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Executives

Bill LaRue – SVP, CFO, Treasurer and Assistant Secretary

Ted Schroeder – President and CEO

Scott Byrd – SVP and Chief Commercial Officer

Analysts

Juan Sanchez – Ladenburg

Cadence Pharmaceuticals, Inc. (CADX) Q3 2013 Earnings Call November 5, 2013 4:30 PM ET

Operator

Good afternoon and welcome to Cadence Pharmaceuticals Third Quarter 2013 Financial Results Conference Call. On the call today are Ted Schroeder, President and CEO; Bill LaRue, Senior Vice President and Chief Financial Officer; and Scott Byrd, Senior Vice President and Chief Commercial Officer.

At this time, I would like to inform you that this conference call is being recorded and that all participants are in a listen-only mode. At the request of the company, we will open up the conference for questions-and-answers after the management’s presentation.

Our first speaker is Bill LaRue. Go ahead sir.

Bill LaRue

Thank you, Stephanie. Good afternoon everyone. Before we begin, I would like to remind you that statements included in this conference call that are not a description of historical facts are forward-looking statements. Forward-looking statements include statements regarding the increasing demand for non-narcotic analgesics in the hospital market our beliefs regarding the utilization and administration, patents for OFIRMEV. Our belief regarding the benefits that OFIRMEV can offer patients, hospitals and payors when used in a multi-modal approach and our guidance regarding net product revenue from sales of OFIRMEV for the 12 months ending December 31, 2013.

You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the day hereof. Our actual future results may differ materially from the current expectations, due to the risks and uncertainties inherent in our business. These risks are detailed in the Risk Factors section of our current and upcoming Forms 10-Q, as well as elsewhere in our periodic reports and other filings made with the Securities and Exchange Commission from time-to-time.

All forward-looking statements are qualified in their entirety by this cautionary statement, which is made under the Safe Harbor provisions of Section 21E of the Private Securities Litigation Reform Act of 1995 and we undertake no obligation to revise or update the information discussed during this call, to reflect events or circumstances after this call.

If anyone has not seen our press release issued today, you can access it on our website at www.cadencepharm.com. We also post and maintain the current version of our corporate presentation on the Investors portion of our website under Events and Presentations and in Corporate Overview.

Additionally, this conference call is being webcast through our website and will be archived there for future reference. We use the Investors portion of our website as one means of disclosing material non-public information. So we encourage you to monitor our website in addition to following our press releases, SEC filings, and public conference calls and webcasts. Ted?

Ted Schroeder

Thanks Bill. Good afternoon everyone and thank you for joining us today. I will open by providing a brief overview of our accomplishments in the third quarter. Next, Scott will provide an update on our commercial activities and progress with OFIRMEV and then Bill will discuss our financial results. Following our prepared remarks, we will open the call to your questions.

I am pleased to report that strong sales of OFIRMEV continued in the third quarter of 2013. During the quarter, we achieved another all-time high in net product revenue of $29 million an increase of $15.1 million or 109% compared to the third quarter of 2012. For the first nine months of 2013, our net product revenue was $77.2 million, an increase of 134% compared to the first nine months of 2012. Additionally, OFIRMEV’s net product revenue was 17% higher in the third quarter as compared to the second quarter of this year. We continue to see gains in market share for OFIRMEV as the products adoption and utilization have grown.

At this point, I’d like to turn the call over to Scott, who will discuss our commercial operations and sales performance during the third quarter. Scott?

Scott Byrd

Thank you. We believe that the sales of OFIRMEV have clearly benefited from the increasing demand for non-narcotic analgesics from the hospital market. As a result, we sold approximately 2.5 million vials of OFIRMEV to hospitals during the third quarter which represents an increase of 82% compared to the 1.4 million vials we sold during the same quarter in 2012. Through September 30th, we sold an excess of 6.6 million vials of OFIRMEV this year. And our IV analgesic unit market share increased to 3.8% compared to 2.4% for the third quarter of 2012.

We believe that this demonstrates how much room there is for future growth of OFIRMEV. The number of unique accounts that ordered OFIRMEV as of September 30, 2013, increased to over 4600. And the number of repeat customers which is an indicator of OFIRMEV adoption within accounts has also grown significantly over the past year. As of September 30th of this year, over 3900 accounts or approximately 85% of our customers placed multiple orders for OFIRMEV. This is an increase of 39% over the same time last year.

Our average order size grew by 22% in the third quarter of 2013, compared to the third quarter of 2012. Well the average number of orders per customer grew by approximately 8% compared to the same period of 2012. In light of the number of new accounts which we are bringing on board each quarter, the growth of order size and order frequency is particularly encouraging since new accounts tend to pull these averages down.

From the launch of OFIRMEV in January of 2011 through September 30th of this year, hospitals have purchased approximately 12.8 million vials of OFIRMEV. This represents approximately 5.1 to 6.4 million patients that have been treated with OFIRMEV based on estimated utilization average of 2 to 2.5 vials per patient during this period. We believe that this growth supports our belief that as doctors have positive experiences with the product, they expand their use of OFIRMEV to a wider variety of procedures and continue to administer the product to individual patients beyond the immediate perioperative setting when wanted by the circumstances.

We previously shared data on patient utilization trends from our collaboration with the Premier healthcare alliance. The Premier healthcare alliance database includes over 400 hospitals and approximately 4.5 million surgical patient discharges per year. We believe that this large sample provides a good representation of the overall U.S. hospital utilization patterns.

An analysis of the Premier database updated to include data through June of 2013 provides further support for our belief and positions our both expanding the patient base they are treating with OFIRMEV and administering the product to patients over a longer duration during their stay in the hospital. According to the Premier database more than one out of every eight surgical patients was treated with OFIRMEV in Q2 of 2013. These data also reflect significant increases in the average number of vials being used. As of Q2 of this year surgical in-patients in the database were receiving more than three vials per patient an increase of 13% over Q2 of 2012.

Finally, I’d like to highlight a couple of studies of IV acetaminophen presented in Q3 at U.S. Medical Conferences that demonstrates the potential for improved economic outcomes. First, a study in major orthopedic procedures funded by Cadence was presented by Dr. Thomas Looke from Florida Hospital Winter Park at the Southern Orthopedic Society Meeting in July. And this retrospective cohort study at perioperative IV methocarbamol and IV acetaminophen versus historical standard of care, Dr. Looke and colleagues reported significant reductions in opioids 48 hours and decreased hospital length of stay. And their publication the authors concluded that the addition of perioperative IV methocarbamol and IV acetaminophen contributed to these benefits and led to the significant improvements in care of patients undergoing total knee and hip surgery.

At the 2013 American Society of Anesthesia Meeting in October, physicians from Cincinnati Children’s Hospital presented the cost effect in this study of OFIRMEV used intraoperatively as part of the multi-modal approach. The study compared patients receiving IV acetaminophen plus opioids versus opioids alone in pediatric tonsillectomy patients. The results of the study demonstrated that the OFIRMEV plus opioid combination was both more effective and less costly than opioids alone and led the fewer side effects and reduced time and to back you.

We believe that physicians will continue to see the benefits that OFIRMEV can offer patients, hospitals and payers when used appropriately in a multi-modal approach. Increasingly new studies are being completed that reinforced this anecdote experience with data. In fact, on December 9, at the American Society of Health-System Pharmacists and the Institute for Healthcare Improvement Meetings, Dr. Kristine Yaffe of UCSF will be presenting results of a new health outcome study funded by Cadence. This retrospective study evaluated over 22,000 major joint replacement patients for a National inpatient database managed by the Premier healthcare alliance.

Large scale real world studies such as this can contribute significantly to the understanding of the role of new therapies and we encourage that the additional data is becoming available to reinforce individual physician experience with OFIRMEV. With the growing focus on quality and cost effective care in the U.S. Healthcare System we believe that OFIRMEV is well positioned for growth. We remain acutely focused on our goals of driving that growth and improving the lines of hospital and patients and believe that the strong results from the third quarter demonstrate our continuing progress towards achieving those goals.

I will now turn the call over to Bill, who will review the financial results.

Bill LaRue

During the third quarter of 2013, we achieved net product revenue of $29 million, an increase of $15.1 million or 109% from the third quarter of 2012, and an increase of $4.3 million or 17% from the second quarter of 2013. For the nine months ended September 30, 2013, our net product revenue was $77.2 million an increase of 134% from the $33 million reported for the same nine month period last year.

For the third quarter of 2013, we reported a net loss of $6.9 million or $0.08 per share, compared to a net loss of $15.9 million or $0.196 per share for the comparable period in 2012. For the nine months ended September 30, 2013, we reported a net loss of $20.2 million or $0.24 per share, compared to $59.6 million, or $0.70 per share for the nine months ended September 30, 2012.

Included in our net loss for the nine months ended September 30, 2013, was the gain of $7.7 million relating to the waiver and termination of our option to purchase Incline Therapeutics Inc. and the sale of our Incline stock, for which we received a total of $14.7 million in cash in January.

Our gross margins for third quarter of 2013 were 66% compared to 56% for the third quarter of 2012. For the nine months ended September 30, 2013 our gross margin was also 66% compared to 51% for the comparable period in 2012. These year-over-year increases were primarily a result of lower freight cost in 2013 and the impact of price increases implemented in 2012 and 2013.

Our operating expenses including patent amortization were $24.8 million for the third quarter of 2013, which was an increase of $2.2 million or 10% from the $22.6 million for the same period in 2012. This increase was primarily attributable to higher legal expenses from our ongoing intellectual property litigation and the timing of marketing programs, partially offset by lower research and development expenses.

For the nine months ended September 30, 2013, our operating expenses were $75.4 million an increase of $2.1 million or 3% compared to $73.3 million for the same period in 2012. This increase was primarily a result of higher legal expenses and corporate development activities partially offset by lower selling and research and development expenses. As of September 30, 2013 we held cash, cash equivalents and short-term investments of $54.3 million and net accounts receivable of $8.7 million. Ted?

Ted Schroeder

Thanks Bill. We are increasing our 2013 OFIRMEV revenue guidance and we now expect that our net product revenue from sales of OFIRMEV for the 12 months ending December 31, 2013 will range between $107 million and $109 million. The progress that OFIRMEV has made in the marketplace so far this year reflects the dedicated efforts of the entire Cadence team as well as the recognition by healthcare professionals, the role that OFIRMEV can play in reducing narcotic use while also effectively relieving pain in hospitalized patients.

We will now open the call to your questions. Operator?

Question-and-Answer Session

Operator

Thank you, Mr. Schroeder. The question-and-answer session will begin at this time. (Operator Instructions) Our first question comes from Juan Sanchez with Ladenburg. Your line is open.

Juan Sanchez – Ladenburg

Good afternoon guys and congratulations. Couple of questions, the first one is, any level of confidence on I’m talking about the advanced trial, any level of confidence that judge is going to make a decision in the near future or that something that is behind your visibility? And the second question would be on the under Black Box I know it doesn’t affect you too much but as you have had any conversation with formulary to the hospitals if any concerns have arisen or any feedback after the Black Box was announced?

Ted Schroeder

Okay. Yes. Thanks Juan. Regarding the ruling by the judge from the Delaware Court no visibility when that ruling will come as we’ve stated previously, we expect the ruling sometime between now and the end of the year or possibly I believe that over in the early part of the first quarter, but there is no way to really know when the judge will rule, there is no communication to us. So, those estimates are really just the best thinking of our legal team, but of course every case is different and we have no visibility into what the judge’s calendar looks like.

Regarding the box warning that was added. We’ve had no formulary reviews or anything prompted by the addition of the box warning. As you know and as you alluded to well Juan, the box warning there is really nothing new in that warning, it’s – it’s really the same warnings that were in the label since launch just need more prominent to remind physicians of the need to maintain dosing within the recommended range of 4 grams per day for adults with of normal weight, of course there is weight-based dosing adjustments for children and low-weight adults. But those warnings are no different and I think the market saw for what it was is an attempt to just increase awareness so that patient safety could be made prominent to healthcare workers.

Juan Sanchez – Ladenburg

Thank you guys.

Operator

(Operator Instructions) At this time there are no further questions. So I will turn the conference back to Mr. Schroeder.

Ted Schroeder

Okay, well thank you everyone. Appreciate your participation and we look forward to meeting with you as we hit some conferences through the end of the year and continue to drive OFIRMEV sales through the end of the year and off to a quick start in 2014. Thank you.

Operator

Ladies and gentlemen, this concludes our conference call. All parties may now disconnect.

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