Pomeroy-Ward - Associate VP of IR
John Thievon - President and CEO
Dave Becker - EVP and CFO
Louis Chen - Collins Stewart
Jeremiah Shepard - Wedbush
MiddleBrook Pharmaceuticals, Inc. (MBRK) Q3 2009 Earnings Call November 5, 2009 9:00 AM ET
At this time, I would like to welcome everyone to the MiddleBrook Third quarter 2009 results call. (Operator Instructions).
I would now like to turn a call over to Ms. Pomeroy-Ward. Associate Vice President of Investor Relations
As noted in this morning’s press release the slide that accompany today’s conference call are available on the landing page of the Investor Relations section of our corporate website middlebrookpharma.com
Before we begin our call and as stated on slide number 2, I would like to remind you that this call will include forward-looking statements. These statements are based on our current expectations and beliefs and are subject to number of known and unknown risks and uncertainties and other factors that could cause actual results to differ materially from those in the forward-looking statements.
This morning, I am joined by President and CEO, John Thievon, and our Executive Vice President and CFO, Dave Becker. We expect today's call to last no more than 30 minutes, including Q&A.
I will now turn the call over to John.
Welcome to our third quarter call. I will begin our commercial update momentarily, which Dave will follow with a discussion of our financials and our business outlook, then we will open up the call for questions.
I will begin our commercial update with a quick overview of our managed current trade efforts, as shared on our last call MOXATAG is covered for approximately 93% of all commercially insured lives in the US at Tier III status for both pharmacy benefit managers and managed care organizations.
MOXATAG is currently covered in the third tier with prior authorization on less than 1% of all commercial lives covered. MOXATAG is also currently covered by Medicaid in more than 45 states. We will continue working to expand our managed care and Medicaid coverage and we expect our coverage to continue to increase over time.
MOXATAG distribution at the retail level improved during the third quarter, another major retailer initiated MOXATAG order shipment in to all of its stores on September 18th. We have now secured increased distribution across all three classes of trade, chain mass and independent, which improves patient accesses to MOXATAG across the country.
As shown on slide 3, pharmacy detailing bars by our sales reps confirms that pharmacy stocking had significantly improved in our sales territory since launch. We will continue to drive expanded distribution for MOXATAG through the efforts of our trade team, field sales representative pharmacy calls and increase MOXATAG prescription volume.
The MOXATAG launch is now well underway and the strep throat season has begun. We took several steps to improve our current and future financials including the introduction of our $20 Max Copay Program for MOXATAG on July 15th.
We believe this program has been well received by healthcare professionals and patients and field feedback is very positive. We also realigned our sales force in the third quarter to cover high prescribing health care professionals more efficiently.
The eliminated territories contributed less than 5% of our prescription volume and we believe that the realignment is having a desired effect of reducing our cost structure, without adversely affecting our long-term performance.
In conjunction with the field sales force realignment, we reduced our non-sales head-count by about 10 for an estimated combined total annualized expense saving of approximately $15 million. With a few months in the field, we now some performance data we can share, which will give you a sense of where MOXATAG is in its growth cycle.
As shown on the MOXATAG weekly prescription chart on slide 4, the MOXATAG $20 Max Copay Program provided immediate boost to our field sales force efforts up on July 15, introduction. However, as we crossed into the month of October, the week-over-week prescriptions declined.
More recently however, the latest report of IMS Health Prescription data reflects about a 15%, week-over-week increase with just under 5000 MOXATAG prescription filled for the week ending October 23rd.
In a minute I will share an overview of the market, which may provide some context for fluctuations in our year-to-date prescription growth. Despite some unevenness in our growth, we still expect more than 50% of the total MOXATAG prescriptions filled in 2009, to occur in the fourth quarter.
Let’s look at the amoxicillin and penicillin market for the primary care universe on an annual basis, which is shown on slide 5. This data comes from IMS Health weekly exponent data. The red line shows the total number of oral-solid amoxicillin and penicillin prescriptions filled on a weekly basis throughout 2008.
The blue line shows prescriptions filled year-to-date, for the most part the prescriptions we have captured for MOXATAG have come from like for like, meaning that most of our volume has come from the penicillin-class antibiotic, which includes amoxicillin, because of this and because we receive this market data every week, we believe it’s most appropriate to measure our market share against this market, which equates to about 20 million prescriptions annually.
As mentioned in this morning’s press release MOXATAG tripled its market share of the oral-solid penicillin-class antibiotic market during the third quarter. As you can see on this slide, the penicillin-class antibiotic market this year is tracking very closely to the market’s 2008 performance.
Note that various fluctuations that have occurred in this market many of which coincide with holidays and the recent market contraction in early October timeframe, which occurred in both 2008 and 2009. An adjustment to our $20 Max Copay Program also took effect in early October, which may also have influenced our growth.
We continue to evaluate the best ways to maximize the MOXTAG Copay Program and just accordingly. As Slide 5 shows, we have a significant opportunity to accelerate our prescription growth through the end of the year and the opportunity should increase once we move into the first calendar quarter of 2010.
For more concrete view of how the oral-solid penicillin-class antibiotic market looks on a quarter-by-quarter and monthly basis, please turn to slide 6, where we calculated the percentage of amoxicillin and penicillin prescriptions filed in 2008 by quarter and by months based on IMS Health.
About 25% of the prescriptions for the year were filled in the fourth calendar quarter in 2008, but as you can also see the high of the strep throat season occurred in the first calendar quarter last year.
Historical IMS Health data shows us, this is true just about every year with the first calendar quarter marked by a significant uptick in prescription volume for our label indication. In fact, in 2008 about one-third of the prescriptions for the entire year were filled in the first calendar quarter. Based on this historical data and our experience in the respiratory space, we believe there is a tremendous opportunity for us to grow our MOXATAG business in the strep throat season.
If you turn to slide 7, you will see the market opportunity from MOXATAG. Slide 7 shows all the oral-solid antibiotic prescriptions for strep throat in 2008, which totaled approximately 16.4 million prescriptions according to IMS Health data.
In addition to [counter free] market share from the penicillin-class, we believe MOXATAG has a potential to capture a portion of the macrolide antibiotic prescription market for strep throat.
Extended spectrum macrolides for example azithromycin or Z-Pak are not recommended as first line treatment for bacterial pharyngitis and tonsillitis as per their package insert they are indicated for second line treatment.
Despite that, macrolide uses growing with 29% increase in oral-solid macrolide prescriptions for tonsillitis/pharyngitis between 2004 and 2008. Macrolides accounted for nearly one-third or about 5 million prescriptions of all oral-solid strep prescriptions in 2008, according to IMS Health National Disease and Therapeutic Index data.
As document in the medical literature, increased macrolide use has been correlated with the significant increase in macrolide antibiotic resistance. So, it’s important that healthcare professional select the appropriate antibiotic to treat pharyngitis and tonsillitis secondary to strep pyogenes.
There are no known mechanisms of resistance to amoxicillin, which is MOXATAG’s active ingredient in strep pyogenes. Accordingly, we believe that these 5 million macrolide prescriptions represent an attractive market segment that we can potentially access the drug MOXATAG prescription growth.
Our field sales force is armed with literature design the highlight that MOXATAG offers the same convenient once a day dosing as the azithromycin is indicated as first line treatment for strep throat and has no known resistance to strep pyogenes.
Now let’s talk about our MOXATAG unique prescriber growth, which is charted on slide 8. As you can see we have made significant progress expanding our universal prescribers, more than doubling our aggregate number of MOXATAG prescriber since the second quarter.
We now have nearly 10,000 doctors, who have had at least one MOXATAG prescriptions filled. As you can see from the performance measurement data I have shared this morning, MOXATAG is growing and we anticipate continued growth throughout the season.
As we approach the height of the strep throat season, our field sales force will be focused on increasing the number of healthcare professionals prescribing MOXATAG and continuing to detail doctors on the features and benefits of MOXATAG.
We recently completed some MOXATAG market research with favorable findings. On the patient side; we conducted a post marketing survey with 200 patients, who took MOXATAG, the survey found that MOXATAG’s one fairly benefit is clearly resonating with patients with 9 out 10 patients stating that it is easier to take MOXATAG once a day compared to other antibiotics that need to be taken multiple times daily.
In fact 59% of patients perceive taking medication multiple times daily is either somewhat difficult or very difficult. Clearly patient preferences favor the convenience and compliance enhancing features of MOXATAG.
Turning to slide 9, you can see the results of the healthcare professional survey conducted in August of 2009 with 29 primary care prescribers. As you can see MOXATAG was favored by physicians over generic (inaudible) for dosing frequency, compliance, efficacy and side effect profile, notably physicians [linked] compliance to better clinical outcomes.
Additionally MOXATAG was also rated highly for its past success with patients. In other words, doctors have written it and patients have taken MOXATAG with great success.
We also conducted a separate and larger quantitative survey during September 2009 with 214 primary care physicians, who are high prescribers in the class. These primary care physicians sited dosing frequency and likelihood of improved compliance as their motivation to prescribe MOXATAG.
In the survey, non-prescriber side lack of familiarity and cost is reasons for not prescribing MOXATAG. Over 214 primary care physicians, a 125 or 58% were aware of MOXATAG. Of those physicians aware of MOXATAG more than of third had already prescribed MOXOTAG.
Based upon this survey, we believe the more physicians are exposed to MOXATAG features and benefits, the greater the likelihood they will write a MOXATAG prescriptions. We plan to continue increase our [recent frequency] to high prescribing in physicians over time. This survey also found that Max Copay plans are value by physicians for both their simplicity and cost savings to the patients.
Both of these physician survey show that our salesmen highlighting the features and benefits of MOXATAG and our $20 Max Copay Program resonate well with prescribers. We plan to continue educating physicians about the features and benefits of MOXATAG, to maximize its market potential
I will now turn the call over to Dave for a review of our financial results and our business outlook.
For the third quarter of 2009, our total net revenues were $1.1 million, compared to $2.3 million in the same quarter last year. Net sales of MOXATAG for the third quarter of 2009 totaled negative $576,000, while net sales of the KEFLEX franchise totaled $1.7 million.
In the prior year period, 100% of net sales were attributable to the KEFLEX franchise. As I discussed that our second quarter Earnings Call, we implemented the $20 Max Copay Program on July 15 and as a result, the accounting for the impact of the $20 Max Copay Program to net sales on a cumulative basis would occur during this third quarter.
Accordingly we recorded a $1.3 million cumulative one-time adjustment for those prescriptions sold into the channel before we initiated the Max Copay Program. This cumulative adjustment resulted in negative net sales for MOXATAG for the third quarter.
Total MOXATAG prescriptions for the 2009 third quarter were about 38,300 compared to 15,600 for the quarter ended June 30, 2009. Through the 32 weeks ended October 23rd, the latest data point available from IMS Health, cumulative prescriptions for MOXATAG totaled just under 70,000.
Since the Max Copay Program start date MOXATAG weekly prescriptions have increased from approximately 1,300 to just under 5,000. Even though the recent weekly prescription numbers benefited from seasonal factors, our market share since the start of the Max Copay Program has tripled.
KEFLEX prescriptions for the third quarter of 2009 were about 37,000 compared to about 42,500 for the June quarter. Keep in mind that our sales territories are designed strategically to maximize MOXATAG’s market potential.
Gross margin on net sales was approximately $598,000 or 53.7% of net sales for the 2009 third quarter. During the prior year quarter, the gross margin was $1.9 million, or 84.6% of net sales. The current quarter was impacted by the $1.3 million cumulative catch up adjustment for inventory in the channel prior to the launch of the Max Copay Program.
Research and development expenses were $1.4 million for the 2009 third quarter, compared to $6.9 million for the same quarter last year. The decrease in R&D expenses over the prior year quarter is primarily driven by reduction in direct project and personnel related expenses.
Given the feedback from FDA, regarding our Special Protocol Assessment, we have lend it spending related to the KEFLEX PULSYS Development Program, while we continue to asses FDA’s response and preserve our cash resources.
Selling, general and administrative expenses for the 2009 third quarter, was $16.2 million versus $7 million in the prior year quarter. The $9.2 million increase in SG&A expense over the prior year quarter, primarily relates to marketing expenses for MOXATAG and personnel related expenses.
In early September, we reduced the size of our sales force, and additionally reduced our non-sales headcount, as John just described. The impact of these decisions from a financial standpoint is currently expected to resolve in an estimated $15 million annualized expense savings.
Included in our results for the third quarter, is an approximate $669,000 one-time severance charge related to the headcount reductions just described. The final result is a net loss for the 2009 third quarter of $17 million, or $0.20 per common share. This compares to a net loss attributable to MiddleBrook of $12.5 million, or $0.19 per common share during the prior year quarter.
For the third quarter of 2009, there were 86.5 million shares used in the EPS calculation, while in the prior year quarter, 64.6 million shares were used. We started the third quarter with combined cash and marketable securities balance of $44.5 million and we ended with $28.4 million at September 30, 2009.
That concludes my review of our third quarter finance results and at this point I will provide a business outlook for the remainder of 2009 and end to 2010. Based upon the most recent data points, we now believe the total net sales for MOXATAG and KEFLEX for 2009 were range between $16 and $18 million. We expect that our 2009 operating expenses will range between $75 and $78 million.
Looking ahead into 2010, based upon our adjusted cost structure, we anticipate total operating expenses to range between $65 and $70 million. We expect our current cash position to fund our operations through the first quarter of next year.
Accordingly, we will need to raise additional capital to fund our operations through 2010. We would expect to close a financing transaction by the end of the first quarter of 2010. We continue to focus significant effort on business development activities. Our goal is to identify transaction that will put us on the path to profitability.
That concludes our business outlook and at this point, I will open the call up for questions.
(Operator Instructions). Your first question comes from the line of [Louis Chen] from Collins Stewart.
Louis Chen - Collins Stewart
Hi, my first question is with respect to your financing. Can you talk more about the different options that you are looking at and why do you think you are likely to pursue?
Hey Louis, this is Dave. We are in the process of working with committee of our Board of Directors to first and foremost select and advisor our banker to work with us. As you can call it as preliminary at this point and so all options are in the table. I think it would not be prudent to take any financing vehicles for any options of the table at this point.
Louis Chen - Collins Stewart
I also had a question on your MOXATAG Copay assistance program. How seamless is that for the patient. How does that work? Is there a card that the patient gets, is that a coupon. How does that work in general?
Hey, Louis, it is John. We do it in a couple of ways, but the main ways we drop off the cards at the doctor’s office with the samples and the detail. We have also mailed out the cards to pharmacy. Some pharmacies are more approachable and leaving those cards at the store, others aren’t, but the patient gets the prescription, generally a sample in the card and goes to the store.
To call it seamless would be a stretch for sure, and we've seen some challenges at the pharmacy and processing some of these. However, basically everyday and every week we are seeing more and more of these Copays being executed at the pharmacy level. That's why we mentioned, we are continue to look at ways to make sure that, that it is the seamless as possible once the patient gets to the store.
Keeping in mind that our redemption rate, is not every prescription that is filled with one of the vouchers. We are definitely working through some of those issues and evaluating what’s the best way to move forward.
(Operator Instructions). Your next question comes from the line of Jeremiah Shepard from Wedbush.
Jeremiah Shepard - Wedbush
A good question, I was wondering, when the original stocking will be exhausted, will be in Q1 do you expect?
This is John. The regional stocking of product.
Jeremiah Shepard - Wedbush
Yes, the regional launch of a stocking.
Well, it’s interesting, as you probably know it's a very inefficient process out there. I mean, we are getting reorders and we have had significant reorders since the regional launch. So, there is certainly still product out there from the regional launch although we’re getting reorders. So, some of the regional product will be out there for several months.
It depends on obviously the prescription pull-through, but its not efficient were as for example, if there is a bunch of product sit at Cardinal and less at McKesson or AmerisourceBergen and that’s change primary wholesalers. The AmerisourceBergen will then order more MOXATAG from us, even though there is MOXATAG sitting at Cardinal.
So, we are seeing significant reorders even though the regional product is still out there, but I'd say as far as inventory out there based on a prescription growth, we are in pretty good position in the inventory. In other words, I don't feel we are over inventoried at all, as long as we continue our prescription growth.
The other good news on the product is, we do have a three years dating on the product, but again if we continue to increase our prescriptions, and we know exactly how many bottles are at every wholesaler in most of the retailers. So, we can keep the close eye on it, but we are uncomfortable with the position we are in, from an inventory perspective.
Jeremiah Shepard - Wedbush
Can you provide more color on the good changes that were made with the sales realignment, any reduction in sales force numbers?
Yes, what we did is, couple of things happening, certainly, we look at low performers and we continue to look at low performers, and if they are not influencing prescription in the area, we look at a number of different metric, but one of the other things that we found, there are certain states that it just doesn’t make sense to do business in.
For example the State of Massachusetts will now not accept any Max Copay cards for example and so you can’t, it’s very difficult to get prescription filled in that state. I think we are going to see a lot of pharma moving out of some of those states.
Some of the states in the upper Midwest Minnesota is very difficult to get prescriptions filled, but there are other parts of the country, where it’s the product is doing much better. So, I would say there was a couple of things access to the prescriptions, as well as performances, how we made the cut, and that’s how we will continue to both look at reducing more appropriate, and increasing more appropriate, but there is a lot of different metrics that you need to look at, but you didn’t have to a few years ago.
There are certain hospitals for example that control physicians and won’t even allow pharmaceuticals reps in the buildings to talk to doctors, and as you know it’s not like we have a gigantic, direct-to-consumer campaign I mean our campaign is our reps calling on doctors. So, we can’t get in there, to influence the doctors, we have to make a decision to move on to other places, where we can influence the doctors, and that’s what we are doing, and we have a lot of the country, the product is doing very well. It just takes time.
The other change, we have seen is that, because of the pharma guidelines you can’t leave any lead behinds any more. You can’t leave anything that has the products name behind except for a file card for example. So, there is nothing to remind the physician of our products other than our sample on our cards and up then becoming familiar with MOXATAG for them to remind themselves to write the product again.
You will see, in a lot of our doctor calls, a doctor write prescriptions, that we get the represent in there, won’t write for the next two weeks, the next week he is in there, the doctor will start writing again.
So, we need the sales cycle in the sense has been stretched out, because of a number of different reasons, and I think we are seeing that, but I think also given the fact that we have had 10,000 prescriber’s that had a prescription filled and we know that there is more that of written because of the distribution issues when we started, the managed care issues, some of those issues.
We know more of written than that, but 10,000 have actually got and filled. If you took 10,000 doctors and they did two scripts a week with them in a strep season, you are at 20,000 scripts a week. So, that’s a good way of looking at it and we are going to continue to add prescribers. I hope that answers your question.
Jeremiah Shepard - Wedbush
Yes, it does. Just one another quick question is, you mentioned that currently it’s mostly a one-for-one exchange for, you see the most penetration for MOXATAG in the penicillin market place and you mentioned the potential to go into the macrolide market place. Do you have any specific plans in terms of how do you go about doing that?
Yes, we actually have a specific detail piece in our reps hand right now that talk about, why you should use MOXATAG fist line as opposed to macrolides. If you think about it the macrolides are now generic, but Pfizer and Abbott had several thousand reps talking about the conveniences of those products for years. So, it’s in doctors minds.
If you talk to doctors they will tell you that macrolides are not the best choice for strep throat, in fact in their package insert it says use them second line, but out of habit, out of convenience, out of patients asking for it and out of lack of familiarity with MOXATAG to-date, that is something that’s working against us, but we’re penetrating that.
The once a day is the key with Zithromax and if you look at the antibiotics in general over the last quarter you see the chart with amoxicillin and penicillin it’s basically flat if you look at the macrolides, the macrolides are up significantly and we think that’s because people are going in there with a flu and doctors are prescribing Z-Pak.
Not for any other reason, other than it’s something to give the patient. Now we feel that we have a big opportunity there, but the like for like makes sense, you are comfortable with amoxicillin, you are now writing it three times a day, 500 milligrams. We have a once a day 775, that will cost your patients, no more than $20. Doesn’t that make a lot of sense? As you can see from the numbers in the market research, it makes sense.
We just need time to get more awareness, our distribution is significantly better, our Medicaid coverage is significantly better, we just need time to get out there and keep selling the features and benefits of the product.
There are no further questions at this time. Did you have any closing remarks?
No. Thank you for joining our call today every body.
This concludes today's conference call. You may now disconnect.
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