Cadence Pharmaceuticals' CEO Presents at Deutsche Bank's 38th Annual dbAccess Health Care Conference (Transcript)

May.30.13 | About: Mallinckrodt PLC (MNK)

Cadence Pharmaceuticals, Inc. (CADX) Deutsche Bank’s 38th Annual dbAccess Health Care Conference Call May 30, 2013 11:20 AM ET

Executives

Theodore R. Schroeder – President, Chief Executive Officer and Director

Analysts

David Steinberg – Deutsche Bank Securities

David Steinberg – Deutsche Bank Securities

Good morning, everyone. My name is David Steinberg, Specialty Pharma Analyst here at Deutsche Bank. We’re delighted to have with us management of Cadence Pharmaceuticals. In the last year everything has come together for the company. OFIRMEV is clearly well-established sales of almost $100 million. It settled with Perrigo, a longest settlement life than we had thought and then revenues are continuing to increase quarter-by-quarter.

So to update you on the Cadence’s story, Ted Schroeder, Chief Executive Officer.

Theodore R. Schroeder

Thank you, David. Thank you for having us back for the conference. We always appreciate being here. I thank all of you for joining us today. Before I get started, I’d like to briefly remind you of our Safe Harbor statement and just pointing to our SEC documents set for a full description of the risk surrounding Cadence Pharmaceuticals.

For those of you who may be new to the story Cadence is a biopharmaceutical company focused in the hospital. We focus in commercializing proprietary products to be used within the four walls of the hospital. We have the single product on the market intravenous acetaminophen, brand name OFIRMEV and it’s both a non-narcotic and a non-NSAID analgesic really represents a new class of IV analgesic in the hospital, even though it’s an old molecule has not been available as an IV formulation in the U.S. until now.

And so we’ll talk about the launch of the product, the strong physician uptick and revenue growth as we’ve launched the product. Just a little bit about the product that is a proprietary IV formulation of acetaminophen. It’s the first and only IV formulation of acetaminophen approved in the United States.

And as I said earlier, it does represent a new class of intravenous analgesic in the U.S. Importantly, this is the same formulation and throughout that sold by Bristol-Myers Squibb around the world. If there is in fact, Bristol-Myers manufactures the product for us, so, it’s essentially the same as all the rest of the IV acetaminophen marketed around the world.

And it’s a big product outside the U.S. Bristol before the entry of generics in some markets where it’s selling somewhere around the 100 million doses per year. On FDA approval, we got a very broad indication where indicated from mild to moderate pain as monotherapy and for moderate to severe pain with adjunctive opioids that’s important language because the physicians IV acetaminophen is the first drug on Board, at base line if you will of a multimodal approach to treat pain.

So, IV acetaminophen around the clock, adjunctive narcotics on an on-demand basis to treat more severe pain, also indicated for the reduction of fever and all those indications in adults and children two years and older. The message is simple. It provides significant pain relief that comes with reduced narcotic consumption somewhere between 35% and 86% reduction in narcotic consumption which leads to better pain control and improved patient satisfaction all with a well recognized safety profile.

If we talk about unmet medical need in the United States, before IV acetaminophen was available, they were essentially two classes of drugs available to treat pain if you’re unable to take medication by now. The narcotics dominate the treatment of pain in the hospital fully 85% doses for pain relief in the hospital are narcotics but opioids come with a long laundry list of well known side effects that are not only dangerous and uncomfortable for patients, but difficult for healthcare workers to manage and these lead to prolonged recovery, increased length of stay and of course all that means increase cost to hospitals.

So 85% of the doses were in narcotics and that’s probably because it was a single alternative that was a non-steroidal anti-inflammatory drug, ketorolac and ibuprofen and those products also have their liabilities. They both come with Black Box warning for a number of side effects, but probably in the surgical setting the most relevant is the acute bleeding and the complications with kidney function. So that led to limited use of the insets particularly in managing post-surgical pain.

If you compare the U.S. treatment paradigm as it stood against the European treatment paradigm, the U.S. dominated by narcotics, no matter what degree of pain you were suffering, you generally got a narcotic in just higher doses up to some arbitrary limit to manage your pain, whereas in Europe, folks would be given with IV acetaminophen and then add narcotics if necessary on a demand basis to manage pain and practicing what’s commonly known as a multimodal approach to analgesia.

What’s interesting about this is that in the U.S., the most popular prescription for managing post surgical pain is for oral medication that’s Vicodin and its cousins. So the most widely sold drug in the world of any class is actually Vicodin, which is a combination of acetaminophen and a narcotic. So physicians are already treating pain in the post-surgical setting with the combination of acetaminophen and narcotic, what we’re offering is during the immediate post-operative period when patients can take and observe oral medication and IV alternative, which actually is a more flexible alternative because you can dial up or down the narcotic to treat to effect, which you can’t do with the oral.

We’ve had great pickup for the product, we are on formulary at something north of 2,200 hospitals in the United States, you can counter-pull those thoughts and actually if Hawaii and Alaska were on this map, you would see hospitals on formulary there as well. So every state in the United States, we have penetration into the major medical centers and increasing use, just to put that in perspective, we’ve estimated that since launch, we’ve treated somewhere between 3.5 million and 4.4 million patients.

That’s a remarkable number of patients for a newly launched product and really creates a foundation upon which they continue to build OFIRMEV sales, because it creates a real platform of use. So you have enough physicians prescribing to enough patients that it really creates its own momentum.

As we look at the business of probably big three drivers for growth, growing the customer base to the number of customers ordering the product, growing the frequency of use both in the number of doses per patient and the number of orders per hospital and those three things so hospitals ordering more patients being treated with more doses and more patients being treated are the key drivers for growing OFIRMEV.

So next few slides we’ll show you some metrics on how we’re doing on those measures. So formulary acceptance, I showed that on that map United States. This shows the growth over time, clearly flattening out as we get to the end of the curve but we’re nearly fully penetrated on the hospital formularies at this point, getting on new formularies is not a major focus of our sales force at this point, although that number continues to inch up quarter-over-quarter.

Our monthly sales have continued to be very strong really from the first launch month through to the most recent data on this chart, which is April on the most recent data we have, but continuing to show strong month-over-month growth as we move through the launch of the product.

Sales in April actually were 686,000 vials and that’s a continued growth. There are some vacancies in number of days per month that you need to account for these data just show the actual month-over-month numbers, but really outstanding progress there.

Number of accounts order in OFIRMEV we now have north of 3,700 accounts unique customers that order OFIRMEV, most of those are hospitals. Although, there are a small group that are non-hospital settings like ambulatory surgery centers. The light blue bar show the number of hospitals that have – I should say accounts have only ordered ones. The dark blue bar show multiple orders and you can see that that dark blue bar continues to grow even as new customers come on. The customers that are joining are just starting to use OFIRMEV now tend to be smaller customers and as we move through time, the bigger customers are largely represented and their order frequency is growing as well.

Look at average order size by customers, looking at vial count, that’s continued to grow in a linear fashion really from the first day of launch through April, so more ordering by each account represented of more patients. If we look at share of U.S. surgical patients, so this is a patient share number, not a market share number.

The red line are outpatient procedures, the blue line inpatient procedures and the green line is the average, and so the clear driver here really inpatient surgical procedures. We are at about a 10% market share of patients in the inpatient setting. So to say that another way about one out of every 10 patients that U.S. surgical patients receive at least one dose of OFIRMEV in the United States today. We expect that to continue to grow.

In fact in Europe at their peak Bristol was treating somewhere between seven and eight out of 10 patients were getting at least one dose of OFIRMEV. So we think there is plenty of upside as we continue to gain patient share as the product moves forward. That will also continue to grow and the outpatient setting as well, although the outpatient procedure is less valuable patient because they get fewer number of doses.

A vial, an important measure for the growth of OFIRMEV of the number of vials per patients, unfortunately the data source tends to be fairly significantly lag, but if we project half of the growth that we’ve been on for this, you can see that we’re approaching about 2.8 vials per patient at the end of 2012. We can expect that to continue to grow. Ultimately we believe, we’ll be somewhere between four and six vials per patient, which is about what they achieved in Europe as well.

When you look at sales and look at unit sales, clearly OFIRMEV is in class by itself. This chart looks at all the hospital launches over the last 10 years, including Cubicin and you can see orders of magnitude higher than even the next highest product in volume. Of course this is a lower price product and the lease expenses of the other products on this chart are about ten times more expensive than OFIRMEV. But even if you look at in dollar growth, we’ve nothing to hang our heads about in dollars. We’re actually now approaching to be the number one dollar volume product over the period as well.

So as volume goes up, sales have filed and we treat a lot of patients, we have to treat a lot of patients, but we’ll continue to do that. And this type of involvement by vast numbers of physicians treating hundreds of thousands and millions of patients really create some momentum to continue to grow that sales line.

And then finally, I thought I’d end with just a quit shot at some longitudinal market research that we do. I want spend a lot of time on this, but the key takeaway from this slide is whether an anesthesiologist or a surgeon, the more you use OFIRMEV, the more satisfied you are with OFIRMEV and that’s what these data show that in the initial area where utilization was lower satisfaction, but over time that continues to grow and actually for relatively new product. These are very strong results as far as satisfaction goes.

If you look at the likelihoods recommend to other physicians, which is a key measure, it’s important that physicians are talking to one another and when they are, they have a positive view of the product this also helps extend the sales call, but you can see that both anesthesiologists and surgeons are extraordinarily enthusiastic about recommending the product to their colleague.

I can tell you that in all my 25 years plus of marketing in the hospital, I had never seen a product with this kind of likelihood to recommend ratings as you see with OFIRMEV, so, clearly physicians are not only satisfy with what they’re seeing but they’re also willing to tell their colleagues about that experience as well and then finally as physicians think about future utilization, you can see that both anesthesiologists and surgeons believe they will be somewhere in that 55% to 60% of their patients treated with OFIRMEV and that number continues to go up as well.

And finally, we get asked a lot about business development. Clearly, we have extraordinary sales force, it’s done a remarkable job launching OFIRMEV, I think it’s safe to say, it’s the best hospital product launch in the last 10 years.

So, that sales force has capacity to do more things, so we are – our number one priority is to grow OFIRMEV and to maximize OFIRMEV sales, our number two priority is to add something to that sales force to take advantage of the capacity and the expertise that we built there.

So, in the near-term, we’re looking at hospital products that are, at least FDA approved products that we can drop into the sales force right away and begin promoting those products. Over the longer-term, we’ll start to look at adding late stage products where we can complete development. But our focus right now really in near-term commercial opportunities to take advantage of the sales force infrastructure. And then finally our cash position versus where we ended first quarter about $64 million in cash and you can see the shares outstanding.

So with that, I will end and sit down for some questions.

David Steinberg – Deutsche Bank Securities

Okay. Thank you.

Theodore R. Schroeder

That’s fine, let me take questions.

[Multiple Speakers]

David Steinberg – Deutsche Bank Securities

Okay, any questions from the audience?

Question-and-Answer Session

David Steinberg – Deutsche Bank Securities

All right, so I’ll ask one. What are the issues you faced for long time is we have enough cash to make it break-even had a very nice trajectory of OFIRMEV recently as you look at orders and sort of your growth trajectory in your costs, how much cushion do you think had you have to break-even or do you think you may have to raise more money to forecast?

Theodore R. Schroeder

No we don’t need to raise money to get the break-even. We have all the cash we need with some cushion in there to get us to break-even. So we did $50 million in top line sales last year. We’ve guided to 97 of 103 this year. So we think we’re clearly on track to do that after the first quarter and as we get into the first few weeks of the second quarter.

So we’re feeling confident that we’ll have enough to get us to break-even, where we would have to raise cash David would be to do any sort of a business development transaction that most transactions would likely cause for these cash, not necessarily equity, but with various debt structures available to us as well.

Unidentified Analyst

Sure. And then speaking of that, I know you’ve talked a lot about maybe co-pro, what sort of I assume this co-pro’s joint ventures, acquisitions in-licensing and you’re kind of thinking about more of a non-dilutive type situation where you acquire another perhaps in-license in other product and if you can get sales above certain level you make some more money or how should we think about your appetite or some sort of dilution we actually go out and buy a company or product?

Theodore R. Schroeder

Well, I think all those – I think there are all in a table and it’s really about what’s going to celebrate the growth of the company and deliver the best return for shareholders. So in some scenarios you might see some short-term dilution that will result in accelerating sales and accelerating contribution.

I wouldn’t say that’s our top focus, but it’s certainly on the table. I think doing licenses and other types of transactions that bring products into the sales force are somewhat higher priority. Co-promotes have probably formed in priority not because we don’t think we can do them, but the economics aren’t as attractive. And so it’s usually more attractive to actually own the product or at least have an exclusive license for a product than it is to participate in venting your sales force.

Unidentified Analyst

Sure. So you settled with Perrigo and that was a settlement that certainly was longer duration. I would have thought we still have another filer, is it clear who is first to file Perrigo or Excella – clear and where do you stand with Excella, i.e. possible settlement, litigation, et cetera, et cetera.

So, although Perrigo has never really said whether they aren’t the first filer, I think we’ve come to believe that Excella in fact is the first filer. As you know, Excella, so we continue to move forward with Excella in fact the bench trial was over the last two weeks, actually testimony concluded on Tuesday. And so we’re into the kind of the next phase with Excella.

We’re certainly open to talk about settlement. We’re extraordinarily confident in the outcome. We’re extraordinarily confident in the strength of our IP, but nonetheless we would certainly discuss a settlement if they were of that mind. So we’re open to it. But we think we’ll prevail and I think our case is plenty strong out for us to prevail.

David Steinberg – Deutsche Bank Securities

So, I know it’s very difficult to formulate and I think Bristol-Myers and others spent a decade trying to come up with an IV acetaminophen. Is there any possibility you could do some sort of reformulation, line extension, that would allow you to keep the franchise going beyond the Perrigo settlement date.

Theodore R. Schroeder

So the short answer to that is with the current approach, the answer is no. If there was a novel approach that resulted in a new chemical entity that was essentially acetaminophen, but we got new IP, because it’s different because it can manipulate the molecule around.

That might be a possibility, however, what you have to get convinced on is their commercial opportunity for that and what by changing the molecule, what advantage would you actually create beyond just getting new IP? Because the truth is by time something like that came to the market, you would be up against the generic launch and I believe that in the marketplace in 2020 for sure, but even today if you can’t show a significant improvement for the follow on product, there is no market for it anyway.

So I’ll give you an example. There are some people with early stage yet on proving approaches. Do you think they could change the toxicity profile of acetaminophen? But the truth is when IV acetaminophen in the hospital no one is worried about toxicity. It’s not their biggest concern. Toxicity tends to be an oral outpatient concern because that’s where you see over doses.

So as long as you are dosing OFIRMEV appropriately, which happens in the hospital, there is no real commercial benefit to do that. So its going to be tough to find something that would have both the commercial benefit that would had new IP. But that doesn’t mean we’re not walking…

David Steinberg – Deutsche Bank Securities

Sure.

Theodore R. Schroeder

We absolutely will be interested if we could to find the right thing.

David Steinberg – Deutsche Bank Securities

Here with the question from the audience.

Unidentified Analyst

Thank you. On the BD side, since you have the hospital setting, any particular line of products that you might be focused on in terms of exploring?

Theodore R. Schroeder

Yeah, sure, good question. So our strategy from inception has been to look at the hospitals or channel distribution versus the therapeutic vertical. So we’re somewhat therapeutic category agnostic. So as we look at business development, we’re kind of looking at three areas. We’re looking at therapeutics that are used principally within the four walls of the hospital. We’re looking at drug device combinations and looking at what I’d like to call drug like devices, devices that are approved this devices, but have a drug component and are sold or at least marketed more or like drugs than traditional devices.

So those are the areas that we’re looking certainly some areas of the hospital have higher strategic value than others. The perioperative setting is probably right now the highest strategic value, but things in for the OR oncology, burn units, specialty care units in general in the hospital are up pretty high strategic value.

And that’s because the postoperative pain is about two-thirds of the market opportunity, which means there is another third in other areas of hospital non-operative pain and that tends to be the ICUs, specialty care units, emergency department, et cetera.

So we have pretty broad appetite and sales force can effectively operate within all those settings. Anything that takes us outside the hospital is a different discussion and may not be as attractive unless it’s an areas outside the hospital that are geographically close to the hospital itself.

Unidentified Analyst

Do you see the combination of both pediatric in adult use or would you just explore them individually, which has a nice combination?

Theodore R. Schroeder

You’re certainly interested in pediatrics probably more interested in adults only because we have a sales force that is deployed against 1,800 hospitals and so if it’s a pediatric only, we have to make a decision or you only going to set market that product in a subset of your sales force that’s always a difficult discussion for our commercial organization, whether or not you can actually use that capacity for products that’s used in a subset of hospitals?

David Steinberg – Deutsche Bank Securities

But I wouldn’t say we’ve concluded…

Theodore R. Schroeder

That we wouldn’t do one or the other.

David Steinberg – Deutsche Bank Securities

Should I have one more question?

Theodore R. Schroeder

Sure.

David Steinberg – Deutsche Bank Securities

So now you’ve established OFIRMEV is a pretty significant product that’s used increasingly widely in specialty pharma outside of M&A, we see something every week the other trend is heftier and heftier price increases, now just curious now that you established $100 million brand and you mentioned at this point of less expensive products. What sort of flexibility do you have to take price?

Theodore R. Schroeder

So we took our first price increase last July. We took a 6% price increase in January 2013, we took another 9%. So yes, we think we have pricing flexibility. I wouldn’t be expecting 15% a year price increases forever. But I do think there is opportunity to move the price forward even if we’re just looking at CPI level price increases.

David Steinberg – Deutsche Bank Securities

Okay. Any further questions from the audience?

Theodore R. Schroeder

Okay, all right.

David Steinberg – Deutsche Bank Securities

Thanks Ted. Thanks you, thanks.

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