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Executives

Clive Meanwell – Chief Executive Officer

Glenn Sblendorio – President & Chief Financial Officer

Cees Heiman – Head of Europe and Middle East Business

Brent Furse – Chief Customer Officer

Bill O’Connor – Chief Accounting Officer

Michael Mitchell – Head of Global Communications

Analysts

Louise Chen – Guggenheim

Umer Raffat – ISI Group

Steve Byrne – Bank of America

Joseph Schwartz – Leerink Swann

Jonathan Eckard – Citi

Jason Kantor – Credit Suisse

Adnan Butt – RBC Capital Markets

Cory Kasimov – JP Morgan

Biren Amin – Jefferies

The Medicines Company (MDCO) Q1 2013 Earnings Call April 24, 2013 8:30 AM ET

Operator

Good day, ladies and gentlemen and welcome to the Q1 The Medicines Company Earnings Conference Call. My name is Caroline and I’m your conference operator for today. (Operator instructions.) As a reminder, this call is being recorded for replay purposes. And now I’d like to turn the call over to Michael Mitchell who’s Head of Global Communications. Please go ahead, Michael.

Michael Mitchell

Thank you, Caroline, and good morning everyone. This morning we will review The Medicine Company’s Q1 2013 financial and operating results.

I would like to remind you that this call will contain forward-looking statements about The Medicines Company that are not purely historical and all the 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 “believes,”

“anticipates,” “plans,” “expects,” “estimates,” “aims,” and similar expressions are intended to identify forward-looking statements.

Important factors that could cause actual results to differ materially from those indicated by such forward-looking statements are identified in the company’s SEC filings including the Form 10(k) filed with the SEC on March 1, 2013. 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 adjusted net income measures, which exclude intangible asset impairments, upfront collaboration payments, amortization of acquired and tangible assets, acquisition-related charges and restructuring, stock-based compensation expense and non-tax interest and adjustments to net income tax. Please refer to the reconciliations of the GAAP to adjusted net income tables in our press release for explanations of the amounts excluded and included to arrive at the adjusted net income and adjusted earnings per share.

This morning, Clive Meanwell, Chairman and Chief Executive Officer will provide his perspectives; and Glenn Sblendorio, President and Chief Financial Officer, will present financial and operating results. Joining us for the question-and-answer session are Cees Heiman, our Head of Europe and the Middle East; Brent Furse, our Chief Customer Officer; and Bill O’Connor, our Chief Accounting Officer.

And with that, over to Clive.

Clive Meanwell

Well, thanks very much Michael, and welcome everyone to our call, finally from a spring-like Parsippany, New Jersey. The Medicines Company is focused on acute and intensive medicine where our purpose is to save lives, alleviate suffering, and improve the economic efficiency of approximately 2500 leading hospitals in the world.

Our strategy is founded on four main ideas: first, to focus on acute and intensive hospital medicine; second, to concentrate resources on leading hospitals; third, to leverage resources across vital service lines in hospitals; and fourth, to prioritize our work on high-value solutions in hospitals. We’re confident that we can continue to create value for shareholders by executing against this core strategy.

We began 2013 by making real and measurable progress during Q1, with our near-term value drivers showing 23% revenue growth centered on Angiomax worldwide and Recothrom, ready-to-use Argatroban and Cleviprex in the United States; measureable progress with our mid-term value drivers: late stage development programs for Cangrelor, Oritavancin, IONSYS, MDCO-157 and Cleviprex; and measurable progress with our long-term value drivers, including early stage projects such as MDCO-216 or ApoA-I Milano, the Alnylam PCSK9 partnership program, and lifecycle initiatives for practically all of our products and candidates.

By way of a reminder, in Q1 we also closed three major business development transactions, one with Bristol-Myers Squibb for Recothrom, another with the acquisition of Incline Therapeutics for IONSYS, and third with Alnylam for PCSK9.

We’re organizing our acute hospital care portfolio according to three vital hospital service lines, namely acute cardiovascular care in the hospital, perioperative and surgical care in the hospital, and third, serious hospital infection management and care. We continue to seek partnerships with other leading organizations with disciplined new business venture activities focused on marketed or near-marketed products that fit our rapidly emerging hospital business channel worldwide.

So with that brief introduction let me hand over to Glenn for details on the results of Q1. Thanks, Glenn.

Glenn Sblendorio

Thanks, Clive, and good morning everyone. For Q1 2013 we delivered strong financial results that put us on a path towards meeting our 2013 operational and financial goals. Today, we’re reporting net revenue growth of 23% in Q1 compared to Q1 last year. That puts us on track towards our 2013 net revenue growth of 20% to 22%. Global net revenue of $155.8 million slightly exceeded our Q1 guidance of $145.0 million to $155.0 million.

In US hospital, patient level third-party audit data indicated that 59% of all percutaneous coronary interventions or PCI are now performed with Angiomax to protect against thrombotic complications. Consistent with our growth strategy, use in high risk patients has increased 8% in absolute terms, and now 45% of all heart attack cases undergoing primary PCI are given Angiomax. We believe this growth will continue and we have also increased market share in the low-risk PCI segment.

On the basis of a well-established value proposition of both the high-risk inpatients and the low-risk day case patients, we were able to support a price increase of 7% on January 1, 2013. In European hospitals where we sell directly, we continued to see robust growth in Angiox volume. Utilization had a 30% increase in Q1 2013 compared to Q1 2012. France grew very strong year-on-year. The north of Europe and Italy continued to show robust growth and we continue to see steady growth in Germany.

We began selling Recothrom in the United States on February 8, the date our global license and two-year collaboration with Bristol-Myers Squibb became effective. We recorded 36 days of sales in the quarter. Sales were $8.6 million and represent a solid start. Overall for the quarter, Recothrom grew 7% over the same period in 2012. Our remaining marketed products, including Cleviprex, ready to use Argatroban, and our generics made up the balance.

Cost of revenue of 36% in Q1 2013 is up from 31% in the same period in 2012 but in line with our expected rate of 37% for the year. The increase was expected as we indicated previously given the structure of the Recothrom licensing deal and the maximum Biogen royalty on Angiomax. Royalty payments on both of these products will stop at the end of 2014 so that gross margin is expected to improve dramatically from 2015 forward.

The main drivers of our operating R&D in Q1 included continued investment in three late-stage development programs – Cangrelor, Oritavancin, IONSYS – each of which made significant progress during Q1.

For Cangrelor during Q1 we reported at The American College of Cardiology Scientific Session and published in The New England Journal of Medicine the positive results from our Phase III trial called CHAMPION PHOENIX. Regulatory discussions for Cangrelor have been underway for some time in both the US and Europe. We anticipate submitting an NDA in the US in Q2 and in the European Union by the end of the year.

As we said in March, the regulatory submission comprises four major clinical trials: CHAMPION PLATFORM, CHAMPION PCI, CHAMPION PHOENIX and the BRIDGE trial, which in total includes about 25,000 patients. We intend to apply for product indications for all PCI in all subgroups of patients and in patients who require bridging from oral antiplatelet therapy before surgery.

For Oritavancin we reported positive Phase III results for SOLO-1 in December, 2012. Enrollment in the second phase, SOLO-2, was completed in April. We’re in a period of patient follow-up now and we anticipate final data collection, data lock, and top line data reporting by the middle of the year. Once we see the data from SOLO-2 we’ll have an idea of how the regulatory timelines, manufacturing, and other elements of development are on track for Oritavancin.

For IONSYS during Q1 we successfully completed three clinical studies of the two-piece IONSYS system which we described in detail at the time of acquisition. These studies have now established bio (inaudible), device adhesion and practitioner and patient usability as we expected.

Subject to regulatory review, we still anticipate product approval in the United States in 2014. We are upgrading the integrated electronics and software prior to filing to further improve reliability and safety of the device. This means that we plan to file an SMDA in early 2014 rather than late 2013. The MAA in Europe is planned to be submitted shortly after the US SMDA.

During Q1 we in-licensed Alnylam PCSK9 RNAi LDL-lowering project. This came with a nonrecurring $25 million license payment to Alnylam which we recorded as an R&D expense during the quarter.

Selling, general and administration expenses for Q1 were in line with our guided expectations. We recorded several one-time items including a restructuring charge and legal costs relating to the acquisitions of $12.5 million. We estimate annualized costs from the restructuring to be in the range of $13 million to $14 million starting in Q1 2014.

One-time items and other costs are detailed in the adjusted net income reconciliation sheet which we issued today with our press release. The resulting GAAP net loss per share of $0.21 is better than our guidance of a net loss of $0.24 to $0.33. The loss is expected to be a single quarter event and is largely due to the upfront collaboration payment to Alnylam, the restructuring charge, and the legal costs associated with the completion of the Q1 transactions.

Our adjusted net income was $0.31 on a fully diluted basis and excludes upfront collaboration payments, amortization of acquired intangible assets, acquisitions-related charges, restructuring charges, and stock-based compensation along with non-cash interest and net income tax adjustments.

In summary, Q1 was solid and as planned, and our major development programs continue to progress. I’d like to turn it over to Clive for his summary.

Clive Meanwell

Thanks a lot, Glenn. So in brief, we started the year with robust top line growth for our established baseline business, we progressed with leading expanding portfolio high-value assets in acute, intensive care hospital medicine; a superb team of people here at The Medicines Company now expanded by our colleagues from the Incline and Recothrom teams who I think are willing and able to drive growth; and really momentum in all aspects of our business.

It’s important to note that we completed the major transactions in Q1 and we’ve already integrated the valuable and talented people as well as the product assets into the firm, and yet we stayed right on operating plan at the same time. Glenn and his New Business Ventures Team continue to focus on a disciplined pursuit of next right-fit kinds of late-stage products for the company, and it really is an exciting time for The Medicines Company with lots of growth ahead.

So with that, Caroline, if there aren’t too many English accents on the call perhaps we can open it up for some questions.

Question-and-Answer Session

Operator

Thank you. (Operator instructions.) Please stand by for your first question, and it comes from the line of Louise Chen from Guggenheim. Please go ahead.

Louise Chen – Guggenheim

Hi, good morning. A couple of questions: the first one I had was we’ve gotten a lot of questions on Oritavancin and how you would convince the hospital that there’s a pharmaco-economic benefit to using the product. What do you expect in potential cost savings and how should we think about these cost savings?

Clive Meanwell

Thanks, Louise, good to talk with you. We are still working through the detailed assessment of the value proposition for Oritavancin, and I think it would be wise to wait for the second study before we sort of begin to finalize our thoughts. But in the interim there’s a couple of things to bear in mind – one is that nobody’s decided what the price of this drug is yet so I think it’s rather premature to think in terms of the absolute value created for a hospital.

But more importantly I think what we have to really focus on is that the way patients are moved through the hospital is what determines most of the cost, and the way they’re reimbursed determines most of the cost. And we believe very strongly now that there are ways to change the pathway of care for the patient and there are ways to change the reimbursement structures for the patient which will not only make this potentially a leading effective and safe drug but also one which can be economically dominant.

So it’s a little early to answer your question with any direct information for all those reasons but we’re very confident that the proposition is going to be extremely attractive to leading hospitals, and we’re going to make it that way.

Louise Chen – Guggenheim

Okay, thanks. I also had a question on your peak sales potential for Oritavancin. You had mentioned about $400 million and I was wondering if that includes more life-threatening infections such as pneumonia, bloodstream, maybe bone infection. I’m just wondering if you intend to pursue any of those additional indications over time.

Clive Meanwell

Well just to go through them, we won’t be pursuing pneumonia – the product doesn’t demonstrate great absorption into lung tissues. But all of the other ones that you mentioned are on deck as it were, and assuming we get good results for the skin and soft tissue trial, the SOLO-2 trial, we’ll obviously be looking to invest in further indications. Probably the most attractive, obviously bacteremia is important.

We may or may not have data on bacteremia that’s sufficient from other trials, but bone and joint – prosthetic injections are very costly and very difficult to treat, and we do know that among other things Oritavancin penetrates biofilm very well. So there are a number of the ones that you mentioned that we would consider investing in but we want to wait until we see the final results of SOLO-2 first.

Louise Chen – Guggenheim

Okay, and maybe just one more question on IONSYS. I’m just curious, longer-term do you expect to develop this for home use? And if so, what kind of commercial opportunities might you expect for a product like this?

Clive Meanwell

That’s a really good question. Obviously, moving products from the relatively controlled environment of a hospital to outpatient use or home use as you put it is complex from a safety, regulatory, and compliance point of view. It is after all an opioid analgesic. So with all that said, clearly there are many situations in the outpatient world where this kind of highly convenient therapy could be of use; and the team at Incline Therapeutics had already looked at that as had Johnson & Johnson previously as a potential way of expanding the product.

The scale of the expansion, were you to move it outside the hospital, is obviously enormous, potentially doubling or more the potential addressable market. And it’s already a huge addressable market in the hospital as far as we’re concerned. So again, definitely on our radar screen but right now we want to focus on getting the drug approved for in-hospital use and launched for that. But it’s a very worthy question and one which we’re trying to address ourselves.

Louise Chen – Guggenheim

Okay, thank you.

Operator

The next question we have comes from the line of Umer Raffat from ISI Group. Please go ahead.

Umer Raffat – ISI Group

I have a couple of questions, the first one on IONSYS. So I’m just trying to understand, Glen, you mentioned there was a slight delay and the filing will now be in early 2014; and you also said there’s some changes being done to the electronics. I just want to understand what that is exactly, and does that potentially call for a new PK study or not? Separately, on Oritavancin, so Clive, if there is a 6% delta seen in the SOLO-2 trial on the MRSA endpoint could that theoretically enable you guys to claim a superiority benefit? And then I had one more follow-up for Glenn on R&D stuff.

Clive Meanwell

Why don’t you throw the R&D question on the pile now and we’ll…

Umer Raffat – ISI Group

Sure. I just wanted to make sure, the R&D spend currently at about $30 million – is that a reasonable run rate quarterly from here on out?

Clive Meanwell

I’m going to ask Glenn to deal with that question first and then we’ll tackle the technical questions on IONSYS and SOLO.

Glenn Sblendorio

I think if you take the R&D question first we said 20% for the year including Alnylam, and we did book the $25 million in R&D in Q1. So I think we remain committed to the 20%, so that based on the top line number is about $30 million a quarter. I think if you do the math it’s probably in that range. But again, the key for us is that we went out in the beginning of the year and we stated 20%. Our objective is to stay within that 20% based on the programs that we have in place today.

Clive Meanwell

And on the IONSYS, all of the electronic changes we’ve been making and will make are independent of pharmacokinetics and would not require pharmacokinetic (inaudible) studies. We’re actually thrilled with the results of the PK study we’ve just got so we’re really feeling good and on track there.

And as far as the SOLO-2 trial is concerned, obviously if we’re replicating exactly the results we saw in SOLO-1, and pretty much anyone can do the math that if you combine the datasets you’d probably have a narrow confidence interval which could indicate superiority for the FDA endpoint. Now, obviously that would get published – whether or not it would get supported by the FDA as a superiority claim on the label is of course up for debate. And it’s not our understanding that that’s necessarily where it would go.

You still have to bear in mind that if you have a superiority for a 48-hour to 72-hour endpoint you still would have non-inferiority rather than superiority for the 10-day European endpoint. It’s unlikely that you would see anything in terms of superiority there. So although it would be the first compound to demonstrate in a pre-specified endpoint superiority over Vancomycin it’s not quite as simple as saying “Right, okay, let’s go with that.” It would have a rather complex set of issues to talk about.

Umer Raffat – ISI Group

Sure. Clive, just to clarify you said the PK results for the IONSYS study are in already? Should we expect a press release soon on that?

Clive Meanwell

We’re absolutely fine with it and we’ve mentioned today in our script that it was done, and as far as we’re concerned we’ve demonstrated bioequivalence, yes. To be honest with you we think of that as a rather routine trial.

Glenn Sblendorio

I think the announcement here today does it.

Clive Meanwell

Yeah, so if that wasn’t clear in the announcement we are saying yes, that trial is done. That trial met its endpoint and we’re moving forward. We thought that was rather helpful.

Umer Raffat – ISI Group

Great.

Operator

Thank you. The next question we have comes from Steve Byrne from Bank of America. Please go ahead.

Steve Byrne – Bank of America

Glenn, of that 14% year-over-year US revenue growth for Angiomax, how much was price versus volume? How much volume do you think might have been pulled from Q4 ahead of the price increase?

Clive Meanwell

Yeah, I’ll get Glenn to cover that one, Steve.

Glenn Sblendorio

Hi Steve. Generally I think the 14% is as we said in the past, usually half price, half volume. I don’t have the exact numbers but I’m looking at Brent also and he’s shaking his head. That’s usually the way that works. In terms of the pull down of the buy-in in Q4 was consistent with our expectations, and I think if you look at the numbers in 2012 and the numbers in 2013 the amount that was bought in, the way we see that being pulled into the system so to speak is absolutely consistent year-on-year. So there’s no unusual blips there. The volume that was bought last year and the volume that was bought this year was almost essentially the same.

Clive Meanwell

Let’s add some color from Brent himself. Brent?

Brent Furse

Yeah, I agree with what Glenn said. What we’ve seen is that as hospitals are facing these tough, challenging economic times they’re taking a more rigorous look at the solutions, the brands, the products that they use. And Angiomax frankly is well positioned to continue to see growth. We saw substantial growth in all segments, from [STIMI] to low-risk stable angio patients, and I expect to continue to see that. It was a very strong Q1 and a great kickoff to the year.

Glenn Sblendorio

Another way, Steve, just to finish that one point on the question with Brent, if you look at the GAAP sales as well as the demand sales – I think it’s about the same. So that’s a good indication that demand is tracking the GAAP sales.

Steve Byrne – Bank of America

And any consideration to moving off of your June 1 annual price increase to something perhaps more frequent and maybe at a slightly modest increase just to do it more frequently?

Clive Meanwell

Well, that sort of smoothing is liked by some customers but not by others. They tend to run their hospital budgets on an annualized basis and they kind of… We’ve done that before, and whenever we’ve done a midyear adjustment we’ve got a few complaints and grumbles from our hospital customers that they haven’t planned for it or they didn’t know it was coming, or they couldn’t adjust their own budgets midyear. But Brent, how would you respond to Steve’s idea?

Brent Furse

I would say that pharmacists appreciate predictability both in drug and pricing.

Clive Meanwell

So Steve, we’ll certainly take that under advisement but right now we’ll probably be doing this once a year I’m guessing. But thanks.

Steve Byrne – Bank of America

Okay, thank you.

Operator

And the next question we have comes from the line of Joseph Schwartz from Leerink Swann. Please go ahead.

Joseph Schwartz – Leerink Swann

Thanks a lot. I was wondering if you could remind us if there’s any differences in design or expected patient characteristics between the SOLO-2 and SOLO-1 studies for Oritavancin?

Clive Meanwell

Yeah, Joe, thanks. Good morning to you. There are no differences in the protocol – it is literally cut and paste, and everything’s the same except Page 1 which lists the title. I think SOLO-1 is replaced with SOLO-2 on the front page. The other thing that’s different is of course the selection of sites. SOLO-2 sites are more predominantly ex-US than SOLO-1 although there have been global sites for both trials, and that may or may not have an effect on the results we see. We’re obviously looking forward to seeing the data, but that’s the only difference is the selection of sites.

Joseph Schwartz – Leerink Swann

And just curious, have you looked at whether there were any differences in the type of responses between the US and ex-US sites in SOLO-1?

Clive Meanwell

Yeah, we did. Of course that’s an important question and we saw consistent subgroup geography data throughout the trial. There will be differences I would imagine in absolute event rates around the world – there tend to be such findings in global clinical trials; but we would expect the effect size both for safety and effectiveness, any differences or non-differences we’d expect to be the same across the board.

Certainly we’ve been monitoring SOLO-2 for safety in just the same way we did with SOLO-1. Obviously throughout the trial you keep an eye on it, and the patent and frequency of adverse event reports overall in SOLO-2 are very consistent with SOLO-1.

Joseph Schwartz – Leerink Swann

Very helpful, thanks. Could I also ask about your comment relating to the gross margins in the future? I think that you said that when the royalty rates decrease you would see a significant increase in the gross margin after 2015? Could you characterize that a little bit more for us?

Clive Meanwell

Glenn, you want to talk about royalty rates after 2014?

Glenn Sblendorio

Sure. Joe, I think on Angiomax it’s quite easy. We’re at the top of the Biogen rate right now based on sales levels. In 2014 that royalty goes away. We may have some residual small royalties based on European sales. And then the other thing driving the royalty rate is the two-year collaboration that we have on Recothrom where there is an embedded royalty during the two-year collaboration period. If we exercise our option at the end of the two years, which coincides with near the end of 2014 that royalty will also go away. So that was the reason for the comment on improvements in the gross margin. Does that help, Joe? I hope it does.

Clive Meanwell

I think Joe is stunned by the answer. Alright, next question, Caroline?

Operator

Yes, the next question comes from the line of Jonathan Eckard. Please go ahead.

Jonathan Eckard – Citi

Just regarding some of the pipeline programs, Cangrelor, IONSYS and potentially Oritavancin could all be on the market by the end of 2014. Could you give us an idea of the respective ramps of these agents to your peak sales estimates? Just generally are some going to be, do you expect to be faster than others? And then I have a follow-up question on the PCSK9 program.

Clive Meanwell

It’s such an important question, and if someone’s got the answer will they send it in on a postcard so we can plan accordingly? I’d like to review exactly what you’ve just said because it’s important. So Cangrelor with the results that we now have in-hand and the NDA about to be filed is absolutely on track for a 2014 launch. IONSYS is also on track for a 2014 launch. Obviously the minor adjustments to electronics will allow us to file with a complete, slightly improved product but it’s not going to take significant time and it’s not requiring additional studies; and it will still meet its approval goal we think in 2014.

Cleviprex wasn’t mentioned but Cleviprex will be rolled out worldwide in 2014 and although I think for some folks Cleviprex has been something of a disappointment in the US we remain very excited about it, particularly in acute heart failure which is an as-yet-untold story. And then finally as mentioned Oritavancin should also be potentially approved or launchable in 2014 but we don’t yet have the second trial so it’s a little premature to count any chickens, in fact.

As for the ramps of those four products, we apply the same simple model to all of them which is perhaps crude but we’ve not found a better way to do it yet, which is to determine the exclusivity drop dead date out some years ahead and take a steel ruler and draw a link between $0 and the peak sales potential; and assume that the products will grow along that straight line. No S-shaped curves, no rapid takeoffs, no accelerated takeoffs because we haven’t yet found a way to move hospital systems more rapidly than they need to move for their own organizational purposes – decision making, organizing care pathways.

This is what makes hospital business totally different from primary care or oncology. You should not expect explosive growth in the first two or three years with hospital products because hospitals have to learn how to change their system to adopt products, especially if they’re economically valuable to them. They have to change the way they do things as well as putting the product in the pharmacy.

And if you think of a large hospital which has maybe five or ten intensive care units, they may have as many as 500, 600, 700 critical care nurses to train for example. These things don’t happen in weeks – they happen in months and months. And our cycle time, for example winning business on Cleviprex which we’ve just been reanalyzing is about seven months to win a hospital. So hence as you build these products I think the best way to model them is close to a straight line.

If one was to see in the early year or two something more accelerated than that then obviously the straight line can be tilted up a bit but I’d be cautious about thinking in terms of something going out really fast. Now, that all having been said, when we look at Cangrelor and you look at our Angiomax franchise today and our partnerships with hospitals, I’d be hard pressed to believe we can’t – with these outstanding results from CHAMPION PHOENIX – we can’t make inroads into the PCI market with Cangrelor perhaps a little bit more briskly than the others.

Certainly if there was one that I would pick as a little bit faster it would be Cangrelor, but otherwise I think we’ve got to be patient and set reasonable expectations. All of these products are multi-hundred million dollar drugs. They’re all going out the door roughly within 12 to 24 months of each other and we see them as very profound growth drivers for the company. So I wish I could give you a more nuanced answer but we’re fairly basic in the way we think about this for now, Jonathan.

Jonathan Eckard – Citi

Okay, that was very helpful. And then the next question was on the PCSK9 program. Can you remind us of your development strategy with regards to the target setting compared to some of the other PCSK9s in development? For example, some of them are testing in post-ACS patients but only after a month or so after the cardiovascular event. So can you describe maybe some of the differences that you have in your program or development strategy?

Clive Meanwell

Well, we’re not really expert students in what everyone else is doing yet but our philosophy is that the decision to assign a patient to costly resources that might be associated with the use of these amazing new antibodies and now gene silencing approaches, those decisions are going to have to be made with some pretty sophisticated imaging and some pretty sophisticated staging of disease, if you would like – whether that’s ultrasound or MRI or angiography or some combination – and of course many, many biomarkers.

We think that starts in the hospital and that the CATH lab and the associated imaging advances with the CATH lab represents a crossroads for making the decision accurately to assign a patient or to assign such resources to a patient. And we think purchasers and payers are going to demand that level of evidence before they’re going to pay for potentially disease-modifying treatments such as the antibodies or gene silencing.

So I think our entire philosophy is that these are not outpatient or even primary care or even cardiology office drugs at the beginning. We think they’re hospital-initiated products, and that will guide our approach to the value proposition. We don’t want to treat anybody who doesn’t need it or who doesn’t clearly expect to get benefit from it. So that’s our main focus. Obviously other companies may take a more mass market approach than that and hopefully they’ll be successful, too, but our view is that these need to be niched.

Now, whether or not it’s an ACS patient I think is questionable. We know that ACS patients have incredible residual risk for the next twelve months based upon studies such as the PROSPECT-1 trial. There’s going to be another prospective natural history trial with imaging done. We’re going to be involved with that, and I think picking the right patients may not be as simple as saying “You have ACS.” It may be necessary to pick other attributes.

So it’s a little early for us to commit to say “Yes, it will be an ACS-picked patient,” and you know, defining a patient who needs that kind of costly investment for disease modification may not be as simple as saying they just popped a [veritable plaque]. There are many other factors. So again, without being evasive I can just tell you it’s complicated and we’re not quite ready to answer your question.

Jonathan Eckard – Citi

No worries, thank you very much.

Operator

Thank you. The next question we have comes from the line of Jason Kantor. Please go ahead.

Jason Kantor – Credit Suisse

Thank you, and congrats on a good quarter. I have a couple of [fast] questions and then a business development question. Can you comment at all on any ongoing activity to extend the patent life for Cangrelor? And then on Angiomax, are there any events we can look forward to here in terms of the ongoing patent challenges and generic [filings] for US Angiomax? And then finally on the business development side, you guys were extremely active in the last six months. Do you still have additional bandwidth to do more either from a cash perspective or just from an operational perspective to bring in more product or more early-stage compounds? And I guess where are the holes that you’d still be looking to fill with business development?

Clive Meanwell

Well Jason, all those are really good, strategic questions. With regards to Cangrelor, we’re working as I broadly summarized, we’ve been working all the angles on lifecycle. Again, I’m not going to say anything specific at this point; I think it’s important that we stay focused and get some lifecycle work done.

As far as Angiomax is concerned, it’s very difficult to comment because we’re in a whole range of litigations and we’d probably prefer at this point not to make further comments publicly about lifecycle management for Angiomax or ongoing litigation.

I’m going to turn it to Glenn for the business development. What I would say is we have what I honestly regard now as probably the leading team for business development in the acute care space, and they’re not taking the days off these days that I’ve noticed anyway, Glenn. More to come? Can we handle more? Is it a question of finding people with products, or what are you thinking?

Glenn Sblendorio

Hi Jason, that’s a good question. I think the way you broke it down between both operational and financial is a good split. I’ll start with the strategy we and I think Clive just said this – we continue to look aggressively. The focus continues to be late-stage (inaudible) and assets where we can get some leverage out of the existing infrastructure. We’re working close – we have Brent and Cees in the room today. We’re working very close with them to leverage capabilities that they have in place. So I think from the operational standpoint late-stage and assets that we can leverage with the existing infrastructure quite easily.

Clive Meanwell

It might be worth bringing in Cees and Brent on this point on operational leverage. I mean let’s start with you, Brent. Here in the Americas it’s the same hospitals, right? I mean we’re going to the same places with all these products. How do you feel about adding more assets into the bang?

Brent Furse

Well, I’d say the best example is the [Berlenta] Angiomax opportunity. We’ve managed to both grow Angiomax consistently throughout that partnership and help AZ grow [Berlenta]. So leveraging that time, that space, the same customer call points – right on target. Ultimately I think we have to be structured to call on hospitals the way they need us to be, meaning one point of contact, all solutions representing the same company so that we don’t have four reps going into a hospital with every different pathway, every different product that we have. We can go straight at it, it’s the same pharmacist ultimately, the same quality coordinator, interventionalist, surgical suite – we can cover all of those and easily leverage the entire portfolio of solutions with every institution.

Clive Meanwell

Yeah. And Cees, how about in Europe? How do you feel about it?

Cees Heiman

Yeah, I would echo the words that Brent spoke about that. Certainly understanding how the hospitals work and having the opportunity to leverage that strength is certainly what we would do. In addition, I would say for Europe specifically it’s not only a matter of can we handle more products; we’re absolutely geared up to do that and we’re frankly in need of more products. As you know, we’re currently having Angiox in Europe in the bag and we’ll be launching Cleviprex so we’re eager to take on more.

Brent Furse

And just to add to what Cees said, the reason we can do this is because we’re focused on education and on the pathways of care – not just the products we sell. When you focus on the education and the pathways of care, every one of our reps understands what happens when you first have chest pain to the time you’re discharged, including the way you’re paid, the points of contact in the institution. So when we introduce a new product into our portfolio it’s automatically understood. They completely understand how that solution can be used in the pathway. Instead of focusing on education around package inserts or just a specific product, we focus on education around pathways of care.

Clive Meanwell

Yeah, I think that’s a very key point. So Glenn?

Glenn Sblendorio

Let me just finish Jason on the financial side. I think the deals we just finished, we tried to use the balance sheet as effectively as we could and I think we did that. We did use some of the cash that we raised and we still have a fair amount of cash in the bank. And I guess the other important part is as we look at these transactions we look to structure them so that the value is created along the way as approvals come, as markets are entered, things of that nature. And we’ll continue to be as creative as possible on the financial side but you know, definitely as Clive said, open for business, looking for assets that we can leverage – and always prefer a late-stage or preferably even marketed assets like Recothrom.

Clive Meanwell

I think, Jason, finally we were encouraged by investor reactions to these deals. Obviously they were very carefully picked deals. We felt that we were being disciplined and on target with them. They’re not what you would call transformational ideas – that’s not in our lexicon as you probably know. So we’re encouraged that picking up quality assets that fit the strategy is something that investors are comfortable with, provided we’re very transparent on the rationale and (inaudible).

Jason Kantor – Credit Suisse

Alright, thanks.

Operator

Thank you. The next question we have comes from the line of Adnan Butt from RBC Capital Markets. Please go ahead.

Adnan Butt – RBC Capital Markets

…solid Angiomax number and I like the directions you gave earlier. I’ll list out my five questions and you can choose to take them as you see fit. First, on Angiomax, from everything I’ve heard stints were down, hospital admissions were down so the beat impresses me. I’d just like to know what’s driving it – if it’s the high-risk patients and if that’s a trend that’s going to continue. Secondly, on IONSYS, can you tell us a bit more about how you’re confident that no more clinical work needs to be done? Is it something like device size, like button size, color, or something? What makes you think that no more clinical steps would have to be done before you fire it?

And then number three, on Oritavancin, just a bigger-picture question: given what the antibiotics landscape looks like, do you think a partnership is possible in the US, outside the US, worldwide? And then finally to Glenn, a specific question: how much one-time items are in SG&A (inaudible)? What kind of general run rate going forward? And I’ll stop there, thanks.

Clive Meanwell

Adnan, I need to tell you that was four questions, not five – did you miss one?

Adnan Butt – RBC Capital Markets

[laughing] No, I think I’m out. I miscounted so you can question my Angiomax numbers, Clive, if you like.

Clive Meanwell

No, I would never do that. Alright, so very briefly I’m going to ask Brent to talk about how we’re achieving this continued volume growth in the United States. We do sometimes reflect the stint market in terms of volumes but we’re still increasing penetration is I’m sure part of the answer. I’m then going to deal with the IONSYS myself; Glenn and I will double team the Oritavancin and Glenn can answer the SG&A. So just to begin with the Angiomax growth, Brent, how do you do it?

Brent Furse

Well, right now we’ve seen almost a 9% increase in [STIMI] growth for Angiomax so we have about a 46% share in that segment alone overall. This is driven by several factors. One, heightened awareness to value based products driven largely by the switch to value-based reimbursements, as hospitals from top to bottom – CEO to nurses to administrators in general to interventional cardiologists – are highly, keenly aware of the need for products that simply perform. Everything else is being moved out, and this is being driven by value-based reimbursements.

So the message, the data that we’ve generated over the past 13 years has really supported this consistently. As I’ve said, this product was designed for this market and it’s providing us quite frankly a renewed platform to communicate this in a very detailed way: to do the math with the institutions that we work with and demonstrate the performance that this drug can provide. So it’s been a beautiful setup for us and I certainly expect to see continued growth in the high-risk market. We have a lot of top-in left and these patients are severely undertreated.

Clive Meanwell

One of the big risk areas in terms of should we say defending our very high penetration is in the low-risk patients who you could do the math and say “Well, maybe you should use Heparin again.” But the really cost-conscious and sophisticated hospitals are moving to day care PCI and you simply can’t do day care PCI with Heparin because of its pharmacology including its half-life. And we’ve studied day case PCI with Angiomax and of course because of its short half-life and rapid patient mobilization times it’s the ideal drug to use in a situation where you want to put the patient home the same day after coming in in the morning. So even in the low-risk patient group, which we’ve always worried about losing share potentially, we find ourselves moving to that strategy.

Brent Furse

With about a 5% growth in that area as well.

Clive Meanwell

Yeah, it’s astonishing to me that we’re still growing in the low-risk patient segments, well up to 60% now, over 60%. That’s all we can do. With four questions, that’s all you’re getting for question one. [laughter] Question two I’ll answer – the short answer is our team has had a very professional dialog with the FDA on these matters and I think has a very good feel for what the agency might expect in terms of why are, for example, bioequivalent studies necessary, why are utilization studies necessary, why was the ADHESION study necessary – all three of which have now been done successfully. And that was in response to very open dialog with colleagues in Washington.

The nature of the work that we’re talking about in improving the electronics is really very much dis-attached from any kinetic issues. They’re to do with how quickly you have to press the button, how the failsafe electronics work – so nothing to do with transferring the drug from the gel through the membrane to the skin. So we’re very confident that there aren’t requirements for further clinical studies based on the dialog we’ve been having.

On the Oritavancin, the bigger picture question, are partnerships possible in the US and elsewhere? Absolutely we believe they are possible, and once we see the results of SOLO-2 we’ll be in a position to determine how aggressively we want to promote this drug and how fast we want to roll it out worldwide. And I think that will determine whether or not we look for help, and if we do who we might ask to help. I mean there are a number of outstanding groups in other companies who sell very successfully hospital-based anti-infectives and we’d be very open to those kinds of discussions as we’ve said before. Glenn, do you want to add anything?

Glenn Sblendorio

I think that’s consistent. We’ll wait for the data and we absolutely believe there are partners for this if we pursue that.

Clive Meanwell

Yeah, and then finally, Glenn, the one-time SG&A and what’s the SG&A underlying runway?

Glenn Sblendorio

Yeah, so the two items that we talked about specifically – we had legal costs and we had some restructuring in Q1. That was about $8.5 million for the quarter, so that’s truly one-time. I may have misspoke when I talked about the restructuring, specifically the costs associated with restructuring – it’s about half, a little bit more than half of that $8.0 million, $8.5 million. But from Q1 on that does result in an annualized savings of about $13 million to $14 million, and that always happens when you take people and costs out of the systems. I may have just said “cost savings” so I hope that’s helpful.

We had a number of things – the Alnylam, the legal costs associated with the transactions which we do expense and the restructuring, all those items were in Q1. That’s why we originally guided for a loss and we happened to do a little bit better than we had thought in terms of spending a little bit less on some of those items, and that’s the reason for the positive [guidance] on the bottom line.

Clive Meanwell

I think as well it’s important that we explain that our reduction in costs came from a number of activities, including not just should we say downsizing following the acquisition of the Recothrom resources or Incline; but very, very selective and thoughtful restructuring and removal of costs where we thought they just weren’t efficient. I mean we’re not just reducing costs for the sake of it; we’re reducing costs to improve the fitness of the organization throughout.

And the cuts we made were not just to people who came from those teams – in fact, I think with Incline we didn’t make any cuts with Incline because we think they’re so professionally committed to getting this product to the market and there was so much expertise in our Redwood City team that that was… We did reduce our frontline force in the US and that did include some former [BMS] professionals but also some former The Medicines Company professionals as well.

So what we’re trying to do here is constantly adjust and readjust our SG&A resources to make it as efficient as it can possibly be, and you know, I think we did it in a way that has enabled that; and will also, much like pruning a tree, allow more rapid growth going forward.

Adnan Butt – RBC Capital Markets

Thanks. I found my fifth but I’ll take it offline. Thanks, everybody.

Operator

Thank you. The next question we have comes from the line of Cory Kasimov from JP Morgan.

Cory Kasimov – JP Morgan

Just about all of my questions were already asked but I would like to follow up on a couple of the topics you’ve been discussing on this call. So Clive, on that Cangrelor IP question I can appreciate the fact that you can’t provide specifics; but can you perhaps simply offer your confidence level as to the possibility of extending beyond five years in the US? And then secondly, building on the leverage discussion you had previously, as you prepare NDAs for several new product candidates how should we think about the infrastructure additions that would be needed to properly support I guess Oritavancin and IONSYS specifically assuming they’re each approved and that you at least keep Oritavancin in the US? Cangrelor’s a little more obvious, thanks.

Clive Meanwell

Alright, so you really want to make a judgment based on my confidence level? You’re welcome…

Cory Kasimov – JP Morgan

It’s better than what I’ve got.

Clive Meanwell

Very high, very high. This is an injectable product. We know the molecule – it’s a very robust molecule and you know, I think we would feel good about it. I’m being given hand signals by my CFO to shut up so I will. On the infrastructure, look, I think you take it a step at a time. The first challenge is putting all these NDAs together and filing them, and managing a global regulatory program which is potentially four rollouts in three years.

That’s a lot of intensity for regulatory affairs – that’s the first resourcing issue. That can be managed because we have very, very senior people in regulatory affairs and of course they can leverage themselves with temporary resources. There are excellent groups around the world who can help put together large, complicated documents.

But then the second hurdle of course is the reimbursement and pricing hurdle, which may not feel very daunting in the US but on a global basis is a very substantial piece of work to do – and again, multiple countries, multiple applications, multiple hearings and discussions with decision makers. So we need to build up there.

And again, the good news is that we have extremely talented senior professionals who understand how to do this and we can dock onto temporary resources from consulting firms and the like. And we wouldn’t expect to hire hundreds of people but we can certainly access literally hundreds of people if we need to. Now, obviously there’s costs associated with all of that but that tends to come under the R&D line and with the declining patient recruitment rates we think that can be managed within the parameters of long-term guidance Glenn has always given.

Now, then when you get to the actual launch and you talk about frontline professionals, well yes – that’s where we have to start thinking creatively about potentially partnering or being selective in which regions of the world we want to operate in. But those discussions unfortunately today are a bit premature because until you know exactly what the Oritavancin data show it wouldn’t I think be wise to start trying to assess its absolute value and its requirements in terms of operations.

I’ll ask Brent and Cees what they think, but for Oritavancin that’s clearly the most challenging jump for us as a company because we’re moving out of cardiac into infectious diseases. I mean, Brent, your thoughts, and Cees, your thoughts about operating resources for those two, for Europe and US on anti-infectives?

Brent Furse

I’ll go back to my previous answer. The areas in which we’re experts around the pathways, which are surgery and critical care, and acute care cardiology – I have a very clear view of what we need and how to deploy against it. I think in infectious disease we’re still learning. We have a fantastic molecule and we’ll know more in a brief time. Cees?

Cees Heiman

Yeah, Brent, I think for Europe there’s absolutely no difference from what you just described. We’re waiting for the data and that will determine our next steps.

Clive Meanwell

With IONSYS I don’t feel quite so uncertain, Cory, because postsurgical pain which is where we’re going to be – obviously we haven’t done orthopedics before and there’s a large opportunity in orthopedic surgery. We would have to learn that part of the hospital, but it’s still anesthesia, surgery, postop care that we know well. Obviously the cardiac and soft tissue segment we’re pretty familiar with already. So IONSYS, whilst it’s a huge opportunity I think is less daunting in terms of how we build our operating bridge.

But and obviously with the Recothrom acquisition we’ve already began to build the core of the surgical team, even if it’s still relatively embryonic and will be built up further as we approach the launch of IONSYS.

Cory Kasimov – JP Morgan

Alright, thank you.

Clive Meanwell

I think, Caroline, we have time for one more question.

Operator

Okay, the next question we have comes from the line of Biren Amin from Jefferies.

Biren Amin – Jefferies

Yeah, thanks for fitting me in. A couple questions: the first on IONSYS, I want to understand I guess the cost of goods associated with the patch and also what factors led to the readjustment of the failsafe electronics to the patch? On Oritavancin, if I look back at the FDA CRL back in ’08, the FDA did cite the impact of Oritavancin on macrophage function. Was this issue addressed in SOLO-1 or will it be addressed in SOLO-1/SOLO-2 data? And then I guess on the one-time legal costs, should we expect additional costs through the year as the company readies for potential district trials? Thanks.

Clive Meanwell

And that was even more extensive than Adnan’s questions. [laughter] Very well done. Let’s see if we can pick these off with some help from friends. I’m going to deal with the Oritavancin question on macrophages first. Look, we’ve done biology, we don’t think there’s any effect on microphage function that’s important. And obviously the safety results from SOLO-1 suggested that at least in a population of randomly treated patients versus Vancomycin there was no clinical signal at all. Now, that doesn’t mean there’s no clinical signal because it’s a relatively small sample compared to the number of patients we hope to be able to treat on the market.

But I don’t think there are any major signals here that are going to be problematic, and with the excellent efficacy we saw in SOLO-1 and the very good safety profile we saw I think it’s fine. But it will be something for an ongoing safety risk management plan in my opinion. I think this is the modern age and that’s what you have to do, and I think we’re happy to do it.

Could you repeat your question on IONSYS?

Biren Amin – Jefferies

So on IONSYS I wanted to understand what the cost of goods would potentially be once this is commercially available. And also, what factors led to this readjustment of the failsafe electronics, this minor adjustment that you’re conducting?

Clive Meanwell

Well, the adjustment of the electronics was based upon large-scale testing that was being done at this stage prior to release and we found a very, very, very rare set of electronic should we say conditions – literally tiny numbers out of tens of thousands of dummy tests where the failsafe mechanisms didn’t satisfy us. So it was by routine testing by the manufacturer that we uncovered this and felt it needed to be fixed. It gave us the opportunity of course to fix some of the more slick and positive things as well, so those were the circumstances where we found that.

Now, as for the cost of goods I think we gave some broad indications at the time of acquisition and right now they haven’t changed. None of what we’ve been doing will affect the cost of goods – we think it’s a very attractive margin indeed.

Glenn Sblendorio

Yeah, and the cost of goods as you must appreciate is going to be a function of the price. I think as you put your models together, we generally have a slightly higher cost of goods because we have royalties usually, and the royalties on this are relatively low plus the cost of the product. I don’t think you see anything unusual, anything inconsistent with the acquisition model.

Clive Meanwell

You asked about one-time legal costs.

Biren Amin – Jefferies

The legal costs – should we anticipate additional costs throughout the year as you have some district court trials scheduled?

Glenn Sblendorio

Yeah, in the SG&A guidance that we gave for the year, the litigation as it relates to the generics settlement is embedded in that number. So the reason we carved out the one-time legal in Q1 is because it was related to the acquisitions licensing of the three products, and that was working back with Alnylam, the Incline and the Recothrom. So when you do this you don’t capitalize those costs, you charge them as a one-time item so we wanted to call that out. Especially because the quarter had a loss we wanted to explain what those components were. The other costs you’re talking about is embedded in our SG&A.

Clive Meanwell

I think we can say as well we have a brilliant Legal Team, both inside and outside working on this stuff, and we are going to continue to aggressively invest in protecting our intellectual property through these legal teams. They’ve done a great job so far and we’re going to keep doing it as long as we need to do it. So there will be substantial legal costs going forward. Yeah, absolutely – we consider it a critical part of our business.

Biren Amin – Jefferies

Great, thanks.

Clive Meanwell

Thank you very much. Caroline, are there any more questions showing?

Operator

There’s no questions currently in queue.

Clive Meanwell

Well that’s just great. Thank you so much to the questioners and the interest of everybody listening to the call. We look forward to continuing to update you on our progress after a very good Q1 and thank you very much for attending this conference call. Bye for now.

Operator

Thank you for your participation in today’s conference call. That concludes the presentation; you may now disconnect. Have a good day.

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