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Cardiome Pharma (NASDAQ:CRME)

Q1 2013 Earnings Call

May 13, 2013 4:15 pm ET

Executives

Jennifer Archibald - Chief Financial Officer

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

Karim Lalji - Chief Commercial Officer

Operator

Good afternoon, ladies and gentlemen, and welcome to the Cardiome First Quarter 2013 Financial Results Conference Call. Please be advised that this call is being recorded. On the call today are Dr. Bill Hunter, 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. Archibald, Chief Financial Officer of Cardiome. Please go ahead, Ms. Archibald.

Jennifer Archibald

Thank you. Good afternoon, everyone, and welcome to today's call. Earlier today, Cardiome issued its first quarter 2013 financial results. The financial result press release has been posted on our website at cardiome.com. A replay of this conference call will be available later today on the Investor Relations section of our website.

I will now provide an overview of our first quarter 2013 financial results. Amounts, unless specified otherwise, are expressed in U.S. dollars and in accordance with Generally Accepted Accounting Principles used in the United States of America.

As of March 31, 2013, Cardiome had cash and cash equivalents of $25.7 million compared to $41.3 million at December 31, 2012. We had no debt outstanding as of March 31, 2013, since we paid the remaining $13 million of the $20 million agreed-upon debt settlement payment to Merck on March 1.

During the first quarter of 2013, Cardiome recognized revenue of $0.1 million compared to $0.4 million in the first quarter of 2012. Revenue in the first quarter of 2013 was entirely comprised of licensing and other fees, which includes royalty revenue from the sales of BRINAVESS.

Research and development expenditures for the first quarter of 2013 were $0.4 million compared to $2.9 million for the first quarter of 2012. The decrease in research and development expenditures was primarily due to the restructuring initiatives in the third quarter of 2012, which eliminated our internal research activity.

Selling, general and administrative expenses were $2.2 million for the first quarter of 2013 compared to $2.6 million for the first quarter of 2012. The decrease in these expenditures was primarily due to a decrease in rent, as well as wages and benefit expenses as a result of our workforce reductions in the prior year. This decrease was partially offset by an increase in COGS associated with our sales and marketing efforts in preparation for the commercialization of BRINAVESS.

Other income includes a gain of $20.8 million in the first quarter of 2013 related to the settlement of debt owed to Merck. We recorded net income of $18.4 million for the first quarter of 2013 compared to net loss of $7 million for the first quarter of 2012. The net income for the first quarter of 2013 was primarily due to the recognition of the gain on the settlement of debt owed to Merck. The net loss for the first quarter of 2012 was due to restructuring charges, clinical development efforts, preclinical research projects, as well as other operating costs.

Highlights for this quarter include the significant expense reduction we achieved through our restructuring efforts, which were substantially complete in 2012. This reduction was partially offset by costs associated with activities to support the commercialization of BRINAVESS.

With the final settlement payment having been made to Merck during this quarter, we are now debt free.

For the remainder of 2013, we expect our selling, general and administrative expenditures to increase as a result of our transition activities with Merck, worldwide sales and marketing efforts, as well as other related costs required to support the commercialization of BRINAVESS.

We will continue to support preclinical research and development work externally through collaboration. Costs are expected to be significantly lower than in prior years. Our forecasted total expenditures for the year are expected to be greater than our revenues from the sales of BRINAVESS and any licensing, research, collaborative and other fees we may earn. We believe that our cash position and anticipated cash inflows from the sales of BRINAVESS will be sufficient to finance our operational and capital needs for at least 24 months.

I will now provide an overview of our share consolidation and a NASDAQ listing update. On April 3, 2013, our shareholders approved the consolidation of our issued and outstanding common shares on the basis of 1 post-consolidation common share for every 5 pre-consolidation common shares.

At the special general meeting, 95.7% of the shareholders of the company voted in favor of the consolidation. Our common shares began trading on a post-consolidation basis on the NASDAQ and TSX on April 12, 2013.

On April 26, 2013, we received confirmation from the NASDAQ listing qualification staff that we regained compliance with the NASDAQ Capital Market's minimum $1 bid price per share requirement. Regaining compliance and maintaining our shares at the NASDAQ traded security was of high strategic importance to us, and I'm pleased with the overwhelming shareholder support we received to implement the share consolidation.

I will now turn the call over to Bill Hunter to provide you with our first quarter operational review.

William L. Hunter

Thank you, Jennifer, and welcome to this afternoon's call. This year, so far, has been a time of rapid and, I believe, impressive progress for Cardiome. And I'm pleased to provide you an update of all that progress.

First, I'd like to give you a bit of an update on where we are with the transition with Merck and how we are progressing with the transfer of our most valuable asset, vernakalant or BRINAVESS from Merck back to Cardiome. As you are all aware, earlier this year, we settled the $50 million of debt and terminated our line of credit with Merck. This was accomplished through a 2-step payment of $20 million in total that we completed in early March. As part of the settlement agreement, we were able to purchase from Merck a substantial amount of vernakalant finished goods inventory and some active pharmaceutical for an additional $3 million in payments to Merck.

We also selected Quintiles to manage our global regulatory affairs and life cycle safety activities for BRINAVESS. Quintiles is now fully engaged in running these activities for us, and we are very pleased with where we are in that process and what they are doing for us.

In late April, Cardiome took responsibility for worldwide sales and marketing and promotion of BRINAVESS, which, obviously, is vernakalant IV, under the terms of the transition agreement that we signed with Merck. Under the agreement, worldwide sales and marketing rights transferred to Cardiome immediately. And also, as a result of this, Cardiome continues to receive relevant royalties on worldwide sales and is receiving a promotional services fee.

Right now, in the way that the things are being managed, Merck continues to be responsible for BRINAVESS' invoicing, distribution and sale in terms of actually filling the orders and sales and logging the sales of the product until the target transfer date. And Merck will continue to fulfill bids, tender offers and take in BRINAVESS orders in the interim.

The way that we will handle this because Merck is still obviously providing substantive services and back-office-type services and the like for us is that we will get a promotional services fee in addition to our royalty rate. And so we won't be recognizing revenues next quarter, but that will come in the not-too-distant future. And lastly, SPECTRUM will be transferred to us in terms of expenses in September of 2013.

The -- sorry, just to add a little more clarity, at the point when we complete all those activities, Cardiome will assume distribution of BRINAVESS on or about July 15, and that will be done in partnership with Geodis in Europe. And as mentioned, Quintiles assumes pharmacovigilance responsibilities. Sometime after that, Merck will then terminate or transfer to Cardiome responsibility for each of the relevant clinical studies by September 15, the most important of which, again, being the SPECTRUM study.

If everything proceeds according to plan, as of September 15, most, if not all, of the transition activities will have been completed and certainly all of the major activities that we anticipate having been done.

Just last week and ahead of the schedule that we had internally and had set forth to you in previous calls, we completed the transfer of the sponsorship of the U.S. Investigational New Drug Application for vernakalant IV and oral, as well as the transfer of the U.S. NDA vernakalant IV from Merck.

In addition to the transfer of the U.S. regulatory filings, Merck Canada transferred its sponsorship of all vernakalant Canadian clinical trial applications to Cardiome as well.

In my opinion, the completion of the transfer of the U.S. and Canadian regulatory responsibilities from Merck is key to Cardiome from not just a strategic but a commercial and a value standpoint. We now have full control of the vernakalant IV asset in oral in North America, and that enables us to now freely engage the U.S. and Canadian regulatory agencies to potentially determine the pathways forward for these key programs. The opportunity to continue the clinical development of both programs could eventually allow Cardiome to provide a atrial fibrillation to patients and physicians in the management of this condition.

A lot of you have been wondering and waiting for a long time as to how we can move forward in this area. And obviously, I don't have any clarity to provide at that point in time -- at this point in time, I should say. But the first step in that pathway is retaining the file, getting the file back in our hands and having a chance to sit down and have a dialogue with the FDA and see where we are in terms of moving forward on the IV in the U.S. and potentially moving forward on the oral program as well. Until this step was taken, we really didn't have the opportunity to do that. So I think it's important in a sense that we now have it. We can now analyze it. We can now learn what we need to learn. And in the not-too-distant future, I plan to come back to you with a plan as to how we intend to proceed and provide a little more clarity on that asset. It's clearly a very important part of our future and one that we need to bring to its fruition.

So with that overview, let me turn the call over to Karim, who will review our commercial activities.

Karim Lalji

Thank you, Bill. Good afternoon, everyone. I would like to provide you with an update on where we stand in our commercial efforts in some of the key markets where we are establishing our commercial activities. We have made our key hires at the European level and in Germany and Spain, which are the 2 major European countries where we have pricing and reimbursement for BRINAVESS. We will also have a presence in Sweden by the end of this month and are planning to ensure BRINAVESS promotion in Austria, Finland and the Netherlands in the near future.

In Germany and Spain, our key account managers have already been contacting key decision makers, are introducing them to Cardiome and have resumed promotion of BRINAVESS.

Along with this establishment of commercial activities at Cardiome, we have made some key hires of individuals with extensive pharmaceutical industry experience and/or broad knowledge of vernakalant. In early April, we hired Jürgen Polifka as General Manager, Sales and Marketing for Europe. Dr. Polifka has previously been with Merck and has deep understanding of the European hospital and cardiovascular markets, will be invaluable to Cardiome. In addition, he has a deep understanding of BRINAVESS as a brand and had responsibility for that brand across Europe, and that is bringing real value to Cardiome as well.

At about the same time that we hired Dr. Polifka, Dr. Steen Juul-Möller joined Cardiome's management team as Medical Director of Europe. Steen, who is an expert on cardiac arrhythmias, will oversea Cardiome's clinical and medical affairs activities. He has previously held a clinical position at the Skåne University Hospital in Malmö, Sweden, where we he was a strong proponent for the rapid cardioversion of patients with recent onset atrial fibrillation, or AF.

Dr. Juul-Möller was responsible for changing his hospital's emergency room management protocol for AF and developed an AF fast-track treatment system, where patients were safely and rapidly converted, which resulted in both patient and economic benefits. As a result, physicians at Steen's hospital have used BRINAVESS to cardiovert over 250 recent onset atrial fibrillation patients to normal sinus rhythm, achieving successful cardioversion in 70% to 80% of patients, much higher than the 50% success rate achieved in the clinical studies.

Sharing his BRINAVESS experience with other clinicians and decision makers, such as the identification of patients who would best respond to BRINAVESS and the economic benefits his hospital has gained after implementing a fast-track AF protocol will be key as Cardiome broadens its commercialization activities.

The relaunch of BRINAVESS officially began last week in Germany and Spain, and activities in Sweden will begin at the end of this month. I will briefly walk through the opportunity for BRINAVESS in one market, Germany. There are over 400,000 total cardioversions in Germany per year. Of those admissions, about 60% are for recent onset atrial fibrillation, and there are another 20% of patients for which the duration is unknown. This is a significant opportunity for Cardiome. In 2012, over 150 hospitals in Germany ordered BRINAVESS. Our key account managers will be targeting the majority of these hospitals to drive our sales in the coming months.

Outside of Germany, Spain, Sweden, Finland, Luxembourg and possibly Austria, Cardiome will be using distributors to promote BRINAVESS. Distributors will be used almost exclusively in regions outside of Europe, such as Latin America. There are also some key European countries where Merck did not complete the pricing and reimbursement process for BRINAVESS. These include some pretty major markets such as Italy, France, the U.K. and Belgium. Cardiome plans to address the pricing and reimbursement issues in these markets in the coming months.

Based on the information we have, BRINAVESS is a very well-known and very well-regarded brand and has a very good profile in all European countries. In Germany, for example, the awareness of BRINAVESS is at 90% amongst the target physician audience and ranks highly on almost every attribute measured. BRINAVESS also works fast and time is valuable in managing new onset atrial fibrillation, and this is recognized by physicians. The faster the patient is treated, the less chance of a dangerous clot forming in the patient. The faster the patient is treated, the use of complicated and expensive anticoagulation therapies may be avoided. The faster a patient is treated, the less risk of catastrophic events like a stroke occurring.

Cardiome plans to demonstrate the value of BRINAVESS versus DC cardioversion, which is a very important part of our strategy. BRINAVESS can be taken with or without food. DC cardioversion cannot. BRINAVESS does not need to be used with anesthesia, which can take time and can also cost a lot of money in the hospital. Cardiome's BRINAVESS does not need anesthesia, and therefore, can save both time and money from that perspective.

BRINAVESS also needs only 2 hours of monitoring. On average, the time to monitor a DC cardioversion patient is much longer. As such, BRINAVESS has a positive value proposition versus DC cardioversion as you look at everything in totality, and we plan on delivering this message to key customers.

The objective for Cardiome in its -- in our promotion is to promote BRINAVESS as a brand that has compelling clinical and economic value. The cost of BRINAVESS is competitive to DC cardioversion, and we are working on pharmacoeconomic models, as I just mentioned, to basically demonstrate this value.

We also are looking at a discount strategy to -- that would demonstrate the positive value proposition in markets where this is needed. We will also enter into payer risk-sharing agreements, if BRINAVESS is used in the right patients. And I will discuss in a few moments, we see the right patients as patients with atrial fibrillation of less than 48 hours. And Cardiome will also pay for failures in that target population. And based on real-world data that we are seeing from Dr. Juul-Möller's practice in Sweden, as we're seeing from other markets, such as Argentina and Austria, et cetera, we believe that our efficacy rates in the right patients in the real world are actually very good, in the 70% to 80% range.

Another key part of our message will be, as I mentioned, is to use the drug in patients with less than 48 hours of A-fib. And this will result in greater cardioversion success, is our expectation, and a more positive customer experience overall. We expect to share this real-world experience that we're seeing in Malmö, in Vienna, in Fulvio [ph], in Buenos Aires with the target audience in our promotional activities.

We also plan to introduce the ESC treatment guidelines to our key targets. BRINAVESS was approved as first-line therapy for patients with and without structural heart disease by the ESC last September, and that data has never been promoted to the key customers.

We will basically begin that promotion, and we have begun that promotion. The key part of our promotional strategy is to remove the reasons not to use BRINAVESS, and we believe we have the data to be able to do that.

Cardiome, as I mentioned, has the ESC guidance and we will also now begin promotional activities at key scientific meetings. We will reinstate the presence at the ESC, which will take place this year at the end of August in Amsterdam, and we will be holding a symposia at that meeting. We will also reinstitute our presence at the Acute Cardiac Care meeting in Madrid, which will be held in October of this year; at the German Cardiac Society meeting, which will be held also in October of this year in Dresden; and at the Spanish Society of Cardiology meeting, also being held in October of this year in Valencia.

And with that, I would like to hand the call back to Bill.

William L. Hunter

Thanks, Karim. I gather our beautiful build that showed how time was saved in -- with the use of BRINAVESS didn't come across very nicely, but we'll put a different version on the website for you to look at. The take-home message of that slide was actually quite simple. A lot of people believe that there's no real cost associated with using DC cardioversion. Many a times, we've heard the comment that the price of electricity is relatively small. But there are actually a number of points in the process of DC cardioversion that add up in a couple of different ways. One is that the patient has to fast for at least 2 or 3 hours before you can do that. There's certainly some patients come in already fasted, but there are going to be patients who come in that have just eaten, and you're going to have to keep them in the emergency room for 3, 4 hours while they fast. There's certainly a cost associated with doing that.

You then have to sedate the patient and you have to have them -- once you've sedated them, you have to have them in a situation where they can be monitored and their airway protected. In some hospitals, that sedation has to be done by a specialist. It varies by country, but you may have the additional cost of an anesthesia consult. For someone to perform to sedation, you may have to move the patient to another room to perform that sedation. Again, there's an incremental cost there. There's the cost of the sedatives themselves. Even though these are largely generic drugs, there's still a cost with having nursing staff there to monitor the patient and use those.

And then finally, even during the DC cardioversion, there's a cost associated with that. Even the pads that are used are EUR 50 in terms of the cost of the DC cardioversion.

And then as Karim alluded to, there's the additional monitoring time, typically 4 hours versus 2 hours. When you add this all together, there's -- all these additional steps take time. They all cost money. It's our belief that, that additional cost is actually far in excess of the cost of BRINAVESS. And more than that, having the patient there for 8, 10, 12 hours versus having the patient there for 3 hours is not just an economic outcome but back to the concept that the quicker you can convert the patient, the less likelihood they're going to have significant medical side effects is further enhanced. I mean, you really want to get this done within 24 hours, if you can. And so saving 8 or 9 or 10 hours of that time, which is -- could be anywhere from up to 1/4 of the time you have or half of the time you have available is not trivial.

So we think we have a good message to go out and do that. And we think that there's a very strong argument to use both economically and medically for BRINAVESS out there.

So where are we? This has been a period of what I would call really intense operational activity for the company. I really do believe that we have made massive strides over the last 8 months to put the company on solid footing, not the least of which was getting the line of credit extinguished. Having the company debt free is certainly a nontrivial step forward from where we found ourselves, not that far ago, long ago. The EU sales team is now fully constructed in the key markets as Karim alluded to, particularly in Germany and Spain, where we have both pricing and reimbursement. And as we alluded to, again, these are markets that we think in and of themselves can be very substantial value drivers for the company.

Furthermore, we've got what I think are the key leadership group in place. We're certainly thrilled to have Jürgen here to head up sales and marketing in Europe. No one has more experience selling and marketing this drug than Jürgen does, and his ability to bring all that institutional and background knowledge is certainly important. Having a Medical Director who has used the product many, many times and has actually built a treatment algorithm around it in an institution is something we're very pleased to have on board. We need hospitals to start thinking that way, and there's nothing better than sending someone in who's actually done it and who's actually executed on that. I think most clinicians always feel better when they can look someone in the eye who's actually used the drug, has actually spent the time building a treatment algorithm and can tell you what their success rate was, what the problems were, what the successes were and how to do that. I personally don't think there's anything better than that when you're trying to tell a story to a new institution as to why they might want to go to BRINAVESS.

The transition services agreement was a real major milestone. Again, kind of a thank you to Merck, who has been as elegant and decent a partner in winding down the relationship as they were in building it up. But they have allowed us to take over the sales and marketing of the drug, which we think is very important. The drug has not really been detailed to any meaningful -- and to a meaningful extent since September. And sales have dropped off a bit, not surprisingly, without the share voice out there. And so for us to get back out there and start telling the story and go back to conferences and all the things that we talked about on this call is a really important step forward for us. Merck is continuing to provide kind of what I call back-office support and clinical support as we do that. And letting us get out there early, I think, is good for the product and it's good for Cardiome, and we'd like to think good for the patients as well. So that was an important undertaking for us.

Getting the regulatory file back, I think, is also a very big part of what we would like to accomplish. We plan to request a meeting with the FDA and start to discuss a regulatory path forward for vernakalant IV and oral. We expect that a meeting like that will take place in the second half of 2013, and we expect to have a plan going forward sometime after that. And since we all believe that U.S. IV approval and further development of the oral is a substantive value driver for Cardiome, that is a very important step forward for us as well.

So the coming months, I think, will be just as busy as the last 6 or 8 have been. Our commercial support becomes really critical and something we're trying to give the market a little more insight on in terms of -- I thought Karim did a very nice job of laying out that opportunity. We need to reach additional hospitals. We need to reach out to physicians. We need to go to conferences and we need to show what our value proposition is and how we can fit into an integrated treatment plan with atrial fibrillation.

So with all that, we're feeling quite positive as to how things are going. And we're feeling that we have a good handle on BRINAVESS and its role and we have a good handle on getting the right team in place to deliver that, and we look forward to moving more and more into the commercial side of the business and providing you with an update at our next call.

So with that, I'd like to open the call for questions. And operator, we're now ready and available to begin that. Thank you.

Question-and-Answer Session

Operator

[Operator Instructions] There are no questions at this time. Please proceed.

William L. Hunter

Thank you very much. I'd like to think that's because we covered everything so eloquently, and now everyone is totally up to date. But thank you, all, for joining us on the call today. If you have any additional questions that you'd like to ask, please feel free to contact myself or Jennifer or Karim, as we're here to elaborate on this and any of the other things that we brought up on the call. So thank you for your interest in Cardiome, and have a good day.

Operator

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

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