Horizon Pharma (NASDAQ:HZNP)
Corporate Update Call
March 27, 2014 07:30 AM ET
Unidentified Company Representative
Good morning everyone. How are you? And thanks for being on the phone line as well. I’d like to welcome you, I apologize for being a little sick, but I’d like to welcome everyone to our investor briefing today. I want to refer you to our forward looking statements of which they’re many, given the transaction that we have underway and refer you to our most recent SEC filings and proxy filings as well. There is investors and security holders are urge to read the registration Form S4 when it comes out which refers to all the key transaction details.
Also today and part of our presentation we’ll be going through both GAAP and non-GAAP financial measures, also refer you to our most recent press releases and 10-K filings for reference to that. We’ll background on Horizon and we have three commercial stage products that are marketed in the United States today. First is DUEXIS approved for the treatment and signs and symptoms of osteoarthritis and rheumatoid arthritis and importantly the decrease of risk of developing upper gastrointestinal ulcers. Also have RAYOS which is approved in July of 2012 for the treatment of rheumatoid arthritis and many other additional autoimmune indications.
On November 18th, we acquired from AstraZeneca, VIMOVO and it was approved for the treatment of the signs and symptoms of rheumatoid arthritis, ulcer arthritis and ankylosing spondylitis and like DUEXIS to reduce the incidence of upper gastrointestinal ulcers.
Last two weeks or may be two weeks ago now I’m losing track, we announced the acquisition of Vidara Therapeutics International Limited for approximately 660 million at the time and the plan to become Horizon Pharma PLC and upon closure would be domiciled in Ireland.
We expect on a pro forma full year 2014 basis revenues of 250 million to 265 million and adjusted EBITDA of 65 million to 75 million as well. We plan to continue to be aggressive from an acquisition standpoint and build a profitable specialty pharmaceutical company via both organic growth of our existing products and anti ACTIMMUNE from the Vidara acquisition but also potential additional products and company acquisitions that are accretive.
Again reiterating the pro forma financial guidance as I mentioned, we expect this acquisition to be accretive to full year 2014 GAAP and non-GAAP pro forma earnings and that’s on an adjusted basis and we expect existing cash flow fund the company to cash flow positive operations. Pre-transaction we expected in the 2016 and later time frame that we would be tax-paying and in the high 30% range with the base Horizon business and as a result of the transaction, we expect future tax rates to be in the low 20s or lower.
Circling back to looking at the acquisition again transforms us into a profitable specialty pharmaceutical company, if you look at ACTIMMUNE from 2013, it had 58.9 million in net revenues for 2013. A significant great job done by the Vidara team over the prior 18 months where they took the product from about 3x from when they acquired it from InterMune and really have grown the product extremely well and have significantly grown the number of patients taking ACTIMMUNE. We believe it complements our existing business model where we’re targeted -- focus on targeted promotions specialists in addition to primary care physicians and it allows us to continue to drive organic growth of our products.
We believe we can optimize the value based on our understanding of the market. Myself I led the global development and launch of HUMIRA as a leading product in the world and leading biologic also have grown two orphan drug companies and some of the board of two orphan drug companies. So our organization knows the orphan space well and we’re excited to be able to take on the great job done by Vidara and continue to move it forward.
As we have with VIMOVO, DUEXIS and RAYOS, we’re going to make sure that the patient pays lowest at a cost possible. 97% of patients taking VIMOVO since we acquired it pay zero out of pocket. We’re moving DUEXIS and RAYOS to zero out of pocket as well. Key thing is to do the right thing for the patient while maximizing value to the company.
As I mentioned earlier, we believe this platform really facilitates our acquisition strategy giving us excellent tax consequences as well as the opportunity to continue the organic growth. As we look at the pro forma Horizon Pharma PLC we believe it positions us extremely well to both drive significant revenue and earnings but importantly a platform to continue acquisitions. If you look at the combined company ownership, 74% approximately to Horizon Pharma Inc. shareholders and about 24% to Vidara shareholders, we expect of about 100 million ordinary shares and fully diluted shares of about 122 million that does not include the shares from our existing convertible notes.
From a shareholder vote standpoint we’ll be preparing our proxy and S4 and expect to have that completed by mid-year about 20% of directors and officers and aggregate are voted to support the agreement as have the necessary approvals been acquired by the Vidara shareholders. From a board standpoint, we’ll be keeping our existing seven-member board along with the key Vidara President and Chief Medical Officer Virinder Nohria, who has been a great asset in leading the organization forward. From a management standpoint, our management team at Horizon will continue to run the combined company, and we're excited to add several and the whole leadership team, including Virinder in leadership roles to help us transition into our ACTIMMUNE further.
Giving a little background on Vidara, this company acquired ACTIMMUNE about 20 months ago from InterMune and have done a fantastic job of building upon its orphan indications. ACTIMMUNE was approved for two indications, chronic granulomatous disease and severe malignant osteopetrosis; I will walk you through both of those in a minute. It has a very experienced sales force. Several of these folks have either worked with me or colleagues who have worked for me in the past and they have significant, both biologic and orphan experience.
And Vidara has been a lot of time investing in the future growth and ongoing initiatives to drive disease awareness as well as like a potential other indications that we're excited about. 24 existing employees of which 22 will continue with Horizon. The corporate structure is based in Dublin, Ireland; with a Bermuda headquarters where both the IP and biologic license application is held for ACTIMMUNE.
Looking at ACTIMMUNE. It is approved to reduce the frequency and severity, serious infections associated with chronic granulomatous disease, which is also known as CGD, and it delays the time to disease progression, which is a bone modeling or bone modeling in young kids who have SMO or osteopetrosis. The company has spent a lot of time on working with outside investigators to understand the benefits of the disease and several other indications that I will walk through.
And we've seen significant growth in demand as a result of the effort by Vidara in growing about 60% more weekly patients than when they acquired the asset. And it's manufactured by Boehringer Ingelheim in Germany, one of the quality contract manufacturers for biologics. They did a lot of the early (enroll) [ph] work, so very experienced over the years in manufacturing biologics, gives us a lot of confidence in that continuing manufacturing success.
We do, and will have, the commercial rights in the U.S., Canada, and Japan, and certain other countries where we'll begin to understand the opportunities there and develop a strategy as we move throughout the year.
From a patent prospective, the patents go out to 2022, also has a perpetual Genentech know-how license. We'll continue to look at opportunities to extend the patent protection beyond that period as it is a biologic.
Focusing on the two key diseases, both are orphan diseases with less than 1,000 treated children in the United States. Triple prophylactic therapy standard care in GCD where patients are getting ACTIMMUNE antibiotics and an antifungal. And based on the package insert, the label which seem significant benefit by adding ACTIMMUNE to standard of care. When you look at osteopetrosis, it’s also known as Marble bone disease where these patients are essentially have malignant osteoporosis throughout their bones. It’s very difficult disease where ACTIMMUNE has made a big difference again. Less than 200 living patients where ACTIMMUNE can make a significant difference.
When we look at pipeline opportunities, if you look at clinicaltrial.gov, you'll see about 200 various studies listed, investigator initiated trials where they looked at the opportunity primarily as we've seen in Friedreich's Ataxia, where there is a 12-patient study that was conducted by the Friedreich's Ataxia Research Alliance, and they are nearing completion of that. Also there has been early work in [indiscernible] we are excited by some of that early work and we're going to continue primarily to look at these two initial indications as next steps, but looking at determining the priorities and overall platform to expand the opportunity for ACTIMMUNE in the United States.
As you look at the key activities moving forward between now and the close of the transaction, will follow our preliminary proxy, statement and S4 over the next several months, and it will be subject to standard closing conditions HSA, et cetera. Declared B, declared SEC effective and we expect the shareholder meeting in mid-year and then also anti-trust clearance. After that period, our shares will be traded on NASDAQ as Horizon Pharma PLC.
We look at the company on a go forward basis, primary care brands are 250% primary care sales force. We will continue to focus on DUEXIS and VIMOVO. And outside the U.S. we have Grunenthal in Latin America who will continue to market DUEXIS. In the United States, on the specialty side, in orphan we have ACTIMMUNE, which will maintain the existing commercial organization. We will look at adding several representatives where appropriate to continue to drive penetration in these rare diseases. Our RAYOS will be continued to be marketed by our 40 person specialty sales force. We expect to keep organizations separate, we have 22 people strong from Vidara that have done a great job and we will continue to maintain that organization with the commercial organization reporting directly to Todd Smith, our Chief Commercial Officer. Outside the United States, Mundipharma continues their promotion of LODOTRA.
Sitting back, looking at our base business with DUEXIS, we had a very strong year in 2013 growing prescriptions 122% versus 2012, fourth quarter grew 13% when you look at the first two months of the year given that through the holidays and January most of our representatives were in time in training and preparing for the launch of VIMOVO, very pleased that through IMS about 24 million in tyrex dollars through the first months of the year.
So, continued momentum with DUEXIS and weekly growth has continued through the month of March to drive growth. As I mentioned, 250 sales reps who promote DUEXIS to both primary care and orthopedic surgeons. Here looking at the prescription growth over the last 12 to 18 months, as you can see we have continued to drive prescriptions, 13% in the fourth quarter while aggressively maximizing the value to the company and ensuring patients with 93% getting DUEXIS for $20 or less. On the right side you can see the significant continued growth in revenue with fourth quarter revenue of $23.1 million.
One of the key things that we focused on is our commercial business model typically for our sales representative in pharma you’re given about a 100 physician targets to call on and you go and you fight month after month to drive prescriptions among those targets. What we do differently we give the average physician -- average representative 350 targets and in these targets what we know from our data is after six visits by one of our representatives half of them have written DUEXIS. If they’ve written DUEXIS your job as you look to the right side of this slide is to drive more prescription. So, within first six visits half have written DUEXIS prescription, your job is then to make them [indiscernible] representative and that’s too get more than five prescriptions a week.
So, we incent our representatives on a prescription only basis. So if you drive prescriptions on the left you’re getting paid if you turn a physician into an adopter you get paid more. So, we have an uncap bonus plan for our representatives and after six visits if a physician hasn’t written DUEXIS we stop calling on them. It becomes inefficient and costly to continue to call on a physician after six visits who hasn’t prescribed.
So, with the average rep having 350 targets on a regular basis, you’re bringing new and new each day, new targets into continue to drive through DUEXIS prescriptions and as a result for every month over the last 16 months and every week over the 16 months we’ve added 200 new prescribers and over the last three months increased prescribers by 16% and 30% increase in the physicians who have become adopters of DUEXIS. We are taking that same business model moving forward with VIMOVO.
One of the key programs we put in place early on for DUEXIS and we are now rolling out for both VIMOVO and RAYOS is our prescriptions made easy program. This is a program designed to really ensure that the patient and the physician get DUEXIS with the utmost fees. Program is simply manage through either the electronic mobile device or e-prescribing for physicians, directly linked to our PME program or physicians are signed up and can fax that prescription directly into our specially pharmacies where the value we offer is the prescription is sent in within four hours the patient is called and they get the place, the product the next day by FedEx. So, the key thing is, we’re able to have our specialty pharmacies get on the phone with patients, help them understand why the physician prescribed DUEXIS and ensure that the patient is getting it for a reasonable out of pocket cost.
One of the things we also offer with this program is for any reason a patient is rejected by their managed care plan, we provide that product in subsidized cost. So, for the physician office, we removed all barriers to commercial payers. For any reason you rejected, we’re ensuring you get the products for less than $20. Moving forward that will be zero as we have with VIMOVO. What we found is across United States products going through the retail channel that are written by physicians, any branded products between 40% and 70% of those prescriptions are switched out at the pharmacy level. If you look at DUEXIS on a retail basis across the country, that’s about 62%.
For the 27% of patients that are going through our PME program on DUEXIS, its 85%. So, significant improvement in the percent of patients that are getting DUEXIS and they’re all getting them at a much lower cost. As patients get this program a month later they are either auto-enrolled or called back and ask if they want their prescription to ensure that they continue to be protected for their chronic disease.
Now, stepping into VIMOVO, the product we acquired November 18th, as we took over the product and announced this on November 19th last year, 78.8% of the business was focused on commercial lives, the reminder on Medicare, Medicaid in cash. At the time we expected to as we were taking the price from the $115 per month to $799 on January 1st, we expected to lose that Medicare, Medicaid in cash business and in fact we have lost that business. Fortunately, we’ve been able to grow the commercials out of the business through that loss. January new prescriptions increased by 10%, February which is the first month we were actively promoting with our full sales force, new prescriptions increased 18% and total prescriptions were flat, essentially meaning we grew through the loss of that business that wasn’t Medicare, Medicaid and cash at the end of the year. If you look at the tyrex dollars as measured by IMS, 18.6 million both January and February. So significant value increase with the VIMOVO so far exceeding our expectations, importantly 97% of patients in our program are paying zero per month.
So maximize the value, do the right thing ensuring the patient gets the product for the lowest possible cost. One of the important things as we acquired VIMOVO is to ensure that we don’t cannibalize our own business. Now one of the key factors in place when you look at endsets and these pain relievers is that they’re very patient specific. They don’t work in everyone. So in many cases you have a situation where a patient may not respond to ibuprofen at all and naproxen works extremely well, Aleve or Advil over the counter same thing for many patients.
So the average physician uses between three and four endsets at any one point in time to be able to treat the broad range of patients they’re seeing. So we step back and look at the analysis before we acquire VIMOVO, it’s only a 30% overlap in physicians who prescribe both VIMOVO and DUEXIS, so with that back, saw that minimal overlap as we take over the target physicians and the key thing is to promote for ibuprofen writers of which there’s 500,000 prescriptions each week that we have a superior ibuprofen with DUEXIS, 50% reduction in serious stomach ulcers and a 40% reduction in dyspepsia.
And then when we look at naproxen prescribers, 250,000 prescriptions each week. There we can have a significant similar reduction in both -- reduction [indiscernible] intestinal ulcers and dyspepsia, so we believe we’ve got superior ibuprofen and superior naproxen with both DUEXIS and VIMOVO.
One of the things that we found is, if you look at the peak prescriptions for VIMOVO it’s about 600,000 annualized. At the end of 2013 there were little over 300,000 prescriptions for VIMOVO based on those same target physicians. What we found is that installed base of physicians, it’s a lot easier to get patients, physicians back putting their patients on VIMOVO when they’ve taken it before or when the physicians have prescribed it before. So we found that installed base of prescriptions as we’re seeing in our new prescription growth over the first two months of the year to be extremely receptive to a VIMOVO message and continue to increase their prescribing.
Now spending a few minutes on RAYOS, we continue to call with our 40 rheumatology specialists on about 3,000 rheumatologists continue to see nice growth where in February new prescriptions were up 7% versus January, tyrex is up 3% and tyrex dollars up to 1.5 million up 8% versus January.
So our rheumatology sales force is focused on driving RAYOS and they’ve added VIMOVO as a second product. We’ve got over 90% of claims being approved for RAYOS and patient access with a co-pay of $5 or less moving forward.
Now we’re viewing the financials for the fourth quarter which we announced a few weeks ago, total net sales of 30.1 which increased 25% versus the third quarter 2013 for a full year 2013 of 74 million almost a 4X versus 2012 and when you look at the US GAAP basis a loss of [1.56] (ph) per share.
Again as I mentioned currently we have basic shares outstanding of 68.6 million of fully diluted shares of 90.3 with our existing convertible note of $150 million on a pro forma basis assuming that the Vidara acquisition will have 99.9 ordinary shares or basic shares outstanding and 121.6 fully diluted shares.
As we announced during our press release we have a committed debt financing with Deerfield Partners of 250 million to be funded at close to provide the 200 million in cash from the transaction. As I mentioned earlier at the end of 2013 we had $80.5 million in cash.
In summary, looking at our strategy moving forward, it’s continued to drive the organic growth of DUEXIS, VIMOVO and RAYOS through our 250 reps in primary care and our 40 reps on the specialty side calling rheumatologists. We've seen minimal overlap in prescribers between DUEXIS and VIMOVO, we’ve been extremely pleased with the uptake with that 10% growth for new prescriptions in January and 18% in February for VIMOVO and that continues to grow each week on new and total prescriptions.
Our plan is to rapidly upon close to integrate Vidara, they’ve done a great job in building ACTIMMUNE, we see significant opportunity to carry that forward. As I mentioned there is 24 existing employees, 10 on the commercial side, we additional opportunity to drive penetration and look at additional indications. We brought on few weeks ago Bob Carey who ran the Life Sciences business, Healthcare banking at JMP Securities, Bob has significant experience in both M&A and raising capital and will be working with me to ensure that we continue our aggressive business development strategy of now adding products in our key three platforms, that’s primary care, specialty and the orphan side.
We'll continue to look outside the US to license our primary care products. With ACTIMMUNE we’re going to continue to look at the licensing opportunities to see what our strategy is there, if there’s an opportunity for us to get into other markets given the opportunity with ACTIMMUNE we’ll certainly look into that over the coming months.
From an IP perspective we continue to focus on ensuring long term protection of our innovation, with DUEXIS we settled last year, in August 21 we announced the settlement of our suit with Park and with protection to 2023, with VIMOVO we have eight orange book listed patents out to 2023 as well, for RAYOS our 5 milligram the key dose out to 2026, and for ACTIMMUNE as I mentioned earlier two key US patents out to 2022.
So this point I’ll conclude my formal remarks, thank you so much for joining us.
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