Adolor Corporation Q4 2009 Earnings Call Transcript

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Adolor Corporation (ADLR) Q4 2009 Earnings Call February 25, 2010 8:45 AM ET


Stephen Webster - SVP, Finance & CFO

Mike Dougherty - President & CEO

Eliseo Salinas - SVP of R&D & CMO


Greg Wade - Wedbush

Ehab Alissa [ph] - Joy Funds [ph]

Charles Achario [ph] - Prime Investments


Welcome to the Adolor conference call. At this time, all participants are in a listen-only mode. There will be a question-and-answer session to follow. Please be advised that this call is being taped at the request of Adolor.

At this time, I would like to introduce your host for today's call Stephen Webster, Senior Vice President, Finance, and Chief Financial Officer at Adolor. Please proceed.

Stephen Webster

Thank you, operator. Good morning, everyone. Today we will provide an update of our key accomplishments during 2009 and review our financial results for the year ended December 31. Before we begin, let me remind you that certain statements on this call may be forward-looking and are subject to risks and uncertainties associated with our business. These statements may concern, among other things, guidance as to future revenue from ENTEREG or anticipated levels of our cash and investments, our operations and prospects, transactions, intellectual property, litigation, the development of pharmaceutical products, clinical trials and any potential approval of our product candidates.

Additional information and risk factors affecting the company's business and financial prospects and other factors that can cause Adolor’s actual performance to vary from our current expectations are available in our SEC filings. Investors with further questions should contact me, at 484-595-1500. This conference call is being web cast via the Adolor homepage and it will be archived for one week after the call.

Now I will turn it over to Mike Dougherty, Adolor's President and Chief Executive Officer.

Mike Dougherty

Thank you, Stephen. Good morning everyone and thank you for joining our call today. This is of course our year end call and with that I wanted to begin by offering some comments and perspectives on 2009 and the year ahead in 2010. This past year was a year of progress for our company, it was our first full year of commercial sales for ENTEREG, and as we will review later in the call, we saw steady increases in sales throughout the year. Most importantly, we believe our product is performing well in the settings in which it is being utilized. We are beginning to hear that directly from hospital institutions by way of case study data, medication use evaluations which they are presenting.

Our thesis for ENTEREG is a straight forward one and that is the weight of the evidence of the benefits ENTEREG can provide will continue to carry it to increasing market share in 2010 and beyond. I'll comment further on ENTEREG in just a moment.

A major highlight for Adolor in 2009 was the rebuilding of our clinical development pipeline and we feel very good about the progress we have made. In our delta program, Pfizer and we began our study in osteoarthritis in late 2009 introducing ADL5747 into Phase 2 evaluation for the first time and resuming Phase 2 evaluation of ADL5859 and just last month we began our study of ADL5747 in post-herpetic neuralgia or PHN.

Turning to our opioid bowel dysfunction program we have now commenced Phase 1 clinical evaluation for both ADL7445, our internally developed opioid and agonist candidate and ADL5945, the compound we in-licensed from Lilly just last September. We believe that both delta and OBD represents significant opportunities for Adolor, we have multiple compounds under development now in both and early stage but meaningful milestones ahead in 2010 in each. Eliseo Salinas will provide you a more indepth review of both of these programs in just a moment.

First so let me turn to ENTEREG as you saw on our release earlier this morning, we reported net sales in 2009 of $14.6 million as compared to $1.2 million in 2008. We saw continued growth in shipments and product sales in the fourth quarter and throughout the year. Fourth quarter product shipments were $4.9 million up from $1.6 million in the corresponding fourth quarter of 2008 and up nearly $1 million from the prior third quarter 2009. As we have done in prior calls I want to offer you some additional metrics that provide some insight into our progress. We estimate that as of December 31, ENTEREG was on formulary at approximately 800 hospitals, an increase of about 75 hospitals in the fourth quarter, and approximately 500 hospitals through the full year 2009.

Importantly, about 500 of these formulary approvals are at the approximately 1,400 key hospitals that perform 80% of the bowel resection surgeries in United States. We also saw hospital registrations under our REMS E.A.S.E. Program grow to a total of 875 of these 1,400 hospitals.

Finally, reordering hospitals, that is hospitals who ordered ENTEREG initially and then reordered at least once, now total over 750 hospitals, an increase in the fourth quarter of 125, and then increase of 565 hospitals for all of 2009.

As you can see, progress has been steady across the board. I mentioned earlier that 2009 also saw the presentation of data from a number of medication use evaluations conducted by hospitals to independently assess the benefits ENTEREG for their patients, as well as the pharmacoeconomic impact on their bottom line. We have seen a number of these independent studies presented including over half a dozen just a few months ago in December at the American Society of Health System Pharmacists meeting. We expect more such evaluations will be reported in 2010.

On our side too, we continue to evaluate the performance of ENTEREG in real world settings. To that end we have initiated what we expect will be a series of studies using existing large US hospital third party databases developed for quality and benchmarking utilization. The objective of these studies will be to compare clinical and economic outcomes, following bowel resection surgeries in patients where ENTEREG is used to closely matched patients where ENTEREG is not used.

We recently completed the first of these studies and solved confirmation of key outcomes observed in our phase III clinical trials of ENTEREG and cost savings to hospital institutions. These real world outcomes are the very kind of information that we believe hospitals and physicians value most in determining whether or not to included drug in their standard of care and add for the body of evidence demonstrating the benefit that ENTEREG provides the bowel resection patients and healthcare providers.

Our plans are to submit these results for potential publication in the first quarter of this year.

I will now turn it over to Eliseo for an update on our clinical programs Eliseo?

Eliseo Salinas

Thanks Mike, as Mike mentioned it is indeed an exciting period of time for all of us down here at Adolor. 2009 was a year of rebuilding our pipeline and 2010 will be an important year in terms of measuring our progress in the clinic. We take pride on the fact that the pipeline reflects our commitment to the management of paying conditions with two high profile programs addressing major medical needs. I will start with our Delta receptor agonists program, where our clinical activity will yield important results in the second half of 2010 and early 2011.

In October Pfizer and we began enrolling patients in our Phase 2a proof-of-concept study evaluating our 2 delta compounds ADL5859 and ADL5747 in osteoarthritis. This is a forum study designed to enroll 400 patients and compare each compound against Placebo and oxycodone CR for two weeks.

Enrolling the studies progressing on schedule and we anticipate sharing the resource of this important trail in the third quarter of this year.

In January, Pfizer and we also began enrolling patients in a phase 2a proof-of-concept study evaluating ADL5747 in patients with post-herpetic neuralgia. This will be an 80 patient study designed to assess the efficacy and safety of ADL5747, in controlling neuropathic pain. We expect the results from this study will be available in early 2011.

We are very happy to see progress in the delta program. We believe this program has extraordinary potential to address the medical needs of a significant population of chronic pain in patients without some of the serious complications and side effects associated with new opioid

Turning now to our OBD program, we made a decision last year to focus our resources on this large and underserved the market, through our past development of alvimopan for OBD Adolor has a wealth of experience to bring to there on two exciting compounds ADL7445 and ADL5945 both undergoing phase1 studies.

Our experience in this area has enabled us to design a streamline clinical development program that in the second quarter will assess say safety and tolerability in patients with opioid bowel dysfunction, based on the resource of the first part of this program, we intend to begin proof-of-concept Phase 2 studies during the second half of the year under one or both of this compounds as appropriate.

I am delighted, we are once again actively developing compounds that address OBD. Those of our product candidates are highly peripheralized new opioid receptor agonist, a mechanism of action that has been validated in treating opioid bowel dysfunction. OBD is an under server market with the millions of afflicted patients. As I previously mentioned Adolor has a long history in this area and some hard earned expertise that we intend to put to using advancing is development candidates.

We feel that our two compounds and our experience in the signing and conducting OBD trials position us well to be a formidable competitor in this space. I look forward to keeping you updated on our growth in both of these important programs. I will now turn it over to Stephen Webster to review the 2009 financials. Stephen?

Stephen Webster

Thanks, Eliseo. Total revenues for 2009 were $37.4 million consisting of $22.8 million from our collaborations with GSK and Pfizer and $14.6 million in net ENTEREG sales. Revenues in 2009 decreased by $12.1 million from 2008 which included a $20 million milestone payment from GSK upon FDA approval of ENTEREG.

During the fourth quarter, we changed our revenue recognition method and now recognize product sales upon shipment to our hospital customers. Under the prior method and as it is done conventionally with newly launched products we recognized product sales only on reorders from an existing registered hospital customer. The $14.6 million of 2009 net sales includes $0.9 million of revenue from shipments in 2008. fourth quarter 2009 revenues were $13 million up from $8.4 million in the fourth quarter of 2008, net ENTEREG sales in Q4 2009 were $7.5 million versus $1.1 million in Q4 of 2008. Of the $7.5 million, $4.9 million was from Q4 shipments with ENTEREG and $1.6 million was the results of the aforementioned change in revenue recognition policy. Contract revenues in the fourth quarter were $5.5 million down slightly from $7.3 million the prior year.

Turning to expenses, operating expenses were $86.3 million and $84 million for the years ended December 31, 2009 and 2008 respectively. Cost of good sold was $1.5 million or 10% of net product sales for the year ended December 31, 2009. Custom goods sold reflects royalties due to license fees and FDA licensure fees as well as the cost of products sold.

R&D expenses for 2009 decreased by $8.8 million to $43.9 million due to lower costs of clinical trials incurred in 2009 in our Delta program lower costs in our pre-clinical programs and lower personnel costs following a reduction in head count from our June 2009 restructuring. These reductions were partially offset by increased R&D spending and our OBD program including a $2 million payment in Q3 to Eli Lilly and company to secure rights to ADL5945.

SG&A expenses increased 19% from $31.1 million in 2008 to $36.9 million in 2009. The increase in 2009 was driven primarily by higher sales and marketing expenses associated with ENTEREG including the expansion of our sales force and marketing activities. These higher sales and marketing expenses were partially offset by lower general and administrative expenses year-over-year. For the fourth quarter of 2009, cost of goods sold was $0.8 million or 11% of net product sales. R&D expense in the quarter was $8.5 million down $5.3 million from the year ago period, SG&A expenses were $10.9 million up slightly from $10.5 million in the corresponding quarter of 2008 for the reasons just mentioned.

Our reported net loss of 2009 was $47.9 million or a dollar and $0.03 per share versus a loss of $30.1 million or $0.65 a share in 2008. Again 2008 results were favorably impacted by the $20 million milestone payment from GSK.

We closed the year with $83.2 million in net cash and short-term investments. In 2009, we used cash of $48.7 million to fund operations. We had approximately $46.3 million shares outstanding at December 31. Mike

Mike Dougherty

Thank you Stephen. In closing we are pleased with the progress in our business during 2009 not only with ENTEREG but also and in particular on the clinical development front with our OBD and delta programs. 2010 is an important year for us as well, in the third quarter Pfizer and we expect to report the results from our proof-of-concept study of both of our compounds and patients with osteoarthritis of the knee.

In early 2011, we should have the results of the post-herpetic neuralgia proof-of-concept study of 5747. Likewise, early stage clinical data will begin to shape our OBD program and we look forward to reporting our progress in each of these areas.

2010 will be an important year for ENTEREG as well, with that in mind we are offering guidance on ENTEREG net sales for 2010 for the first time. We are projecting ENTEREG net product sales will be between $30 million and $35 million for the year ending December 31, 2010. This range represents significant growth over 2009 levels and speaks to our expectations for the continued growth of our products.

We look forward to reporting continuing progress in future periods and with that Eliseo, Stephen, and Mike Adelman, who runs marketing of sales here at Adolor and myself would be delighted to now take your questions. Operator?

Question-And-Answer Session


Thank you. At this time we will take any questions that you may have. (Operator Instructions). The first question comes from the line of Greg Wade with Wedbush. Please proceed.

Greg Wade - Wedbush

Good morning and thanks for taking my question. I have a couple of questions. Michael, especially the Health System Pharmacists study you hope to have published, could you just give us some indication as to what the real world days of hospital stay there are typically for patients that both receive ENTEREG and don't receive ENTEREG? I know that the federal statistics suggest that it is around ten days in the absence of ENTEREG. And then the other question is, with respect to the guidance, looking at the month-over-month growth rate that you have in 2009, is there any change to that growth rate anticipated to achieve the low end of your guidance? Thanks.

Mike Dougherty

Yeah, good morning, Greg, and thanks for the questions and maybe I’ll take your second one first and then Eliseo and I can tag team on your first question.

In terms of guidance, yes, it is a new initiative for us. You certainly heard from us in the past that we expected the sales of ENTEREG will continue to grow, ENTEREG is going to become an important product in the hospital community and for us, and with 2010 we are beginning to lay out the build that we expect to see at least the first part of that build.

So, in 2009, to give you a little color, we saw steady growth. Product shipments grew each quarter by about $1 million, from 2 million to 3 million to 4 million and to 5 million. And we expect that kind of growth is going to continue and hopefully increase and with that our range. So, turning to your first question on the health systems, I think in advance of that publication, we are going to may be speak more generally to your question. What we saw on our study was consistent with the savings that, the rental space savings that we saw on our clinical program, which as you know is somewhere about a day and may be, Eliseo, you can jump in here.

Eliseo Salinas

As you mentioned, listen to your question there are two sets of studies, one independent study the MUE, medications, evaluation, some of which were reported at the American Society of Health System Pharmacists meeting a few months ago. Those are independent studies, so -- and each hospital has their own sort of type of data, it varies from hospital to hospital as you have probably seen their publications, nationwide publications before the approval of ENTEREG that give you the mean hospitals stay for bowel resections.

And but it changes hospital-to-hospitals, so each hospital have their own individual data points. And after communication at the Congress, we understand that several of those are planning to publish the result, and you will see them when they are published, but we don’t control that data.


(Operator Instructions). Our next question comes from the line of Ehab Alissa [ph] with Joy Funds [ph] please proceed.

Ehab Alissa - Joy Funds

Hi. I need to ask you about the cash level in year end 2009 and we are worried about the depletion of cash level in 2010? Thanks.

Stephen Webster

Good morning and thanks for the question. We do want to discuss our burn rate, it’s something we’ve put a good deal focus on. Our 2009 burn -- your question is higher than in 2008, largely because of the fact that 2008 included some milestone payments that didn’t exist in 2009.

But at the same time, there are certain areas of expense that are lower than in prior years and this will be the case going forward as 2010 we'll see the full expense benefit of the restructuring we did last summer. A big part of our plan to decrease the burn it goes without saying is obviously to increase our sales in ENTEREG. But separate from all that there are expenses that are increasing as well notably in clinical development and in particular in the OBD program. We feel this is appropriate given the potential value of the program but at the present time it’s a situation where it requires investment before we get to those value inflection point that maybe of interest to investors and partners. So we recognized all this and certainly seek to mitigate this financing risk and with that an increasing focus of ours over time will be to consider possibilities for partnering our OBD program.

Its something that we at Adolor, I believe, have been good at in the past with both our lead programs, arrangements with GSK and Pfizer, and we think the OBD program is that kind of program that will provide us these kinds of partnering opportunities going forward. So in the mean time, we will most certainly continue to monitor all of our expenses.

Ehab Alissa - Joy Funds

What about considering selling the company as we see the share price is below the cash level and we are staying here for, like, one year? And as shareholders, we don't see any interest from Wall Street in the company. Can you elaborate about this please?

Mike Dougherty

We are operating our company with a long-term view. Having said that, we are not opposed to any kind of structure that makes sense but clearly in any scenario or situation that may develop, we believe the constant in all that is the value equation is best served by executing on the objectives and plans that we’ve laid out and that’s where our focus is today. Thank you. And we will take one more question. Operator?


Our final question will come from the line of Charles Achario [ph] with Prime Investments, please proceed.

Charles Achario - Prime Investments

Great job on conserving cash and your numbers look great. Just a simple question about ADL5747, when will you actually trigger another milestone payment in that? Will it be the clinical trial that you guys are going to finish up this year or will it be the following year?

Mike Dougherty

It will be -- the next milestone payment in the delta arrangement will be on commencement of the next stage of clinical evaluation. We are in Phase A right now, that next payment would be due on the commencement of Phase 2B.

Charles Achario - Prime Investments

Okay, so it stops on Phase 2B. And one more quick question is, as far as your cash burn rates, do you have any estimates out there like for 2010 what you are expecting for like your cash burn rate to be?

Mike Dougherty

We are offering sales revenue guidance today but no other guidance. We believe the sales guidance is important, expense guidance is always difficult with the variability that goes into that.

And thank you everyone for your attendance today, and we look forward to updating you down the road.


Ladies and gentlemen, that does conclude our conference for today thank you for participating you may now disconnect.

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