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The Medicines Company (NASDAQ:MDCO)

Q4 2013 Earnings Conference Call

February 19, 2014 08:30 AM ET

Executives

Neera Dahiya Ravindran - VP of IR and Strategic Planning

Clive Meanwell - Chairman and CEO

Glenn Sblendorio - President and CFO

Bill O'Connor - CAO and SVP

Analyst

Louise Chen - Guggenheim

Jeremiah Shepard - Credit Suisse

David Amsellem - Piper Jaffray

Cory Kasimov - JPMorgan

Jonathan Eckard - Citi

Umer Raffat - ISI Group

Steve Byrne - Bank of America

Biren Amin - Jefferies

Adnan Butt - RBC Capital Markets

Operator

Good day, ladies and gentlemen and welcome to the fourth quarter 2013 The Medicines Company Earnings Conference Call. My name is Shekwana (ph) I will be your coordinator for today. At this time, all participants are in a listen-only mode. We will facilitate a question-and-answer session towards the end of this conference. (Operator Instructions).

I will now like to turn the presentation over to your host for today’s call, Neera Dahiya Ravindran, Vice President of Investor Relations and Strategic Planning. Please proceed.

Neera Dahiya Ravindran

Good morning and thank you for joining us today for the Medicines Company’s fourth quarter and full-year 2013 financial and operating results. I would like to remind you that this call will contain forward-looking statements about The Medicines Company that are not purely historical and all of the statements that are not purely historical maybe deemed to be forward-looking statements that involve a number of risks and uncertainties.

Without limiting and foregoing the words believes, anticipates, plans, expects, estimates, aims, promises and similar expressions are intended to identify forward-looking statements. Important factors that could cause actual results to differ materially from those indicated by such forward-looking statements are identified in the Company’s SEC filings, including the Form 10-Q filed with the SEC on November 9, 2013. Copies of our SEC filings can be obtained from the SEC or by visiting the Investor Relations section of our website.

I would also note that during the call, we may refer to adjusted net income measures, which exclude amortization of acquired intangible assets, deal-related charges, stock-based compensation expense, arbitration award, changes in contingent consideration, non-cash interest and net income tax adjustments. Please refer to the reconciliation of GAAP to adjusted net income and adjusted EPS statements in our press release for explanations of the amounts excluded and included to arrive at the adjusted net income and adjusted earnings per share. The press release can be obtained by visiting the News and Events section of our website.

This morning Clive Meanwell, Chairman and CEO of the Medicines Company will provide an overview of the company with operational highlights and Glenn Sblendorio, President and Chief Financial Officer will present financial guidance for 2014. In addition Bill O'Connor, Chief Accounting Officer and Senior Vice President will be available to answer questions during the Q&A session.

With this introduction, I give you Clive Meanwell. Clive?

Clive Meanwell

Well, thanks very much Neera, and welcome to everybody from a temporally soaring New Jersey and today we’re going to report business and financial results for the year 2013 which met or exceeded all of our goals for the year. The results include growth of 23% in net revenue driven by worldwide growth of 11% for Angiomax including 25% for Angiomax international revenue and more than 50% for Cleviprex and for our Gastric Band. We also added $63 million of Recothrom sales.

This means that we’re treating more and more patients undergoing PCI requiring a reduction of blood pressure when oral therapy is not feasible or desirable, those with thrombosis associated with heparin induced thrombocytopenia and now also those surgical patients who need an aid to stop blood loss.

During the year we completed and reported positive results from major phase 3 of phase 4 clinical studies for Cangrelor, Oritavancin, Fibrocaps and Angiomax or Angiox. We also completed three global acquisitions; Incline Therapeutics, Profibrix and Rempex Pharmaceuticals. We also did a US license under global option to acquire Recothrom from Bristol Myers Squibb, a global product development partnership with Alnylam, and a US co-promotion partnership with Boston Scientific.

As we described in early October 2013, these major investments in a diversified acute and intensive care portfolio will fuel our future growth. Including these investments, certain deal costs, restructuring and arbitration payment all of which are detailed in our financial statements published today; our GAAP net income was $15.5 million for the year.

Underlying these data, our operating business grew robustly. In 2013 adjusted net income also defined in our financial statements increased 28% to $92 million for the year and we ended the year with a healthy $377 million of cash equivalents.

We made progress building a significant effort to combat serious and potentially life-threatening infections. Oritavancin completed its phase 3 trials in Acute Skin and Skin Structure Infections and was awarded qualified infectious disease product or QIDP status by the FDA. The QIDP designation provides Oritavancin priority review by the FDA, eligibility for their fast track status, and an additional five years of exclusivity upon approval of the product. This morning we announced that the FDA has filed the NDA and announced a PDUFA date of August 6, 2014.

Our accusation of Rempex Pharmaceuticals [bought us] a very strong portfolio of injectable development compounds including one oral for the potential treatment of multi-drug resistant gram-negative infections. Among these, Carbavance is the most advanced in development and poised to enter phase 3 studies in 2014. Carbavance is a combination of a carbapenem antibiotic with a novel beta-lactamase inhibitor, so called RPX7009 for treatment of MDR gram-negative infections. RPX7009 is the first of a novel class of beta-lactamase inhibitors designed to inhibit the klebsiella pneumoniae carbapenemases or KPC enzymethe the primary resistance mechanism for carbapenems.

KPC-producing bacteria are the predominant form of carbapenem-resistant bacteria and are classified by the U.S. Center for Disease Control and Prevention to be an urgent antimicrobial resistance threat.

In January the FDA designated Carbavance as a QIDP product. This designation applies to six indications for the compound. These include complicated urinary tract and intra-abdominal infections, hospital-acquired bacterial pneumonia/ventilator-associated bacterial pneumonia, and febrile neutropenia.

Earlier this month we announced that our wholly owned subsidiary Rempex Pharmaceuticals has been awarded a contract by the Biomedical Advanced Research and Development Authority or BARDA to support the development of Carbavance. The BARDA contract is a cost sharing arrangement and includes non-clinical development activities, clinical studies, manufacturing and associated regulatory activities designed to gain U.S. approval of Carbavance for the treatment of serious gram-negative infections. The contract includes an initial commitment of $19.8 million by the government and subsequent option periods of five years that if completed would bring the total value of the award to approximately $90 million.

The Rempex team also brought with them MINOCIN IV a product already marketed in the United States which we believe will have utility and Acinetobacter infections, an increasingly challenging clinical problem. We look forward to launching that in a focused manager in 2014 and introducing a new improved formulation of the product thereafter.

Turning to our strategy -- tending to our surgery and postoperative care business focus we remain on track to submit sNDA for Ionsys, which is a patient-controlled analgesia system in development for the management of acute postoperative pain in the first half of 2014. European market authorization application submission is anticipated in the third quarter of 2014. Fibrocaps, our dry powdered topical fibrinogen thrombin haemostatic agent in development for surgical and perioperative use also continues to progress as planned. Our team delivered the market authorization application in Europe to December and we’re on track with our U.S. NDA submission process.

All of this outstanding execution and progress with [indiscernible] last week with an unexpected negative vote from the FDA Cardiovascular and Renal Drugs Advisory Committee for cangrelor. We were very disappointed and very surprised at the outcome. However we see this as but one of several important steps in the process of NDA review by the agency. Subsequent to the committee meeting we have talked with officials in the reviewing division of cardiac and renal drugs and the supervising office of drug evaluation to consider next steps. We believe that we can objectively address any and all concerns raised by the committee during its deliberations last week.

We believe that the available data support the compound’s effectiveness and safety and that if approved, cangrelor will address important unmet medical needs. The PDUFA action date for cangrelor is April 30, 2014. We remain very committed to the development, regulatory review and assuming approval the launch of cangrelor worldwide. Our European MAA filing has been accepted and therefore we anticipate EMA reviews will also progress as planned.

The investment thesis for The Medicines Company is based upon our strategy for growth over the next five years. We have 580 employees and together we’re moving forward with our purpose which is to save lives, alleviate suffering and improve the economic efficiency of healthcare by focusing on around 3,000 leading hospitals worldwide. This is a concentrated yet growing market. Over the next two years we anticipate launching six new products and we will continue to increase the number of patients treated with our products driving revenue growth in excess of 20% through 2018. We believe that our leveraged business model will also enable attractive returns on our investments.

Looking on to the rest of 2014 this is a year of focused execution for us a year in which we anticipate moving our five phase 3 completed compounds through the regulatory review process ensuring we have established manufacturing and supply chain arrangements and preparing value based pricing and reimbursement data for each competent authority in the markets which we plan to launch these products in.

And by way of reminder the five compounds in such late stages of development are cangrelor, oritavancin, the IONSYS system, Fibrocaps and the new formulation for MINOCIN. We also expect to launch Cleviprex in Europe during the year and to progress Carbavance into Phase 3 studies move forward both ApoA-I Milano and our clinical candidate selection activities with our partner Alnylam for PCSK9 RNA interference and move forward our early stage anti-infective portfolio.

We’ll continue to push our core businesses anticipating growth for Angiomax worldwide, for Recothrom, for Cleviprex and for MINOCIN IV. We’ll intensify our out-licensing activities for the Asia-Pacific region and Latin America, seeking partners who can help us to gain regulatory approval and launch our products in these regions. We may anticipate some upfront payments if we achieve these goals.

And we will continue to seek smart in-licensing and/or focused acquisition deals which add to the diversity and strength of our three business areas namely acute cardiology, surgery and perioperative care and infectious disease care in leading hospitals.

Before I turn the call over to Glenn, I would like to mention our upcoming Investor and Analyst Acute Cardiovascular Day on Friday, March the 7th, beginning at 11:30 a.m. this meeting will be held at our centre which is 8 Sylvan Way in Parsippany, New Jersey.

One of the two of our friends and colleagues in the investment community have asked us whether this event should be postponed or cancelled in the way the FDA advisory panel meeting for cangrelor last week. Nothing could be further from our mind. The goal of the event is to take a deep dive into the cath lab environment, the therapeutic challenges and the options, the data that underscore our belief that new technologies such as cangrelor, such as Brilinta, the Promus Stent and Angiomax, new processes of care and new behaviors can create substantial value in the management of coronary artery disease in hospitals. That’s our business and that’s the business we plan to stay in, so come along and we will tell you all about it.

We will also cover the immensely interesting and emerging developments in the management of acute decompensated heart failure where several new compounds not only ours are in late stages of development. During the event MDCO content experts, outside medical advisors and management will provide data insights and perspectives in our interactive learning center. If you not yet had a chance to register or receive an invitation to the event please reach out to our investor relations team who will gladly assist you.

So, we look forward to you all coming out. We promise it won’t be snowing. And with that I will turn it over to -- that was a forward-looking statement however. And with that I will turn it to Glenn for 2014 guidance. Thanks Glenn.

Glenn Sblendorio

Yes, thank you, Clive and good morning everyone. Thanks for joining today. In 2013 as Clive said we achieved our financial growth goals while significantly broadening our hospital portfolio. We diversified the portfolio from being predominantly an acute cardiovascular company relying on one product Angiomax, to one that is now diversified with cardiovascular, infectious disease and surgery and perioperative care solutions.

This morning we released a guidance worksheet which is on our website. This worksheet should be the roadmap for what I outline today. The worksheet spells out our guidance both on a GAAP and an adjusted net income basis.

Just to go through it again the adjusted net income removes the impact of intangible amortization, milestones, changes in contingent consideration and stock based compensation. With that I will review our financial guidance for the year.

First, for net revenue, we expect 745 million to 760 million on a GAAP and adjusted basis. This represents an 8% to 10% growth year-on-year without the launch of new products in 2014. We are excluding new products because of the inherent uncertainty surrounding the timing of regulatory approvals. This could include cangrelor with PDUFA date of trial set of April 30th, oritavancin with a PDUFA date of August 6th as well as some of the other products we spoke about.

Consistent with previous years we expect 45% to 48% of existing product revenues in the first half and the balance in the second half. And of course we will update our guidance if new products are launched.

For the cost of revenue, we are guiding to 38% to 39% on a GAAP basis and 35% to 36% on an adjusted basis. This includes the maximum Angiomax Biogen royalty which continues through mid-December of 2014 as well as the Recothrom royalty that we pay to Bristol-Myers Squibb and that continues through February 2015. Therefore the GAAP number also includes intangible amortization stock based compensation of approximately 23 million.

We are looking forward and plan to spend up to 165 million to 175 million on a GAAP basis for R&D and 150 million to 160 million on an adjusted basis. These numbers assume, as Clive said that Carbavance registration trials could begin in the second half of 2013. The GAAP R&D number includes approval milestones and stock based compensation of $15 million.

For SG&A, we are guiding to 285 million to 295 million on a GAAP basis and 215 million to 225 million on an adjusted basis. Of note 2014 now includes a full year of expenses for the acquisitions we made. The GAAP number also includes 70 million of intangible amortization, changes in contingent consideration and stock based compensation.

Moving onto taxes, we are guiding to 22 million to 26 million for tax provision on a GAAP basis. This very high effective tax rate is as a result of non-deductible expenses for tax purposes specifically CVRs or contingent value rights and foreign losses. We expect the tax rate to be 36% of adjusted fee tax income.

Very important to note as we have said in prior years the cash taxes we expect to pay next year will be about $3 million to $5 million.

Finally, we anticipate cash flow from operations to come in at 85 million to 95 million and again that excludes any milestones to be paid in 2014. As you update your models, I would encourage and please feel free to call out either Neera, Michael or Bill who is with us today with any questions.

Now I would like to turn it back to Clive.

Clive Meanwell

Thanks a lot Glenn, I presume I can call Bill too if I get confused.

Bill O'Connor

All the time.

Clive Meanwell

Okay. Well let’s open to questions please operator.

Question-and-Answer Session

Operator

(Operator Instructions). Your first question comes from the line of Louise Chen representing Guggenheim. Please proceed.

Louise Chen - Guggenheim

Hi, good morning. Thanks for the question, I had a few. So first question I had was we have gotten a lot of people asking us whether you would pursue another trial for Cangrelor if that is what it takes to get the drug approved. I know you don’t have all the information yet but under what circumstances do you think you would pursue another trial?

And then secondly I was wondering if you could highlight for us what steps it took you to get Angiomax approved despite a negative outcome for the drug.

And then lastly just on Oritavancin and IONSYS, do you feel that these are easier drugs to get through the approval process than Cangrelor and why or why not? Thank you.

Clive Meanwell

Louise, thank you very much. Let me deal with all of those. On the question whether we think or what we think we would do about another trial, I think it’s premature. We don’t know enough and it would be not an opportune moment I think to speculate about that at the moment.

How do we get Angiomax approved after a negative panel vote all those years ago? Well two good signs, I think that the data we had then on Angiomax which was (indiscernible) to date was however very sound and was considered sufficient for regulatory approval by FDA decision makers. I believe that would be the same case for cangrelor.

Regarding Oritavancin and IONSYS, people here at the company know that I have a tendency to say the following. There are two kinds of NDA review processes, difficult ones and very difficult ones. No drug approval in my opinion should be easy. I think given that most of our grandmothers could be involved at some point in getting these drugs, none of us wants those standards to be low, and they are not. And so for Oritavancin and for IONSYS I expect the regulatory processes to be challenging on a worldwide basis but I also expect us to meet them with our scientific and regulatory information and we’ll get through those too. So no, I don’t expect Oritavancin and IONSYS to be any easier, I don’t necessarily expect to have a negative panel vote however, that’s something I am trying to avoid.

Operator

Your next question comes from the line of Jason Kantor representing Credit Suisse. Please proceed.

Jeremiah Shepard - Credit Suisse

This is Jeremiah for Jason, thank you for taking my questions. Regarding the Oritavancin and the acceptance, do you only thing back for Targanta for the acceptance, are there any milestones for the near-term for this program and when can that -- what's the timing of those?

Clive Meanwell

Good question Jeremiah, thanks. Glenn, do we have to write a cheque today?

Glenn Sblendorio

No, there is no cheque required.

Clive Meanwell

And upcoming milestones for approval?

Glenn Sblendorio

Jeremiah, I think of the -- all the contingent consideration around Targanta was around the timing of regulatory, we did have a CBR that did expire last year and there are additional CBRs that are related to sales, so those are still upcoming.

Clive Meanwell

Was there another question, Jeremiah while you are on?

Jeremiah Shepard - Credit Suisse

Yes there is one more follow up. And in terms for the NDA, do you expect that it could be reviewed with the Tedizolid and Dalbavancin NDA in March 31 Zicam or is that something that related to that?

Clive Meanwell

In the letter we received from the FDA concerning file ability, the FDA informed us quote that we’re not currently planning to hold an advisory committee meeting to discuss this application, I think it’s therefore unlikely that we would be included in that two way advisory panel meeting at this stage.

Operator

Your next question comes from the line of David Amsellem representing Piper Jaffray. Please go proceed.

David Amsellem - Piper Jaffray

Just a high level question, let’s assume that cangrelor is not ultimately approved, does that in any way change your overall business development strategy? Do you then pivot to more commercial stage assets as opposed to more R&D focused acquisitions along the lines of what you've done in the past?

And then secondly to the extent that you can and will do sizable acquisition, give us a sense of the maximum amount of leverage that you potentially would consider taking on in the near-term in terms of say debt to EBITDA. Thanks.

Clive Meanwell

David you are way ahead of me on assumptions there. I’m not assuming it’s not going to be approved, certainly not today anyway.

David Amsellem - Piper Jaffray

Well it’s a hypothetical.

Clive Meanwell

Isn’t it just. So I think the answer would only be hypothetical in that for another great value. But as far as be the opportunities and activity is concerned, I think we have enjoyed these sort of smart bolt-on game plan that Glenn has laid out so effectively. I think it's transformed the company in bite sized pieces from this Angiomax US focus to a global multiproduct. But still very focused and leveraged business. And although 2014 is a year we're going to execute all those to get it to market, I think that's going to be a winning strategy for the company going forward. At least that’s what I anticipate. Glenn, are you thinking of doing some massive deal that you haven’t told me about?

Glenn Sblendorio

Not yet, you need to ask Bill though.

Clive Meanwell

No, seriously David, I mean, we will look at things, but really to find something that was that smart and that big, I mean its about my pay grade, thank you. You may ask something which…

Glenn Sblendorio

Well I will, say David, we continue to learn, we look not only here in the United States, we look in Europe. I think for those of you that (indiscernible) and come across as it’s a very large business development group. I would say everything that we believe is available; we’re taking a look at. If we could find the right revenue opportunity of course we would look at that, but a couple of things, you know, it’s obviously got to fit the business, it's got to have an appropriate return and then we will take on the consideration as to how we finance that. But it really has to be the right accusation. As Clive said, we have pretty full plate, that’s not to say that we won't do more acquisitions this year. But I think very selective.

Operator

Your next question comes from the line of Cory Kasimov representing JPMorgan; please proceed.

Cory Kasimov - JPMorgan

First of all you guys talked about sustained growth through 2018, now that obviously assumes that there are no generic entrance for Angiomax over that time. So should we take this to mean that you remain confident that will indeed be the case?

Clive Meanwell

Our position on longevity [threat] Angiomax remains the same. We are ready, willing and able to defend our intellectual property rights to the hilt. We are ready, willing and able to debate smart settlements with people who are interested and I believe that both of those mechanisms are feasible and both of those mechanisms are kind of in play given we already have two settlements. And 2019 I think remains our belief. Obviously we might be wrong and if that’s the case I think you’ll find that this portfolio is capable of, and our business development team is capable of filling any gaps that may occur as a result of Angiomax not being exclusive in the US after 2015, mid 2015. But I think that we’re quite comfortable with -- either way that the company will continue to grow, obviously the growth rate will be different depending on the Angiomax scenario.

Cory Kasimov - JPMorgan

Can you say how many new product approvals your long-term revenue growth guidance assumes?

Clive Meanwell

It's entirely based upon what you see in front of you. We haven’t made up any, if you know what I mean.

Cory Kasimov - JPMorgan

So I mean, if you assume that every one of your products is approved for that guidance as opposed to you assume tip rate of say two thirds or something?

Clive Meanwell

Remember, that by the time we gave the ideas, which was back in October, we already have phase 3 data for all of those products in our hands. And in our view every one of our products has not only met but actually exceeded the pre-specified statistical analysis targets which were pre-agreed with the FDA and the EMEA experts for all of our phase 3 programs.

Now if you look at the industry statistics, and I’ve been a student of this for 30 years, obviously going into phase 3 you are absolutely right. There is about a 60% to 65% success rate. After phase 3 trials meet that primary endpoint in every way, safety and effectiveness and that’s the case for all of our products; then the likelihood that one of them goes down during the regulatory review process, if you look back historically statistics is much less than 10%. So it’s only about a 90% hit rate on six products, so that’s, to me that’s 5.4 product launches. How (indiscernible) is going to launch 0.4 of a product I am not sure.

Glenn Sblendorio

And Cory just to be clear, the slide we did show on October 9 and then there was a question that actually came up, we clarified. That is non-risk adjustments. That is without any risk factor there.

Clive Meanwell

And Cory, all joking aside, look I mean, drug developers have a natural enthusiasm for what they’re doing and a resilience, and they often come to claim when I say, this is in phase 2, it’s got an 80% likelihood of approval, and we say well go and do your math again. Because you are absolutely right, there are [one of five day] statistics for likelihood of success, under certain conditions that the industry knows and you will know [in the street]. And none of our planning here has assumed anything beyond what industry averages are for phase 3 products that met or exceeded their primary statistical plans.

Cory Kasimov - JPMorgan

Okay. And then one last question, do you have, based on your prior interactions with the FDA or you pre-NDA meeting, any sense of why you would not have a panel for Oritavancin while these other anti-infectives are having one?

Clive Meanwell

More on going on is the letter we received from the agency which is their filing communication which we received recently and the sentence that I’ve read from the letter which is we are not currently planning to hold advisory committee meeting to discuss this application. Don’t have any color beyond that and we’ll see what happens next.

Operator

Your next question comes from the line of Jonathan Eckard representing Citi. Please proceed.

Jonathan Eckard - Citi

Thank you for taking the question, and also on oritavancin, can you just refresh my history when -- did you or Targanta poll the prior NDA after they got the complete response there or is this kind of a -- it was a submission response to that complete response.

And then also if I’m not mistaken, from the Targanta kind of review and filing I think that they did have [indiscernible] meeting for that drug or for the drug first round and the kind of questions where they didn’t really have enough data for MRSA back then and so they want to do additional trials. So I’m just trying to get your view on the data that you guys have in MRSA today and how confident you are that addresses what the panel and the FDA were looking for last time?

Clive Meanwell

Jonathan I think you’ve nailed it very well, that is very good observation. First of all on the tactics of their filing, you’re right we originally saw this as a submission in response to the FDA’s complete response to Targanta. However, because of the issues surrounding qualification for QIDP, we attribute through the resubmission if you like and submit it as a fresh NDA in order to qualify for QIDP, so those were the technicalities around that first point you made.

Your second point I think is also correct at the advisory committee meeting which Targanta was part of, perhaps the principal issue was that the two pivotal trials at the time which you may recall was divided doses of oritavancin, not the single one and you are done approach. But the number of MRSA patients that have been treated in contemporary therapy conditions was considered by I think some of the FDA and some of the panel as being not quite enough to pull the drug out of the goal line, there were also issues related to margin of non-interest at least on one other trial, so some issues that were not quite sort of dealt with.

We had long discussions with the agency concerning the need for MRSA evidence and in both of that trials which were approximately 1,000 patients each, more than 30% of the patients had MRSA. And by way of a reminder, the results were even better in the MRSA patients than they were in the overall population.

So I think we feel confident that our level of evidence and quality of evidence under this SPA agreement with the FDA will meet their needs for the review. But of course as with all reviews we’ll wait to hear their viewpoint. So I think your analysis is right and I think we’re feeling in reasonably good shape but let’s see how the review goes.

Operator

Your next question comes from the line of Umer Raffat representing ISI Group. Please proceed.

Umer Raffat - ISI Group

Hey guys, good morning. Thanks for taking my question. I had a -- so I was curious, are you guys expecting a trial date with Mylan this year? And also are we still on track for IONSYS filing in U.S. this quarter? And I had a quick follow up with Glenn as well. Thank you.

Clive Meanwell

Thanks very much Umer. Welcome. Trial date with Mylan, yes, I think somewhere in the middle of the year.

Glenn Sblendorio

That’s right Clive.

Clive Meanwell

And secondly, IONSYS filing, yes, I’m looking at chart that we showed on the 9th of October because there is so many of these I can’t keep track of them all. But yes I think we actually [straddled it] if you remember somewhere between the first and second quarter, so a smart way to think about it this is the first half submission of both -- oh wait a minute -- yes of the sNDA. And remember this is an sNDA, not a full NDA, and the MAA would go in for Europe late this year sort of third quarter-ish, and that seems to be on track. Yes.

Umer Raffat - ISI Group

Okay, great. And then Glenn we appreciate all the color you’ve given us on the expenses needed for the upcoming launches. And I was curious when I look at the 2014 guidance, especially on a non-GAAP basis, it appears to be slightly below where the run rate for Q3 and Q4 SG&A expense was tracking in 2013. So I am curious, does that 2014 guidance, is it still baking in that 40% of launch related expenses?

And then also in the absence of cangrelor, do you still expect similar level of SG&A build-up?

Glenn Sblendorio

Let me come back to your first about Mylan just because we give you kind of announcement of specifics. It is June, I believe, it’s early June of 2014 is the scheduled court case.

So, a couple of questions around the guidance, one, I think and the reason for the worksheet today is that I think it’s very important especially in the commentary that when you look at the amount of expenses primarily on an adjusted net income basis which excludes the amortization which is really kicked into full force in this year. I think if you add all of that up, it’s approximately $85 million of amortization and approval milestones related to that. And I think as you look at your models I think that’s an important part, so the very aggressive acquisition strategy that we took with back ended deals which require then that you amortize or build-up to the potential approval payments is really weighing pretty heavily on the numbers on a non-cash basis.

So your question about launch cost, I think as it relates -- if cangrelor comes to the market, I think in terms of additional launch cost very small if any, I think that infrastructure is in place. So, there is no sale, there is not cost of sales on cangrelor. We did pull all new product launches out.

In case of oritavancin which if everything went hypothetical near the end of the year, we would probably have to build some support. Clive and I have talked about also the possibility of working with somebody to help us. So, there would be revenues and launch cost that are not in this model yet. So, I think that’s something we are looking at. The same with the other one on the list that’s in the near-term is IONSYS.

We do have folks in the field here in the United States. We probably have to supplement that at the point in time that, that product is approved and launched but most likely that impact is largely in 2015.

So, I hope that helps you a little bit but the model we have here today is well structured to handle any cardiovascular launch. We will have to build up some resources on infectious disease side. We are looking for place to maximize that whether it’s through some type of partnership or collaboration with somebody. And surgery and perioperative care, we're selling a couple of products here in the U.S. We have folks as the portfolio increases, we will probably have more folks.

Umer Raffat - ISI Group

Okay, great.

Glenn Sblendorio

I think Clive gave a very good summary back in when we did the Analyst Day as to projected full scale ramps meaning that as these products really scale up with the type of numbers might be and I don’t have those in front of me but it’s a matter of breaking things up [and we do that again].

Umer Raffat - ISI Group

Okay, great. And another launch related cost in the ‘14 guidance to be clear.

Glenn Sblendorio

The only one I would say, and again I think it’s really people, a lot of the -- what you would expect in terms of add boards and meeting with different experts, all of that is happening today with existing folks. We don’t spend a lot of discretionary, what you would call marketing or promotional dollars. So, there are cost in there, I think the piece that you are missing is what I just talked about as these products come, we will have to add people in the surgery area, in the infectious disease area unless we take a partnering type of approach.

Clive Meanwell

But they are not in 2014.

Glenn Sblendorio

That’s correct.

Clive Meanwell

That’s right.

Operator

Your next question comes from the line of from Byrne representing Bank of America. Please proceed.

Steve Byrne - Bank of America

Okay, I think that was Steve Byrne. Anyway the questions I have for you was with respect to the advisory panel for cangrelor, one of the FDA reviewers have suggested a different metric for inferring the bleeding risk. Have you analysed your data using her metric and what do those data look like?

Clive Meanwell

I think you are referring to Dr. Bizley’s comments at the panel. We have done every which way analysis of our bleeding data and don’t see any differences that are material between hers and ours.

Steve Byrne - Bank of America

Okay. With respect to the trial design, did you have any specific input from the agency on the eventual PHOENIX trial design?

Clive Meanwell

Well as always we have detailed discussions with the FDA and the European agency on all of our phase III study designs including these ones. And so the answer to that is absolutely we did, yes and full agreement.

Steve Byrne - Bank of America

Okay. And then I just have one financial for you Glenn on that. Your non-GAAP SG&A guidance of 70 million is roughly 30 of that amortization?

Bill O'Connor

Steve, it’s Bill. We are actually pulling out the amortization from the non-GAAP numbers.

Clive Meanwell

I think he is asking us to breakdown the of 70.

Steve Byrne - Bank of America

That’s right.

Clive Meanwell

Yes, between amortization.

Bill O'Connor

It's actually closer to 50 million.

Clive Meanwell

50 and then 20 in stock options. 50 and 20, Steve.

Steve Byrne - Bank of America

And that 50 would include CBRs as well?

Clive Meanwell

Yes actually the two components we have there and I always apologize for the complexity in accounting. It’s the amortization of the intangible plus the changes in the CBR and those changes are the accruals that we make on a quarterly basis to accrue up to the potential milestone. So I would say if we didn’t break that out, if you need some help on that you can do that but the 50 is the combination of amortization of intangibles plus the changes in the CBRs.

Operator

Your next question comes from the line of Biren Amin representing Jefferies. Please proceed.

Biren Amin - Jefferies

Thanks for taking my questions. I guess first on Angiomax year-over-year growth seemed kind of lacklustre especially given the price increase that the company took earlier in the year, were there any reasons for that with potentially inventory fluctuations. Thanks.

Clive Meanwell

Hi Biren, no inventory fluctuations, I think that we've been very, very constant on that for some years now. I think that posting 11% global growth on a product that’s kind of 12 years to 13 years old, I think is credible to the team, I think they do a very good job, I think the growth in international sales is noteworthy particularly in Europe and that continues. So it is a mature product and we do expect it to continue growing at about 10% as we said and it achieved slightly exceeded that last year, so we’re comfortable of course the contribution that makes that business is ever increasing because the sources we have on Angiomax are now shared with Brilinta and with the Boston Scientific Stem launch. So I think it’s an extremely valued part of our business and would continue to grow in its contribution.

So I’ll agree, it’s slowing down, it’s a mature product, but we’re happy with the result we got.

Glenn Sblendorio

Biren just to clarify on the price increase every year that we do there, about 50% of the price actually falls into the value or the sales number. And the reason for that is contracting 340B things like that that don’t allow the full benefit of that to pull through. But if you do the math and you have both price or value in the number of growth and also units as well, especially in Europe.

Clive Meanwell

And then while Glenn was talking, Bill slightly corrected me, our inventory levels are actually slightly down year-on-year this year, so just FYI.

Biren Amin - Jefferies

Got it, and I guess Clive, Cangrelor related question. Am I correct I guess in interpreting your comments on this call as far as your confidence in Cangrelor’s approval on the premise that champion Phoenix had met the pre-specified stats plan and analysis and that’s what gives the Company confidence in its approval?

Clive Meanwell

You know again the fact I think speaks for themselves the planned, the study design analysis statistical design end points and so on. The suitability of those design, the way we conducted the trial, the medical need et cetera, I think that they do all speak, the fact speaks for themselves I think. I don’t want to muddy the pitch by sort of making comments about judgments today. But yes, I think as a Company we absolutely stand by our commitment to the product because of that scientific integrity and we believe that that’s how drugs get approved and that’s eventually what we think will happen here.

So that was a rough week period and I didn’t enjoy it as you probably realized but I think that we have very solid foundation with this product and there is a huge unmet need which medical experts in interventional cardiology will understand.

Operator

Your next question comes from the line of Adnan Butt representing RBC Capital Markets.

Adnan Butt - RBC Capital Markets

Two questions here, first on cangrelor. So the FDA had signed off on [indiscernible] would be given in the Phoenix study just want to make sure that’s in the trial design.

And then secondly on Carbavance, do R&D expenses assume pivotal trials starting this year. And what if anything is hold back to the government for funding and how much of the pivotal trial cost would that funding cover? Thanks.

Clive Meanwell

I am going to get Glenn and maybe Bill to help me with the bar diagram to -- it’s a deal with our Rempex subsidiary and it’s very important they administer it as such, so I don’t have all the details on my fingertips so would come back to Glenn and Bill in a moment.

As regard to the Cangrelor study design particularly the Phoenix trial but also Campion PCI and Champion platform, yes, all of those studies were designed with full understanding in concordance with the agency and specifically the dosing of Clopidogrel. The dosing of Clopidogrel in all of those trials met or exceeded the current FDA labelling requirements for Clopidogrel use. So wasn’t just that we kind of threw it in the protocol and then said is that okay, we actually cut and paste it from the Clopidogrel packaging insert which the FDA obviously has written. So I think we can say that Plavix or Clopidogrel dosing in the cangrelor program programs was reported by the regulatory agency, and on the BARDA stuff, Glenn?

Glenn Sblendorio

I think first on well answering the question about, yes the guidance does assume in the second half of this year that we would start registration studies on Carbavance. A lot of work to be done, I mean the team at Rempex has been working very diligently on this. I think some of the things that we need to sort out is obviously discussion with regulators, and things like that. But there is a fair amount of money in the second half of this year, based on the assumption that we will start, exactly when to be determined. And the reason I say that is that that impacts I think the way the BARDA funding will start.

In the guidance that we put forth today, there is no assumption on BARDA reimbursement, I think we have to really be sure and lock in our spending plan, and then that will determine how much BARDA funds come back to the Company. But the team at Rempex have put together certain assumptions on that funding. We just have not yet included the reimbursement based on that we have cost of starting trials.

Adnan Butt - RBC Capital Markets

And Glenn is anything related back to BARDA for them to help them support this study?

Glenn Sblendorio

Back to BARDA, the way it would work is that we would spend money, and based on that money compare that to the plan, the approved plan that the Rempex team put together filed and was accepted by BARDA. And then at a point in time they would reimburse. So what you would see over the coming years and there’s multiple trials that are covered, [I feel] largely Carbavance and the manufacturing activities as we spend that money and there is a mechanism to bill them back and then get reimbursed. So the money would flow our way after we expend the money on our side. Did that help? Does that answer your question?

Operator

I would now like to turn the call over to Clive Meanwell for closing remarks.

Clive Meanwell

Well, thank you very much everybody for attending today’s call. We look forward to keeping you updated and the best of all developments, and will keep moving forward with our plans. The 2013 results are now behind us and we’re very pleased with them, and we look forward to hosting many of you on March 7 and reporting our continued progress in 2014 and beyond. Thanks very much everybody, bye-bye.

Operator

Thank you for your participation in today’s conference. This concludes the presentation. You may now disconnect and have a great day.

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