lot of things. Certainly, a drug that is effective 80% of the time is different than one that's effective 50% of the time. I think, for the clinician, finding -- having a product that you feel works in the majority of patients is different than one that's a bit of a coin flip as to whether or not it's going to be effective. From the payer point of view, that's certainly a big point. If you know that you're going to pay for an IV therapy only to have to move forward and pay for a DC cardioversion in half the patients that receive that, you'll look at that economically from one perspective. On the other hand, if you feel the majority of patients are going to be successfully treated in that short window of time and be discharged potentially earlier, you'll look at it from a different perspective economically.

And that was the second piece, which was that Steve realized that time is money in the emergency department, particularly if you have a very busy ER; you have high patient flow; you have a disincentive to admit, and by that I mean you don't have a lot of hospital beds, you don't have a lot of latitude for admitting your afib patients and following them for 1 or 2 days until everything goes better. And what he realized is that, look, if he could get the patients in quickly, if he could get them treated quickly and if he treated them quickly, he had a high success rate, but more than that, you could have the patient come in, be assessed, start an IV line, in a high percentage of patients, 10 minutes later, they're back in normal sinus rhythm. And then really, you can turn the patient over to the monitoring staff, look at them for a couple of hours. The drug is cleared from the body in 2 hours. And so after 2 hours, if they're still in normal sinus rhythm, you can discharge them and feel pretty good about that for 2 reasons. One, you've obviously converted them, but two, you know that the drug's largely, if not completely, out of their system and so you're not worried about any potential side effects when they're at home and no longer being monitored. And when he did that and came up with an efficient patient flow, he was really able to get people in and out within 3.5 hours. And that means you don't have to admit. That means that you can manage them in the ER. That means that you can ahead -- take a really common patient group that you're going to see every night on your ER shift and be able to move them in and out.

On the other hand, although DC cardioversion is clearly safe and clearly effective and has been a big part of the management of atrial fib for a long period of time, it isn't necessarily that straightforward or that cheap in a place like Malmo, Sweden, because the patient comes in, gets assessed by ER, so clearly there's no savings there. Now you make the decision to DC cardiovert, you've got to call anesthesia and the anesthesia guys to come in and then be consulted and assess the patient. The patient has to be sedated, they're then moved to cardiology. At that point, their DC cardioversion -- cardioverted under sedation. You got to wait for the sedation to clear. You got to monitor the patient for 3, 4 hours to make sure they don't revert back into atrial fibrillation. And then and only then can you discharge the patient from the ER. That's in their hands is going to take more like 6 or 7 hours, and that may be the difference between an admission or a non-admission. And at the very least, that's another 3 to 4 hours of monitoring time, ER staff time and management through anesthesia. And lo and behold, when you start to look at that, you have a more effective drug, you have a faster drug, your patient flow changes through the ER, you start to do the pharmaco economics on that. And he was able to find that, in fact, in -- under Swedish reimbursement and Swedish patient flow, there was actually savings of a couple hundred to EUR 300 per patient, not a more expensive, if you will, step by adding the pharmaco version -- cardioversion. In fact just the opposite: that net-net, there was a savings.

And so I think, if you've got a higher efficacy and a quicker time spent in the ER, now you can start to build not just a medical argument but you can certainly start to build a pharmaco-economic argument as to why this might be a better drug.

So as you synthesize that all together and you start to think about coming out and talking about BRINAVESS through our sales force, as we -- and I'll hand it over to Karim in a couple of seconds, having the drug within the guidelines, having an idea of how it performs in clinical practice, having an idea of economically where this drug might be effective and how that argument might be made to both the physicians and the payers, you're starting to come up with an interesting story here as to how this drug could be placed in clinical practice and how, as opposed to being potentially additive to the costs of the management of atrial fibrillation, could potentially even be economically beneficial in the right type of hospital with the right type of patient flow.

So one of my favorite sayings has been, as we've been going through this transition as a company, is the concept of crawl, walk, run. I believe that, when we looked at the business in July and things looked pretty bleak, that was the crawl stage. With the assistance of our partner and working through the issues around that and stabilizing the company, getting to the point where we were now financially viable and had control of the vernakalant asset, we've crawled our way back, if you will, to viability. The walking part, I think, is going to be effectively understanding BRINAVESS and how we might make a go of it. Obviously, an asset in our hands, with our financial structure, is a different value proposition than in a multinational company that has different expectations and needs from their product line. I think if we can move forward in Europe, that's the walk phase. And the next phase is the run phase: How do we go from viability to a more interesting story to something that will excite both the clinical community and the investment community as an entity that could grow and outperform in the long run?

And that's where we move to the other part, which is what I'd call the forgotten assets of Cardiome. There's been so much focus on the corporate partnership. There's been so much focus on the sales of BRINAVESS that it's easy to forget that this isn't a barren company with a barren pipeline. There's an IV program in the U.S. I think we all believe that the U.S. IV market is several hundred million dollars in nature and is certainly more than worth going after for a company of our size. Granted we don't know exactly what that looks like. We are not the holders of the IND. We have not participated recently in the conversations with the FDA, so I'm not here to make promises as to what's going to happen there, but shortly we will be. And we'll start to understand that asset and we'll start to come up with a plan for how to move that forward and have a real shot at doing something on the IV in the U.S, which, again, we think is a substantive market for the company.

The long-forgotten oral program, that was the dream that was Cardiome not so long ago. Patients would come into the ER, be acutely converted by an IV conversion agent that was both highly effective and very easy to use. I spent a little bit of my life practicing medicine, and the concept of being able to take an afib patient, start an IV line, check on them 9 minutes, 10 minutes later and have them already converted, that's a really big deal. When you consider that early treatment probably gives you better patient outcomes, you don't want to wait 24 hours for a drug to work, you don't want to take a patient that doesn't have to be anticoagulated and turn them into a patient that now has to be anticoagulated. You don't want to take a patient that doesn't need to be admitted and turn them into a patient that now has to be admitted. That's a very interesting drug. But there was also the home run potential, if you will, of taking that same responsive patient, starting them on oral medication and sending them home on a more chronic therapy and retaining them in normal sinus rhythm with an oral agent to follow. We don't think there's anything wrong with the oral program. We don't think that there's any reason to believe that that program can't be continued to be moved forward. Its problems were more strategic, if you will, than clinical in nature. And so certainly, we look forward to finding a way to doing something with that.

I think, going forward and developing an oral drug in the U.S. for paroxysmal atrial fibrillation is probably beyond the financial capabilities of this company, but that doesn't mean it might not be a good partnership asset. It doesn't mean that we might not be able to move forward. And I don't want to give away our conference calls in the future, but we think there may be ways to restart the IV program. There may be ways to restart the oral program, looking at potentially different indications or different places that a company of our size actually can manage.

So really, I think this has been a big evolution in the company's history. We've gone from being an R&D-based company to a commercial-stage business in a very, very short period of time. I'd like to thank the staff of Cardiome, both past and present, in terms of helping to make this as seamless and easy as possible. Again, thanks to our former partner Merck, who I think has been very understanding and helped us through our growing pains too as we've had to build quickly in order to be able to take this asset back and to adjust this on -- from a commercial standpoint. I think breaking down into a small place until we knew where we were going to be so that we could build in the right direction was the right move to make. I think getting the balance sheet stabilized and getting the company stabilized financially was a critical next step.

And I think I can speak for Karim, whom I'm about to hand this over to. Having spent a lot of time in Europe, we visited all the different Merck sites, all the different countries that have experience with the drug, learned an awful lot about what had happened in the last couple of years. And I think we came back quite enthused that this is a drug that, when it's used correctly and people understand it and they put it into their treatment algorithm for the management of atrial fibrillation, is a really interesting drug. It might be a nice niche-type asset, a nice commercial opportunity for a company of our size. And I think we certainly feel that the drug has a lot going forward and there's a lot of things we're going to be able to do to build out that franchise, both in the near term in Europe and hopefully in the long term on the IV and the oral.

So with that, I'd like to turn it over to Karim Lalji, who is our Chief Commercial Officer, and just give kind of the first look at what things are going to look like when the drug ultimately does start getting sold under the Cardiome brand name.

Karim Lalji

Thanks, Bill. I look forward to sharing some information here.

As Bill mentioned, when we did our trip to Europe, and we spent a lot of time analyzing the data, Merck actually has done a very good job in laying the stage, and the product is very well regarded. In every market, this is seen as a drug that is a very interesting product. And as Bill mentioned, with the newer information that's coming out on -- from Malmo, for example, on how you can get to much higher efficacy rates by focusing on a certain population with the guidelines, those guidelines are very important because, in Europe, they mean a lot.

Another part of that guideline which is also very important, which has appeared for the first time, I believe, in especially -- definitely for atrial fibrillation, is that patient preference matters. So in making a decision, the patient has to also be consulted, according to the guidelines. And we know from our own understanding that patients would prefer not to be cardioverted through electricity if they have that choice. And we're also finding that once a patient has BRINAVESS, at that point, the chance for them wanting to go back to a DC cardioversion diminishes quite a bit.

So we believe that we -- Merck has done a great job, but there's also newer information that's coming out that would allow us to really take that to the next level, which quite frankly Merck did not have as they were rolling things out.

The other issue also is we believe that the value proposition is important, and I'll be discussing that in a few minutes, and we have some approaches that we believe will help us in that regard. But as we were looking at the sales in Europe, what we basically found is that 85% of the sales in Europe were coming from under 10 markets. And so what we came to realize is if we wanted to build off of the Merck base, that would be a reasonably focused effort.

So our assessment has led us to focus on some specific markets. We are looking at building very small sales presence in Germany, in Spain, in Finland and Austria and Sweden. And that is really where our reps will be focused. And they will range anywhere from 1 to a maximum of 5 representatives in those countries. So again, very focused. And we will cover certain markets such as Switzerland and Luxembourg through, for example, our German representatives, so we will not be building a separate presence there, but we're going to stay very focused.

And there are 2 advantages, in a way, of having a very small focused rep. Number one, they will only be dealing with BRINAVESS. And sometimes, when you have several products in the bag, you could be very diluted, especially if that product is not the first detail or the second detail. And BRINAVESS will be the first detail. In addition, the incentive system that will be put in place will obviously disproportionately favor BRINAVESS because that will be the only product, at least initially, that the representative will have. So we believe we have the background or the -- and an approach that will really allow us to be even more successful with BRINAVESS because of the focus that the key account managers will have in each market.

One of the most important parts, we believe, in relaunching BRINAVESS is to demonstrate and communicate very clearly a compelling clinical and economic value, basically a value proposition. And that is basically a key part of our approach going forward. So we would like -- and what our approach is going to be is to ensure that we are seen as being of -- an agent that's very competitive to DC cardioversion on value. And that will require developing pharmaco-economic models that demonstrate the overall safe and rapid management of a recent onset AF versus existing therapies and DC as being in favor of BRINAVESS. And we will also be looking at appropriate discounting strategies, as needed, to help us get to that point to remove any potential barriers to trial and adoption and usage.

The other point, which is going to be a key part of this value proposition, is going to be focusing on the patients with AF of less than 48 hours. As Bill mentioned, our current label states that we can be used up to 7 hours -- sorry, up to 7 days in patients with afib of 7 days or less, and our efficacy is more in the 50% range. By focusing on a subset of patients, which is the 48 hours or less, we can provide more value to the payers because they have more confidence of success.

In addition, the -- Bill had mentioned time is money. And time is also safety in the sense that, if you cross that 48-hour window without being cardioverted, you cannot be cardioverted anymore unless you've been anticoagulated. And very often, that can take 3 weeks to be properly anticoagulated and then you have to come back. And therefore, there's more utilization of resources. So the bottom line is focusing on that "less than 48 hour" group, the Malmo group. The data that Bill alluded to is going to be very important for us.

But just for background: We also are getting real-world data from other areas as well. There's an investigator -- not even an investigator, basically a physician in Argentina who's seeing almost identical results to Malmo, where greater than 80% cardioversion in the "48 hour or less" patient population, so there is definitely real-world experience supporting this.

The other thing that we believe is going to be important is looking at risk-sharing agreements with payers. We believe in our 80% and greater efficacy -- or greater efficacy in the "48 hour or less" patient population and we are willing to work with payers to basically state that we will pay for your failures in that group. And we know that that -- the failure rate in that group will be less than 20%, so we will -- we are looking at paying for failures up to 20% in any particular hospital that is focusing on patients with 48 hours or less. And the reason why that's important is it takes away an obstacle and opens up the hospital to say, "Yes, this actually works for us," because we are paying for success and, again, helps us make the case of a very strong value proposition that goes along with the compelling clinical value that we bring to the table.

As I mentioned earlier, the focus on the ESC Guidelines and BRINAVESS' inclusion in first-line is very important and will help us in making the case on this value proposition. And we also know that in certain markets where we need to, we can also focus on our post-surgical indication. BRINAVESS is the only pharmacotherapy that is approved for cardioversion in patients in -- that have AF post cardiac surgery. And the value proposition in that group is even greater. So as needed, we will also focus on that group. The numbers tend to be smaller, but the value is there. And we will also be looking at trying to use that particular indication or group of patients to drive our value message.

So the key, basically, is that we know there are very good reasons to use BRINAVESS, both clinically and economically. And our objective is to remove the reasons not to use BRINAVESS. And we believe that we have the tools and the approach to do that.

So that's all I have to say for now. Thank you.

William L. Hunter

Thanks, Karim. I think that's kind of a key point. I think, intuitively, it's not a surprise that, all things being equal, would a patient prefer an IV that works in 10 minutes to going through the entire process of DC cardioversion? All things being equal, would a physician not prefer to manage the patient in that way as well? And so I think that's a real benefit.

Having said that, going into and changing the practice and mindset in medicine is not a particularly easy thing to do, particularly with something that's been around for years and years and years. And DC cardioversion is entrenched. It works, it's safe, it's effective. And we are going into some markets that are predominantly DC cardioversion markets. Northern Europe is a predominantly DC cardioversion space. In upwards of 75%, 80%, 80-plus-percent of patients may get DC cardioversion as a first form of therapy. And so we need to remove the reasons to default to DC cardioversion. It's too expensive.

Well, is it really too expensive? There's a lot of data that we're starting to go through that says no. DC cardioversion isn't free. You don't just pay for the electricity. You have to pay for the anesthesia, you have to pay for the monitoring time, you have to pay for the telemetry, you have to pay for the increased stay. And when you start to add that up, there is a number. If you tell a clinician that that's EUR 500, they look at you and go, "I don't think so." But if you say to them, "You know, it's a couple of hundred euros," they go, "Yes, I can see that. There's the consult fee, there's the anesthesia, there's the -- yes, yes, yes, I get that." And so if you're priced at a point where you can look at somebody and say, "Look, this is going to be the same price as DC cardioversion. It's not going to more. You're not going to be taking a price gamble, if you will," I think that's one very big barrier.

The second barrier is, well, what if it doesn't work? Then, I still have to pay for my DC cardioversion and the like. And I think that's where the second piece comes in. If you're treating the right patients and you have higher efficacy rates, perhaps we replaced that vial that didn't work. Perhaps we give some sort of a rebate so you can say, "Look, we're not guaranteeing you 100% efficacy in that regard, but we can from a economic point of view. If the patient works, great, you pay us. If the patient doesn't work, we'll cover that expense so that, when they get moved on to DC cardioversion, you didn't get charged twice." And remove all of those obstacles because, when it comes to the patient, when it comes to the physician, I think they'd rather use the quick-acting IV cardioversion, so let's remove the reasons not to do it, the reasons to default to DC cardioversion. And I think if we're successful in doing that and going forward and saying, "Look, this is a front-line therapy. Your peers have looked at this. And this is not just us saying that, but bodies that you respect believe that it's a first-line therapy," put those 2 things together, we might actually have a launch strategy that a small company can manage. Having said that, we don't also believe that we have to be enormous. 15 people may not seem like a lot of folks. But we're only talking about 8 major markets here. We're talking about a hospital sale, we're talking about calling on rhythmologists. This is not an office-based cardiology sale where we might need 100 people to do that. Even if we had unlimited resources, our sales force probably wouldn't be much bigger than that. So I don't think we're grotesquely undersized and I don't think that we don't have a chance to go forward with what we have.

So really, as we look ahead, we believe that we have cash to fund our expenses, including all the commercial efforts that we talked about and the sales force buildout for 2 years. I do want to caution people and say that, look, sales are going to be modest, at least initially. Anytime you launch a new sales force, there's kind of confusion and chaos that ensues as people learn the product, learn the doctors, learn the hospitals and learn more about the clinical setting in which they find themselves. You don't just pick up a product and the next day -- just because you changed the price or something, everything's all golden.

I think in that -- we hope to take over in the not-too-distant future, but that first quarter of our sales under our belt is probably going to be a bit of a mismatch until we fully start getting it right. And then shortly after that, we'll be in the summer period. And summer in Europe, as I think everybody knows, things shut down. And although this is a not an elective procedure, it doesn't matter. There's just kind of a general slowdown in Europe during the summer months. And so it might be the fall before we've got things all figured out and we start to get traction and we start to really know what's going on, but certainly we're excited about the fact that, with any year of getting the asset back, we could've stabilized the company, stabilized the balance sheet, built a sales force and got feet on the ground and started to understand our product and know what we were doing by the time that 1 year came around.

We have a decent amount of money. We're a biotech company with a couple years' cash on hand. I -- as I'm fond of saying, I think that describes 80% of the industry. Is that perfect? No. Do we have something in our advantage? Yes. This company can actually generate revenue along the way, which I think is a big bonus. If we could scrip the company from scratch, do we -- are we perfectly financed? No. I think we'd like a little bit longer runway. There'd -- a little bit of additional cash would go a long way for this company right now. I don't think that's a really big number, but certainly, as we look forward a couple of years, we need to start thinking about that, maybe not in 2013 but going forward. But there's a bunch of different ways to fund that gap, whether that's another oral partnership or whether that's a regional distribution deal on one of the programs or whether that's looking at the tax losses that the company's compiled or whether that's looking at some of those R&D assets that we had in the pipeline in terms of partnership going forward. It's not just all about equity or financing that way. There are other strategic alternatives to the company to get there.

And importantly, getting the company's burn under control and spending the dollars on the commercial group, there was a lot of great R&D that was done here. It wasn't happy experience to have to shut some of that down. Some of it was, we think, a very high-quality science. But -- and as you look at our limited dollars and the investments we're going to make, the highest ROI in this business is investing in sales and marketing, and that's what we're doing. The money we do have is going into something that has the highest and shortest return to our shareholders and to us in terms of its ability to generate revenue. And because we've gotten so small, even modest revenue from the European sales could get this company to a break-even point and finish the walking stage, if you will, to put us in a position to hopefully run in the not-too-distant future.

So that's it. The company in a very short period of time has gone from being a licensing-driven, R&D-based company to a commercial business with -- that will soon have a product for sale in Europe under its own commercial sales force. A lot has happened. While we've all been focused on all the other things around Cardiome, including the drug being made first-line therapy by the ESC, which, again, we believe, is very significant. It looks like this is a well-tolerated and effective drug. It looks like there are pockets of clinicians around the world that are starting to use it in large numbers and starting to really understand the right way to maximize the potential benefits of this both economically and potentially medically as well.

And yet we still -- let's not forget, we still have a Phase III-ready oral asset. We still have an IV drug that could be approved in the U.S. in the not-too-distant future. This isn't a failed asset in the sense that, "Oh, we failed our Phase III clinical trial. Now we need to go redo the trial and figure out how to get the right patient group." It's not like that at all. This drug worked in its pivotal trials and this drug is working clinically. And so this becomes a business exercise and a medical exercise to advance things from where we are now.

So with that, I'll turn it over for questions. I know this presentation was a lot longer than it will be in the future, but the company's been very quiet as we've been going through this. And now that we're in a position to start providing valuable information to the shareholders, we wanted to relaunch a little bit, if you will, thinking about 2013, and give people some insight as to what's been going on here over the last little while.

And I open it up now for questions to any of those of you there that would like us to dig deeper on some of the other things.

Question-and-Answer Session

Operator

[Operator Instructions]

William L. Hunter

Well, clearly, we covered it all.

Operator

Pardon me, we do have a question from David Dean, Cantor Fitzgerald.

David Dean

Hoping you can give us a description about what your inventory levels might be and whether or not we should consider those as kind of an expense going forward? And also, let us know what the potential impact of providing the drug ahead of DC cardioversion might be as far as the timeline for the doc flow and things like that.

William L. Hunter

Sure. On the first side, our settlement with Merck require that we purchase $3 million worth of inventory. That will occur. It hasn't as of yet, but it will very, very shortly. I think what it means to us, from a practical point of view, I think, economically, we're going to get more value than the $3 million in terms of overall product that we will receive. But I think, from an operational point of view, we're going to have enough vials to drive sales for a couple of years or more. We have some API that puts us in a position going forward. And back to that oral: Merck had made a diligent and sincere effort to get ready for a phase, at least a big Phase II and potentially a Phase III on the oral program, and so there's a lot of oral product there. And so in the event that we want to expand and do oral studies, we have the product to do that, and do a bunch of things. So I think our cost of goods will be artificially low for the next little while. It might allow us to do some sampling. It might allow us to do some things aggressively to go forward. So I think that's a bit of an asset. I know you didn't ask this question, but I look at our launch costs and what goes into launching a drug. Certainly, procuring a drug is one thing, but there's all kinds of other things that have to be done. And I think our launch costs would be another $10 million or so, had we not had the benefit of Merck's experience. And there's a lot of things that we've gotten from them in terms of understanding the market access or sales and marketing materials or training materials or any number of other things that certainly we'll benefit from and won't be embedded in our launch costs. So there have been some -- a lot of in-kind contributions, inventory being just one of them, that have helped us keep our launch costs under control. In terms of patient flow, I think I touched on it a little bit. I have a belief personally that this is a really good emergency-room drug. I think, in a busy suburban hospital where you don't want to admit and you have a lot of patient flow, a lot of gurneys in the hall, I think this is a nice drug. I think the ability to start somebody on the IV and know within a relatively short period of time whether the patient's now effectively managed or has to go on to a more complicated and extenuated treatment algorithm through DC cardioversion makes it a good introductory step. I mean, obviously, we want the whole world to use the Malmo approach, which as we all know isn't going to happen, but I think that is a very intriguing patient flow. Because of it working quickly, because the monitoring period is relatively short, it's a good first step. It doesn't make sense to go the other way with DC cardioversion, spend 6 or 7 hours and then go to vernakalant. It really makes sense to do it in the other direction. So I think, to your point, it -- this -- it really does favor if you think both therapies are equally efficacious or you're happy with them equally and you -- there's no medical reason in your mind to use one versus the other, I think from a pure practical point of view, it makes sense to use vernakalant before you use DC cardioversion rather than the other way around.

Operator

Our next question comes from Richard Deutsch, Ladenburg Thalmann.

Richard Deutsch

First of all, congratulations on the great job you did after the Merck disappointment in pulling us back into a more stable situation with a decent game plan. Just had a couple of quickies. First of all, in the clinical practice that you've seen in Europe, were there any unintended bad results that came out?

William L. Hunter

No. I think what was interesting to us when we looked at the commercial data, and Karim, feel free to jump in, is that it wasn't a case where every hospital was ordering 2 vials. It wasn't like that. You had these pockets of hospitals that had really embraced BRINAVESS. And they weren't necessarily intuitive. They weren't necessarily the big academic centers and major metropolitan areas with key thought leaders. I mean, in some cases, they were small hospitals that would suggest to us, "We're using the drug because it's convenient and easy," and it helps with their patient flow. If there was a disappointment, I'd say that price in some areas, particularly in Spain and other places, had been a clear barrier to entry where even people who like the drug, the hospital or the pharmacy felt that they almost didn't want to encourage docs to use it too much just because of what they perceived as the added cost. And there were clearly people who tried it. Maybe they were happy with it, maybe they weren't, but went back to the way they've been doing things for 30 years. So there were no disasters. I think the safety profile of the drug has been excellent. And as we've looked at it, if it's given to the right patients and you avoid contraindications, it looks like it's a very safe and well-tolerated drug. But I would say that 2 things are changing a paradigm that's been around for a long time in medicine, which is using DC cardioversion; and trying to understand which hospitals are the ones that are the most likely ones to target, because it may not be the classic marketing 101 of "Let's find the biggest hospital and the biggest center with the most patients." That may not be the ideal BRINAVESS hospital. We may need to look for hospitals more like Malmo that have specific demographics that want them to treat patients quickly and move them through the ER expeditiously.

Operator

[Operator Instructions]

William L. Hunter

Perfect. Well, we'll keep it all under an hour and be done. We're all in our offices today, so any of you who have follow-up questions and would like to get in touch with any of us, please feel free to do so.

I think I'd conclude by saying we're all pretty excited about 2013 here. I'm not going to insult your intelligence by saying that we sat here in March of 2012 and this was our master plan. But having gone through what has happened and adapting to our changing circumstances, if you will, I think we feel really pretty good about where we've come out of this. And I think we're feeling really pretty good about our drug. I don't know that we're going to guarantee great sales and this is going to be a massive home run right out of the gate. I don't -- I think it'd be foolish to have those kind of expectations. But this looks like it's a drug that really works. It looks like a drug that probably has a real home in clinical practice. It looks like a drug that's safe and effective to use in a really, really common medical condition. And I think it's a very unique opportunity. And we see this here at Cardiome. It's a very unique opportunity to be a small company that has in its possession a commercially available drug in a major market and a couple of other things in the pipeline that are not 100 years away from commercialization that are based on the same technology, the same proven technology, and require a little TLC, maybe, to get to the next level; that have some warts on it, but I think they may be solvable.

And so as we look at 2013, I think this is a pretty optimistic organization that feels that we have a unique opportunity. And I look forward to talking to you in another quarter in seeing how things are going and seeing how we execute through this because, certainly, commercial launch plans are one of the funner things to actually work on in this business.

So thank you to all of you who've stuck through it with us. And we look forward to trying to go bigger, faster and further in the not-too-distant future. Thanks very much.

Operator

Ladies and gentlemen, this concludes your conference call for today. We thank you for your participation and ask that you please disconnect your lines.

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