Cardiome Pharma Corporation (NASDAQ:CRME)
Q4 2013 Results Earnings Conference Call
March 27, 2014 8:00 am ET
William L. Hunter, M.D. – President, CEO, and Director
Karim Lalji – Chief Commercial Officer
Jennifer Archibald – CFO
David Dean – Cormark Securities, Inc.
Neil Maruoka – Canaccord Genuity
Welcome to the Cardiome 2013 fourth quarter and fiscal yearend financial results conference call. Please be advised this call is being recorded. On the call today are Dr. William Hunter, President and Chief Executive Officer of Cardiome, Mr. Karim Lalji, Chief Commercial Officer, and Ms. Jennifer Archibald, Chief Financial Officer of Cardiome. Before proceeding with the call I will first read the company’s forward-looking statement disclaimer.
Statements contained during this conference call relating to future results, events and expectations are forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995. These forward-looking statements involve known and unknown risks, uncertainties, and other factors which may cause the actual results, performance, or achievements of the company, or achievements expressed or implied by such statements. Such factors include, among others, those described in the company’s annual information form.
I would now like to turn the meeting over to Dr. William Hunter. Please go ahead.
William L. Hunter, M.D.
I refer you all to the forward-looking statements slide. I’m not going to read it in its entirety however, please be aware that we will occasionally be making estimates to future events that may or may not occur and at times we’ll be using non-GAAP financial measures to illustrate different parts of the company’s business. Once again, I refer you to the forward-looking statements and ask that you read it and understand it fully in interpreting this teleconference.
Looking at the agenda of what we’d like to cover today, I’m going to talk a little bit about 2013 just where we started and where we ended up. I do believe it was a very transformative year for the company, one where I think the company’s performance was exemplary and I do want to spend a few minutes on that because sometimes one gets lost in seeing where a business has actually progressed from in the scope of a year when you’re involved in the day-to-day operations.
I’m going to then turn it over to Jennifer for a discussion of both the year and the quarterly financials. We’ll talk a little bit about the sales structure and the building out of the combined organization, which Karim will take you through. Then perhaps for the first time since we’ve been doing this, this management team in any event, we’re going to take a look at what we can expect from 2014, and we’re going to look a little beyond that in the business, because we’ve certainly gone from a business where survival was paramount to one where I think we actually have the luxury of starting to do some forward planning.
So, how did we get there? 2013 was a very unique year in many ways. If you look at roughly this time last year, kind of January of 2013, the company had about a dozen employees, we had no commercial infrastructure, and even though we were scheduled to take BRINAVESS back from Merck in late September, we really had no structural ability to meet the requirements of a fully marketed product. We had no pharmacovigilance, we had not clinical or regulatory affairs, we had no operations, we had no logistics, we had a skeleton management crew and certainly we had people with experience on the BRINAVESS R&D side and on the molecular side but we really didn’t have anything closely resembling the type of organization that’s required to market and sell a product in many countries of the world, quite frankly.
The market cap of the company reflected that. I believe we were around $15 million in overall valuation, and while we had been successful in getting what I think was a fair and equitable outcome from Merck in terms of not having royalties and retiring the debt, again we really, as I was fond of saying, we were 12 people with a molecule and $25 million in cash and some inventory, but that really wasn’t much of a company.
Over the course of 2013, I think we took a number of steps that materially remade the business. We retired the remainder of the Merck debt. The company being debt free obviously is a tremendous difference from where we had begun, and I believe that that set us up to go forward in a significant way. We retained Quintiles to take over the pharmacovigilance events then because we clearly didn’t have that capability in house and so we outsourced that, probably long forgotten but that was a lot of work and a significant step for the business as well.
We completed a reverse stock split. It was very important for the company to keep its NASDAQ and TSE public listings. There was a time in early last year that that was in doubt given both the market cap of the company and the share price of the company, and we were able to execute on that, retain our listings, and hopefully if we are saying [inaudible] from NASDAQ listing improvement that we are and have have become a going concern and a real business as we were supposed to be.
We made some significant hires. Sheila Grant came on as Chief Operating Officer, Jurgen Polifka left Merck to help with our commercial launch, [inaudible] who was with me at Angiotech and ran our European divisions at Angiotech came on board to fill a similar role and Steen Juul-Moller who really had more clinical experience than anyone in the world with BRINAVESS came on board as medical director. Even though we were 12 people when we started, I think the quality of the hires we were able to bring on instantly escalated the overall capabilities of the business.
We completed the transition services agreement with Merck and did all the things that we needed to do to get the molecule back. That one line is easy to write on a slide but it was a tremendous amount of work, and I can’t even begin to describe how many documents, regulatory files, and the like were required in order to make that all happen on both sides, so kudos not just to the Cardiome folks but to the folks at Merck for doing that as well.
We started to build a sales force which Karim will speak to in greater detail. We got the regulatory files back in the US, and I’ll touch on that a little later in our presentation. All the MAHs were transferred over. The vast majority of them in any event were transferred over to us to allow us to start recognizing revenue, and we executed on our first significant distribution agreement with [ALP].
We then went about building out a commercial strategy that involved being direct in some countries, but using distributors in other parts of the world, and we started to execute systematically on a number of distribution agreements in Israel and Columbia. We partnered with Algorithm in the Middle East, and obviously, those have continued on in the first quarter of 2014. We’ll give you a bit of an update as to where we are in that process, how many more do we need to do, how close are we to done, and what is the global build out going to look like a little bit over the next and coming quarters, but I can say that in a very short period of time considering that we really only had the product back for almost two quarters now I guess, a lot has been done to make sure that we’re in as many markets as we possibly can as quickly as we can.
There’s literally a ton of supportive data that came out. If I can say one thing about BRINAVESS, it was that no there weren’t a lot of people using the product, but those who were, were passionate about it and learned an awful lot about it. In addition to Steen’s work that came out of Malmo Sweden, there was some very nice work from [Dr. Conde] that came out of Bueno Aires, it was work that came out of Finland, there’s work, as you saw last quarter, that came out of Germany, and so a number of people were finding out that the product had, when used in a specific way, they were getting superior efficacy. The first 48-hour window of treatment seemed to be a quite important thing for the product. We also saw how the product performed versus other therapies out there, and certainly it looked as if we were as good as, and in some cases, arguably superior to some of the things that were being used in the real world.
We gave our first symposium at the ESC where, I think much to our surprise, 1,100 people showed up. We literally packed the room, which I think, speaks to the fact that physicians are really interested in the new guidelines, so really interested in how Cardioversion should be done, and really trying to understand what the landscape is for atrial fibrillation. We completed the Merck transition which again, we’ll talk to more, and then I think really set the company up long term with the acquisition of Correvio. That gave us all the infrastructure and the sales personnel we needed to go forward. AGGRASTAT, we expect to be able to do somewhere between $25 million and $30 million a year. We think that will be relatively stable and it generates in and of itself, not on a companywide basis, but as a product it generates positive EBITDA. All of that allows us to use that product and that infrastructure to leverage the BRINAVESS sales force.
As I think I’ve said to many of you, the fourth quarter was a bit of a mixed bag for BRINAVESS as we assumed all the logistics, all the invoicing, and all the distribution requirements of the product from Merck. They were large sections of the European market where BRINAVESS was actually not available for hunks of time in the fourth quarter so the fourth quarter was not really indicative of anything with respect to BRINAVESS sales. But, with respect to the acquisition of Correvio we are now completely set up. A lot of that work was completed and having the sales force and all that good stuff in place prior to the yearend meant we started 2014 right on schedule and able to basically pick up where we left off. We’re getting near the end of the first quarter so you’ll see that data shortly, but certainly things have gone the way we expected and we were able to retain all the key infrastructure that we wanted from Correvio and yet we were able to merge the organization together and make it more cost effective, and all of that was done by the end of the year as well.
When you consider where we started from, we ended the year in a much different place. I ask you to keep that in mind as we go through this and I’ll circle back at the end to make some closing comments with respect to where we might go off of this platform by the end of 2014. With that, I will hand it over to our chief financial officer, Jennifer Archibald to take you through the 2013 financial results.
Earlier today, Cardiome issued its 2013 fiscal year end financial results. The results press release has been posted on our website at www.Cardiome.com. A reply of this conference call will be available later today on the investor relations section of our website as well. I will now provide an overview of our 2013 yearend and fourth quarter financial results. Amounts, unless specified otherwise, are expressed in US dollars and in accordance with Generally Accepted Accounting Principles used in the United States of America.
As of December 31, 2013 we had cash and cash equivalents of $11 million compared to $41 million as of December 31, 2012. The balance of the deferred consideration as of December 31, 2013 related to our acquisition of Correvio was $10.7 million. We recorded net income of $4.8 million for the year ended December 31, 2013 compared to a net loss of $18.3 million for the year ended December 31, 2012. The net income for fiscal 2013 was largely attributable to the $20.8 million gain on settlement of debt owing to Merck and sales of BRINAVESS and AGGRASTAT. The net loss for fiscal 2012 was partially due to restructuring charges, operating costs, and pre-clinical research projects.
Total revenue for fiscal 2013 was $4.5 million, an increase of $3.7 million from $0.8 million in fiscal 2012. In 2013 revenue was comprised of product revenue from the sale of BRINAVESS and AGGRASTAT and licensing and other fees we received from Merck. In 2012 revenue consisted of licensing and other fees and research collaborative fees from Merck.
During the fourth quarter of 2013, we recognized revenue of $3.9 million compared to $0.1 million in the fourth quarter of 2012. The increase in revenue in the fourth quarter 2013 was primarily attributable to the recognition of AGGRASTAT for the six week period from acquisition through to the end of the fiscal year. Although we began supplying BRINAVESS under our own [trade dress] in the EU and could recognize the full benefit of worldwide BRINAVESS sales, due to the ongoing transition process from Merck for regulatory product rights and product distribution responsibility that Bill had just alluded to, BRINAVESS sales were negatively affected in the fourth quarter.
We expect to have BRINAVESS available to customers in all EU markets where Merck previously sold the product from this point forward and do not expect transition activities to have a material impact on sales in the first quarter 2014. Cost of goods sold relating to the sale of BRINAVESS and AGGRASTAT was $0.9 million in fiscal 2013. We did not have any cost of goods sold in 2012. SG&A expenditures for fiscal 2013 were $16.4 million as compared to $9.5 million for fiscal 2012. The increase was primarily due to costs associated with our sales and marketing efforts to support the commercialization of BRINAVESS as well as AGGRASTAT. In 2014 we expect our overall SG&A expenditures to increase as compared to 2013 as a result of our worldwide sales and marketing effort and other related costs required to support the commercialization of both our products.
Research and development expenditures were $0.5 million for 2013 compared to $6 million for fiscal 2012. The decrease in R&D expenditures in fiscal 2013 compared to the same fiscal period in 2012 was primarily due to the restructuring initiatives in 2012 which eliminated our internal research activities. Restructuring costs of $1.2 million was recorded in 2013 and represents mostly employee termination benefits incurred in our efforts to integrate Correvio’s operations while $10 million for the same period in 2012 related primarily to employee termination benefits associated with our 2012 research focus workforce reduction initiative.
Subsequent to year end, on March 11, 2014 we completed a perspective offering of 1.5 million common shares from treasury for gross proceeds of $15 million Canadian and 1.5 million common shares in a secondary offering from CarCor Investment Holdings, LLC, the shareholder from which we purchased Correvio, for gross proceeds of $15 million Canadian. Both at Canadian $10 per common share for a combined offering of $30 million Canadian. The short form perspective offering was made on a bought deal basis.
Our forecasted total expenditures for 2014 are expected to be greater than our revenues from the sales of BRINAVESS and AGGRASTAT. We believe that our cash position and expected cash inflows from the sale of BRINAVESS and AGGRASTAT along with the proceeds from the recent perspective offering will be sufficient to finance our operational needs for at least 18 months.
I will now turn the call over to Karim Lalji to provide you with our 2013 operational review.
The acquisition and integration of Correvio was largely completed in fourth quarter of 2013 and so basically, based on the completion of that transaction and the integration that’s taken place since that time, Cardiome now has 22 key account managers covering 12 markets including the major countries of Europe. These major countries where Cardiome had no presence on the ground before, for example, such as Italy, such as the UK, such as France, now all have coverage with our acquisition and integration.
In addition to coming up with full coverage of the key account managers across key countries, we have completed and assigned new territory configurations to our key account managers and we have also cross trained them as needed on those products and have rolled out a combined incentive plan that is aimed at growing BRINAVESS sales and maintaining AGGRASTAT sales. But, the priority is really a balanced priority with driving BRINAVESS sales being really the most important objective and maintaining AGGRASTAT sales as the next objective.
The acquisition of Correvio truly now makes Cardiome a pan European commercial organization, as I mentioned, with direct sales force presence in all the major European markets. Additionally, the combined distributor network of Cardiome and Correvio provides brand reach outside of our direct markets.
During 2013 and the first quarter of 2014 we assigned key country level agreements to ensure study and broad supply of BRINAVESS in our direct markets as needed. As Bill alluded to, there were some markets where during the fourth quarter we were not able to supply as we would have liked to and those issues have all been corrected for. For example, we now do have coverage really in our major markets such as Sweden and Finland which are in our top four markets which we had some issues with in the fourth quarter and we have also recently announced now coverage in Spain. So while we had some transition issues in the fourth quarter, those have all now been resolved and we’re looking forward to having complete and seamless supply going forward in our markets.
Within the next six months we expect sales to begin in markets such as Ireland, Greece, Cyprus, Israel, and Columbia and we also expect numerous launches beyond those markets after six months, within the next six months to 18 months in other key markets including European markets as we gain access through pricing and reimbursement in those markets as well as in Latin America, South Africa, and other markets worldwide. Finally, of course, planning continues to unlock the value and potential of BRINAVESS in markets such as the United States, Canada, Mexico, Brazil, Russia, and other markets which are markets we believe can be accessed in 2016 and beyond and also the potential of these markets is very significant so we continue our planning to drive approval of BRINAVESS in those markets as well.
I’ll turn it back over to Bill.
I know that people want an update on that topic, they’re interested in what the status is with the FDA. I don’t think it’s appropriate for companies to disclose in detail their discussions with the agency until there is actual agreement to how things are progressing forward. I think those discussions are ones that should remain within the agency and a company. I know someone is still going to ask me to give you more detail than this but here’s what we’re prepared to say and probably all we’re going to say.
Obviously, the IND for the vernakalant IV and oral was transferred to the company in 2013. A lot of time was spent going through that material. As you can appreciate, the file has a somewhat tortuous history having been with Cardiome and then with Astellas, and then with Merck so there were a lot of people with a lot of different opinions and certainly it has taken a while to digest all of that, and interpret all of that, and try and come up with a cohesive and intelligent plan going forward.
We have initiated discussions with the FDA and those discussions are now just starting. We have received feedback from the agency as to what they believe is required of the company to go forward. Obviously, as a company we wouldn’t be selling this product if we didn’t believe it was safe and effective and certainly, we are encouraged by what we’ve seen in the European Union. So far, we’ve treated about 10,000 patients and the product has performed very well from both a safety and efficacy perspective and certainly that gives us confidence that this is a product worthy of moving forward in the agency.
We’re now working on some development both at the pre-clinical and clinical level to develop a strategy and to develop a data package that we believe will be compelling and I expect this to be an [inaudible] process back and forth with the agency over the next couple of quarters while we try and determine if there’s a pathway that the FDA feels is acceptable and prudent to move forward. Those discussions have started. There’s really not a lot more color to provide other than that but we certainly will do so when we feel that we have a path forward that it is both appropriate and prudent to discuss in a public manner.
Really, when I look back at 2013 again, I refer you to the first slide where we started out with 12 people, $25 million, and a molecule I feel like we built an entirely different company by the end of the year. We had a fully integrated EU commercial in-hospital cardiology organization with 23 sales rep on the ground, we had all of the things we needed behind that in terms of pharmacovigilance, marketing, distribution, logistics, and all that kind of good stuff. Was it seamless? No. Was it perfect? No. Did we have hiccups along the way? Of course we did, but I think if you had told me that by the beginning of 2014 we’d have a couple of products on the market, we’d have a pretty extensive international distributor network, we’d have a full sales force and experienced sales force at that, that was used to calling on in-hospital cardiology and we would start 2014 really with 90% plus of all that work done, I think I would have been ecstatic but I also would have been very skeptical that it could have been achieved.
Clearly, Correvio took the company to the next level in that regard. But, we’re not in many ways, done there. We believe that we will become self-funding by the end of 2014 which takes us from being a perpetual equity drain into a self-sufficient biotech company. Those of you who have followed this industry for a long time know how rare that actually is and we’re not without a future in my opinion. We have an IV product that still has not been moved forward in some very key markets around the world. If you look back at Karim’s slide, there’s a lot of blue there and even within Europe, as we look to try and get reimbursement in key markets like Italy, France, and the United Kingdom. There’s still a lot to be done in Europe, much less North America.
We have an oral program that I think we’re all kind of hesitant to attach a value to, but let’s not forget this was a [face re-ready 26:23] product and one that certainly is an intriguing asset and one that we hope someday to be able to crystalize some value from. I think we now have an organization capable of taking on additional products. It’s one thing to talk about licensing in something but unless you really have the infrastructure to exploit that, you’re a little more than a middleman which makes you not particularly attractive to licensing partners. But now for the first time I think we can go out and say, “Look, if you’ve got a European product that focuses on the acute care space or interventional cardiology space, in-hospital cardiology space, we can pay attention to that. we have the bandwidth to do that, we have the reach to be able to do that and we might be a good partner because a $20 million or $30 million product might not be of interest to a big pharma but that’s something we could really get behind and something we could really pay attention to.”
We can grow exogenously as well endogenously which is kind of a nice place to be and is also unique. Most companies of our valuation size don’t have that capability. They’re R&D shops and they don’t really have the infrastructure to go and exploit something that they bring in from the outside. As a public vehicle I think that helps us. I think without that, one of the reasons I put that up in the slide, I don’t think the Correvio deal gets done if we hadn’t been able to maintain the NASDAQ and TSE listing. That was important, we’re a publically traded vehicle, we’ve got no debt, we don’t have any royalties, we don’t have any lawsuits hanging over us, it’s a nice clean capital structure, it’s a nice clean balance sheet, and we have funding through the sustainability.
I think this is a very dramatically different company than it was before. I can’t take credit for this idea, it comes from one of our shareholders. When I asked him how he looked at our business, and I think that’s how I’m starting to look at our business both from a product point of view and a corporate finance point of view. At our very base, if you will, we have a European specialty pharma business. We have AGGRASTAT and BRINAVESS, we have two products that we can sell in-hospital into cardiology. A bit of a simplification but if we just sell what we’re allowed to sell to the people we’re allowed to sell it to, I think that’s a business that can grow into a $100 million to $200 million, maybe more in revenue in rest of world.
Certainly, we think AGGRASTAT can kind of hang in, in that $25 million to $30 million range. More importantly, we believe that both from an infrastructure and from a cash flow perspective that it can fund the BRINAVESS launch. BRINAVESS looking forward, I do want to make sure, everybody should have heard this from me at some point or the other over the last six months, I think we have to be realistic about BRINAVESS, we’re not reimbursed in three key markets. Those are clearly important to us and yet I don’t expect all of them will come on board much before 2015. But, we inherited a product that was on a, let’s call it $2 million run rate, it was actually less than that quite honestly. I think that in 2014 we could double that and when you consider that we will be using a price discounting strategy doing that amount of business may actually mean we increase the usage of the product by about four-fold.
For those of you who don’t think that’s an aggressive enough number, I think that actually is a pretty aggressive enough number and so this is a company that should be able to do low $30s in terms of revenue this year. If you look at Q4 where we did $3.9 that’s roughly half a quarter so we’re bang on top of that right now so we certainly feel like the company is heading where these numbers are taking us. Again, I think that business, that specialty pharma business, we can add products to, our sales force could clearly handle another one or two products in the back and so that specialty pharma business I don’t know what it’s worth but it probably exceeds the value of our current market capitalization and to me that’s what we have right now.
Then we have this intriguing biotech business, it’s tougher to value, it’s more the classic boom or bust type assets, but certainly makes us an intriguing company going forward. Certainly, we think that the BRINAVESS IV program would be an excellent US opportunity. The drug clearly is on clinical hold. I think one of the most important things we need to accomplish in 2014 is providing clarity on that asset and a direction forward with it and as I said, those discussions have begun and there’s no higher priority within the company right now and over the next couple of quarters we expect to be able to shed some light on what the future of that program is.
BRINAVESS oral is certainly intriguing. Again, a lot of you have heard me say this, I don’t know that this is ever going to be a product like it was initially envisioned. I don’t know that it is going to be a lifetime therapy type drug. I think that’s a very difficult development program for any anti arrhythmic drug quite frankly, but in our hands I think we could turn out to find some very interesting applications for it. Perhaps there is some specialty or niche indications that while not Merck sized, if you will, in nature would certainly be extraordinarily interesting opportunities for us and hopefully before the end of the year you’ll start to see some clarity from us on how we think that could be developed.
I don’t know that we’ll be in clinic in 2014 but by the end of 2014 I’d like to have a clear view of where that product is going and some indication of how we could extract some value with it. If we were to go forward in the US on the oral program, I think we would need to partner that program. I think it’s beyond our resources, but perhaps in other parts of the world, particularly where you have existing sales forces, there might be a niche strategy that could really add some value to the bag to sort our way through that.
I start to look at that and think, “Gee, couldn’t we become what I would call an AF type company.” If you’re going to be an AF type company you probably want a conversion agent, you probably want some sort of stabilizing agent. I use that term deliberately but the oral program may be fitting into that mode. But, there’s other things you can add to that, not just anticoagulants which are the obvious ones, but things like ablation, things like left atrial appendage conclusion, things like home monitoring or diagnosis of atrial fib. We convert these patients and we send them home and we tell them to come back if they go into atrial fib but they may or may not be able to ascertain whether or not they have come back into A fib and there are a lot of technologies out there that certainly are making that a reality.
So, we can build a very interesting business in the field of atrial fib because I think the two toughest assets to have in A fib are kind of a converting agent and an oral agent and that’s what this company has so maybe we can add some other things to it and really become a unique animal out there that’s not like everybody else. So really, the three year plan from this organization has been to go from survival to sustainability and ultimately to grow.
2013 was really a survival year. We got rid of that debt, we transitioned the product back, we executed on a commercialization strategy, and the acquisition of Correvio turned us into a real company. I really do think that was an exceptional year for the business and personally I’m quite proud of it. In 2014 I think we need to turn that into something with growth prospects, I think we need to build on that ace business if you will. We need to grow BRINAVESS sales in the US. We really want to drive adoption more than we want to drive revenue. Clearly, you can see that from both our targets and our pricing strategy that what we want to see is more users of BRINAVESS because what we find is when people start using this drug and they get comfortable with this drug, they tend to stick with it and they tend to be happier and so we want to drive adoption.
We need to get into new areas in terms of reimbursement, to hit those numbers we talked about in the out years with BRINAVESS. Clearly, we’re going to require reimbursement in those three major markets so reimbursement is a really important part of what we’ll be working on in 2014 and we need to figure out what, if anything, we can do with these IV and oral programs because those are keys to outer year growth as well.
I do think we need to spend some time thinking about in licensing. We’re doing some sort of complementary product ad. It is expensive to keep a sales force in the field and clearly our sales force can handle more than two products and so there’s some room there for us to really add revenue and EBITDA with minimal cost implications so it’s something that you should look for us to be aggressive on in 2014. Then, can we grow this thing? Can we turn this into a company that is a multiple of its current value? I think in order to do that we’re going to have to have a broader product offering. I think we need to continue to be active on business development.
I think we all saw that the Correvio acquisition transformed the company and this was well received in that regard and it should have been. It changed us from something that was a bit of a flyer into something that was real and concrete. I think the more products we add to the bag the more likely we are to continue on that pathway. Again, I know US oral strategy and oral partnership, becoming a dedicated A fib company, these are all things that could turn us into a really, really interesting business. I think as an organization if you don’t have a game plan then you’re not really heading towards anything and so while some of this is clearly aspirational, I think it’s worthwhile for our shareholders to know where we’re trying to point the ship right now.
Hopefully, at the end of 2014 we’re going to have some tick marks next to the boxes we had there and we’re going to be talking about how we’re going to translate into even further growth in 2015 and beyond. With that, I would like to turn it back over to the operator and open this up for some questions.
(Operator Instructions) Your first question comes from David Dean – Cormark Securities, Inc.
David Dean – Cormark Securities, Inc.
You relaunched BRINAVESS. You have a new pitch as to how it should be used within a patient and within a hospital, and a risk sharing program. I’m hoping you can give us more color on how those two items are being received, if they’re going as expected or what can you tell us more about that?
I’d be glad to address that. We basically have launched that approach with is our discounting strategy we are doing in certain markets where we believe that will make a difference, which is effectively giving up to a 50% discount on BRINAVESS, but we’re basically doing that within the context of the value we’re providing versus DC cardio version, and with that form of a discount, the value we are providing is clearly seen to be equivalent, if not better than the cost of DC cardioversion along with other benefits such as time, patient preference, etc. At this point what we are doing is, we are not giving a blanket discount to anyone. We are keeping the price the same but we are negotiating contracts at a hospital-by-hospital level where once there’s a commitment to some sort of a volume level, that the discount will kick in.
So, those negotiations and the contracting to move to those discount levels in key markets in the key countries is progressing very positively. We’re getting really good feedback from our field that this is something that the customers like, the physicians like, and the hospitals like, but the one thing to keep in mind is that there’s a bit of a process to finalize these contracts in that you have to basically have the cardiologist agree that this makes sense, you have to have the ER physician who for the large part is the one that’s using the drug also agree, and you have to get the pharmacist onboard. So, there’s a bit of a selling cycle here, but the way that this is progressing has been very positive and we’re very encouraged and we’re looking forward to having an impact on this in the coming quarters.
David Dean – Cormark Securities, Inc.
You would say based on that, that the previous pricing let’s say, was a material hurtle on the sales then?
Yes, I would absolutely say that. I can’t say that was the case in all markets but it was the case in many markets including the key markets, for example, of Germany and Spain, the two largest markets that we have pricing and reimbursement in. The drug is available but the hospitals are still being gatekeepers and saying, “No, we’re not going to do this.” But this strategy that we’re bringing forward is definitely kind of relieving that logjam and we believe is going to make a significant difference.
David Dean – Cormark Securities, Inc.
How has Correvio’s sales force embraced BRINAVESS?
I would say they were very, very excited to have something new to talk about and something exciting to talk about. You have to realize that the Correvio sales force only had AGGRASTAT to talk about for a long time and that was an established product. It was a good product but it was an established product. The life blood for a sales rep is to be able to go into a physician, into a hospital, and say, “I have something new.” I think the fact that BRINAVESS is not only something new but we’re continuing to have positive flow of information, new publications, as Bill mentioned earlier, really relevant information that we can continue to reinforce the product is something they are very excited about.
They’re also excited about the fact that they can go into the same hospitals and the same call points with this new story, so they are able to give that new information to the same people they’re already calling on, so it has actually worked out very well and they’re very excited.
David Dean – Cormark Securities, Inc.
I think in the presentation you said that AGGRASTAT sales, kind of the range of $25 million to $30 million a year. Was that for 2014 or should we look at that as a longer term run rate?
William L. Hunter, M.D.
With the obvious caveat that it’s a non-proprietary product, so making estimates is always a little bit more difficult than it might be with a proprietary asset. I think it’s going to be pretty stable. The drug has been off patent for a while now. As I said to you and others before, it’s not like we expect we’re going to drive growth out of it, but it looks like it’s pretty stable. We only have three or four months under our belt, but so far it is behaving exactly as expected, and so I would like to believe that for at least the next couple of years or so that that’s going to be in that range.
David Dean – Cormark Securities, Inc.
I know you didn’t want an FDA question, but -- or you weren’t looking forward to one, but it sounds like you’ve had some discussions with the FDA. It sounds like you’re continuing dialog with them, probably a lot of fine tuning to go to be expected from here, but based upon what’s the guidance that they’ve given you so far, do you think that setting a restart of the IV program in the US would be viable based upon where you are today?
William L. Hunter, M.D.
I know that’s the $50 million question and I’m sure you’re going to be disappointed with my answer, but the FDA has some legitimate concerns and we have to address them. I’m not trying to take a complicated situation and make it sound trite, but we’ve got questions we’ve got to answer, we have things we have to present and the best that we can do is do that in a highly professional and ethical manner. I think we’re going to use all the resources we have available to us to try and answer those questions and if those questions are answered sufficiently then I’m sure that will put us in good stead. If not, then we clearly need to answer those questions better.
I think all I can say to you is as a company and as a physician, we don’t want to sell products that aren’t safe and effective either and I think from what we’ve seen in Europe we believe in our product and so we need to build a data package that reflects what we think that product is capable of doing. At that point, it’s up to the regulators to act on that as they see fit. We’re cautiously optimistic but it’s not for us to kind of handicap what the FDA can, or should, or would do that’s what the regulators are for and we’ll see how it goes.
David Dean – Cormark Securities, Inc.
Are you able to take some of the data that you might have collected out of Europe very inexpensively and apply that?
William L. Hunter, M.D.
Yes. I think that no matter where you’re trying to get a product approved, the local authorities want to see data that is relevant to their condition, to their patient population, to their ethnic groups, and so while I don’t think it’s as simple to say, “Hey, here’s our European data, is that good enough?” That’s just not going to happen. I mean, we’re going to have to do more work in the US and I think that means animal work, and human work, and quite a few things that we may very well have to do. But, I do believe that the European experience certainly is helpful in that it does give us an understanding of how the drug works in real world patients out there.
So while I caution people to think that that’s going to be directly translatable because I’m not sure that it is, it is still very helpful because it certainly informs us as to how we should design clinical trials, or how we should use the product, or how we should make sure the drug is given to the right patients and not used in the patient groups that we don’t want to get the drug. All of that is useful to us and I certainly feel better having 10,000 patients’ experience than having 100 patients’ experience so we’ll see where it goes.
(Operator Instructions) Your next question comes from Neil Maruoka – Canaccord Genuity.
Neil Maruoka – Canaccord Genuity
Just on your SG&A level which was a little bit higher than what we had forecasted, I know you’ve gone through a pretty good process over Q4 and a lot of that is complete now but there’s still a few things that need to be done obviously, to have a full rollout through Europe and rest of the world. Maybe a question for Karim, how does that SG&A spend look like through 2014?
William L. Hunter, M.D.
Jen, do you maybe want to speak to the SG&A and I can maybe ump in on some of the other things?
Yes. The question is on the SG&A how we think it’s going to look for 2014?
Neil Maruoka – Canaccord Genuity
We started out with our commercial team in 2013 and of course, because we were putting together the sales force primarily starting in the second quarter, it wasn’t really for a full year, as I mentioned before, we do expect the SG&A expenses to go up this year for a full year of expenditures as well as increase as a result of the acquisition of Correvio in order to support AGGRASTAT and the additional sales reps that we have now added to the team. Of course, as BRINAVESS sales grow we will have to provide additional support to support the commercialization of the product.
William L. Hunter, M.D.
I think what I would say is while there could be a little bit of creep there, I don’t think it will be huge. What would be most likely to increase the sales force would be reimbursement and so if we got reimbursement in any of those three key European markets for BRINAVESS, that might be a place where you might deploy additional headcount. Having said that, as you saw from Karim’s presentation we already have people on the ground in France, in Italy, and to a lesser extent the UK. While we might be adding a person here or there I don’t think you’re going to see a significant jump.
Neil Maruoka – Canaccord Genuity
Just on that reimbursement, how do you envision that process going over the next 18 months and is there any upside to what you call a more aggressive guidance of about $4 million in sales for BRINAVESS? Is there any upside from quicker than expected reimbursement or any other factors?
I can take that question. The process is such that were we to get the pricing reimbursement, which we expect, in any of these markets they would probably not kick in until later in the year so the impact on 2014 sales would not be dramatic because you have to basically submit a dossier that has to be reviewed and then it has to be obviously, approved and negotiated in terms of the ultimate price and access to which patient populations, etc. So, what I would say is that there is probably limited upside in the 2014 forecast just because of the process of getting price and reimbursement. They would probably kick in, for example, two of the markets where we could get it this year and where we expect to get it this year probably would be later in the year.
There are no further questions at this time. Please proceed Dr. Hunter.
William L. Hunter, M.D.
I think the major presentation was such that we really did round everything up over the course of the discussion. So far in the first quarter I think we achieved something quite important to the business, we made that Merck money go as far as we could. We built the sales force, we hired Quintiles, we took over the molecule from Merck and we acquired Correvio and built out a commercial organization. We also needed to put about $7 million or $8 million of working capital in the business now that it was an operating business and so we got a lot of mileage out of that money but it wasn’t enough to bridge us through.
When we did the offering I had talked to people how pre Correvio our financing gap was probably in the $40 million to $50 million range but post Correvio our financing gap was kind of in the $8 million to $10 million range. We believe we covered that off with the recent financing. We also believe that we achieved a secondary goal by helping to place some of the stock of the private equity owners and that meant that there was kind of no overhang on the exit or potential future excess of them from the company when the lockup period came off in a couple of months.
We now are funded through. It was a big step for us and it certainly has stabilized the business. I think as I look at the company right now, for the first time a couple of weeks ago we were able to take a deep breath and actually think forward. Thinking forward at this point in time is looking towards getting some progress on that FDA file and figuring out what to do with that oral asset and looking at strategic assets to fill out the business. Those are the big things to look forward to in 2014. 2015 is actually shaping up as an interesting year for the company as well. you’ve heard from Karim that that’s when reimbursement could start to kick in and fuel kind of a second wave of growth and also a point in time where really the pipeline of the company could be revitalized and provide some future upside as well.
Certainly, an interesting year for the business. So far in 2014 I think we’d say that things are going pretty close to plan. I think we’re pretty happy. When you make this many changes it’s great to draw it up on the board and you expect that everything is going to move in the directions you hope but often times it doesn’t because there’s a lot of moving pieces but so far everything is moving as it’s supposed to. The numbers in terms of what we anticipate, and for many of you this might be the first time you’ve seen what our expectations are, but those are realistic. We’re moving towards those and so far our trajectory is consistent with everything we put in the presentation.
We’re very happy and I look forward to being back talking to you in a very short period of time about the first quarter. We were a little bit later presenting today than we might have otherwise been for obvious reasons, because we closed the financing it meant that our financials were going to be a little bit delayed but we should be talking to you fairly soon about the first quarter and I look forward to giving you some updates then. Thank you for your attention and as always, we should all be available for calls later on today if you need any additional clarification.
Ladies and gentlemen this concludes your conference call for today. We thank you for participation and ask that you please disconnect your lines.
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