Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)

Executives

Ted Schroeder - President and CEO

Jim Breitmeyer - EVP and Chief Medical Officer

Bill LaRue - EVP and CFO

Analysts

Charles Duncan - JMP Securities

Eric Schmidt - Cowen and Company

Adam Cutler - Canaccord

Greg Fraser - Banc of America-Merrill Lynch

John Newman - Oppenheimer

Cadence Pharmaceuticals Inc. (CADX) Q2 2010 Earnings Call August 5, 2010 ET

Operator

Welcome to the Cadence Pharmaceuticals Second Quarter 2010 Financial Results Conference Call. On the call today are Ted Schroeder, President and CEO, Jim Breitmeyer, Executive Vice President and Chief Medical Officer, and Bill LaRue, Senior Vice President and Chief Financial Officer.

At this time, I would like to inform you that this conference is being recorded and that all participants are in a listen-only mode. (Operator Instruction)

Our first is speaker is Bill LaRue. Go ahead, sir.

Bill LaRue

Before we get started today, I would like to remind you that statements included in this conference call that are not a description of historical facts are forward-looking statements. Such forward-looking statements include statements regarding: the timeframe in which the FDA is expected to complete its review of our NDA for OFIRMEV, and our belief that our NDA will be sufficient for the FDA to approve this product candidate; our readiness to launch OFIRMEV, and the potential strength of any such launch; the sufficiency of the our capital resources to fund our operations through the approval of initial launch period of OFIRMEV; our ability to complete future drawdowns under our loan facility; the potential for us acquire Incline Therapeutics and the anticipated strategic benefit of any such acquisition, and all of our financial estimates and projections.

All such forward-looking statements are based on our current beliefs and expectations, and should not be regarded as a representation that our plans will be achieved. Our actual results may differ materially due to the risks and uncertainties inherent in the our business, which include, the potential that the FDA may not approve OFIRMEV; our dependence on the success of OFIRMEV, which is our only product candidate; the potential that the FDA may require additional data or information as part of its review of the our NDA for OFIRMEV or that's the review will not be completed within the expected timeframe, our reliance on our third-party manufacturer to address any deficiencies related to the manufacture of OFIRMEV; the risk that further FDA scrutiny of the manufacturing site for OFIRMEV may raise additional issues that must be resolved prior to approval, the potential that we will require substantial additional financing in order to obtain regulatory approval for and commercialize OFIRMEV, and do exercise our option to acquire Incline, the risk that we may not be able to raise sufficient capital when needed, or at all; the risk that delays in obtaining approval for and commercially launching OFIRMEV will enable competitors to further entrench their existing products or bring new products to market before OFIRMEV; and our ability to comply with the terms of our loan agreement.

These and other risks are detailed in our prior press releases and periodic public filings with the Securities and Exchange Commission. You are cautioned not to unduly rely on these forward-looking statements, and we undertake no obligation to revise or update such statements. All forward-looking statements are qualified by this cautionary statement. This caution is made under the safe harbor provisions of Section 21E of the Private Securities Litigation Reform Act of 1995.

If anyone has not seen our press release issued earlier today, you can access it on our website at www.cadencepharm.com. Additionally, this conference call is being webcast through the company's website and will be archived there for future reference. Ted?

Ted Schroeder

Good afternoon everyone and thank you for joining us today. I will start by providing a brief summary of the second quarter events and provide an update on our efforts to obtain regulatory approval for OFIRMEV, our intravenous acetaminophen investigational product candidate. Bill then provide an overview of the second quarter and year-to-date financial results. After the financial results, we will open the call for your questions.

First, I would like to provide a brief update on our NDA for OFIRMEV. As we have discussed previously in February of this year, we received a complete response letter from the FDA, which stated that our NDA could not be approved due to deficiencies with respect to good manufacturing practices observed during the agency's inspection of the facilities of our third-party manufacture.

Following a meeting with FDA to discuss the observations, we resubmitted our NDA for OFIRMEV in May, and we are subsequently notified that the FDA had classified our resubmission as a complete class to response to the February letter. We have received a new PDUFA action date of November 4, 2010 and our third-party manufacturer has responded to the deficiencies noted during the inspection of the manufacturing facility. We have not been notified by FDA, as to whether or not the agency will re-inspect the manufacturing facility prior to completing its review of our NDA.

In the mean time, we are working with our third-party manufacturer to ensure that they are ready to supply commercial product as soon as the NDA is approved. We are finalizing our commercial readiness activities in order to be well position for a strong launch of OFIRMEV as soon as possible of following approval by the FDA.

We also announced the very exciting opportunity for our company in the second quarter. In June we signed an agreement to secure an option to acquire Incline Therapeutics, a newly formed privately-held specialty pharmaceutical company.

Incline is developing IONSYS, an investigational product candidate intended to provide patient-controlled analgesia or PCA for adult inpatients requiring opioids following surgery. IONSYS has been improved by both the US-FDA and the European Medicines Agency, but is not currently marketed.

Incline is currently focused on developing new patient safety features for IONSYS and obtaining the required regulatory approvals for the product candidate. IONSYS is particularly appealing to us, as we believe that it will be a strong strategic fit with our OFIRMEV product candidate. If both products are approved, we expect there will be a near 100 overlap with (inaudible) for a planned sales force for OFIRMEV.

Also in June, we strengthened our balance sheet while minimizing dilution by closing a $30 million secured loan facility. During the quarter, we drew $20 million on the facility and we will have access to the remaining $10 million upon FDA approval of our OFIRMEV NDA, if the approval occurs before the end of this year.

With this new capital, we ended the second quarter with $68.5 million in cash, cash equivalents and short-term investments, and we continue to believe this will be sufficient to fund our operations through the approval in an initial launch period of OFIRMEV.

With that, I will turn the call over to Bill, who will review our financial results in detail.

Bill LaRue

During the second quarter of 2010, we reported a net loss of $12.2 million, compared to $8.3 million for the second quarter of 2009. For the six months ended June 30, 2010, we reported a net loss of $26.1 million compared to net loss of $18.7 million for the six months of 2009.

These increases in our net loss during 2010 were primarily due to change in our sales and marketing expend related to the established one of our commercial infrastructure in preparation for the potential launch of OFIRMEV.

As part of this commercial readiness process, we increased our headcount in the sales and marketing area from two at the beginning of 2009 to 38 today. As a result, our sales and marketing personnel cost increased significantly in 2010, partially offsetting the increase in sales and marketing expenses was a decrease in our research and development expenses in 2010, as compared to 2009.

This reduction was primarily due to decline in spending related to the discontinuation of our Omiganan and development program in the first quarter of last year combined with the completion of our clinical development program for OFIRMEV in the second quarter of 2009.

Also during the second quarter of 2010, we incurred a charge of 1.2 million related to modifications to the design of our plan second production line for OFIRMEV. These modifications resulted in the partial cancellation of a capital equipment order for which we have identified an alternative supplier. As a result of this partial cancellation, we reported a charge to impair costs that have accumulated in construction and process for the equipment.

As of June 30th, 2010, we held $68.5 million in cash, cash equivalents and short-term investments. This balance includes $20 million that we accessed under our new increased credit facility during the quarter, partially offset by the payments under our existing debt facility which we paid $5.3 million during the quarter in principal interest and final payments to extinguish the existing debt. Also during the quarter, we made a payment of $3.5 million to acquired options to purchase Incline and process $1.2 million of property and equipment.

I'll turn the call now back over to Jim.

Jim Breitmeyer

Thanks, Bill. I would like to conclude our prepared remarks by stating again, that we remain confident in our NDA for OFIRMEV, and are prepared for a strong launch of this product candidate as soon as possible, if approved by the FDA. I am looking forward to the coming months and I'm excited about our Incline agreement and the potential of adding a second high quality hospital focus product to our portfolio.

We'll now open the call to your questions. Operator?

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from Charles Duncan with JMP Securities.

Charles Duncan - JMP Securities

My first question is regarding the pediatric use of OFIRMEV. I believe that there has been a white paper written perhaps by the FDA. Could you provide us a little bit more color on that, and what was kind of the basis of that paper being put out?

Ted Schroeder

Charles, this is Ted. It wasn't the whitepaper per se. The FDA actually posted redacted written reviews from the reviewers focus on the pediatric section of the NDA. This is a statutory requirement by FDA. They have a certain number of days to post pediatric reviews, whether products are approved or not.

So they are available on the FDA website. We actually issued an 8-K in June providing the link, so they are available for review. They are very informative. You can get a good sense of where the reviewers are headed. Keep in mind that we perform pediatric PK and safety, but all the efficacy for OFIRMEV relies on the adult efficacy. So you will see in a references to adult data in there as well.

Charles Duncan - JMP Securities

Sure. I took a look at it. I understand that. But what was intriguing to me is that you had PK data as far as I recall down to very young or small children, isn't that the case and have you seen that in the past?

Jim Breitmeyer

Charles, this is Jim Breitmeyer. We do have PK data down to very young children. It ended up being redacted in the material that was posted on the FDA website because the figure that contains pediatric data also contains the adult data, but it's the same data that we have shown in a post reform. To get the data we have a very complete pediatric PK data set and the data have allowed us to make dosing recommendations across every pediatric age group all the way down to premature neonate.

Charles Duncan - JMP Securities

Okay, and then if I could turn to the sales force and the management to build there, how is it going in terms of, I mean you probably had offer letters, so have been able to retain most of those, the interest of most of those folks or are you going to have to rebuild those efforts?

Ted Schroeder

That's a good question, Charles. So the 147 target territories, we currently have 143 representatives with assigned letters of contingent offers in their hands. The attrition has been very minimal, so we are thrilled with that. Team seems to be exited, and ready to come on board. The sales management team has done a great job, keeping people interested in and appropriately inform, so we are excited.

The other thing I would add is that the extraordinarily experienced team, the sales representatives have more than nine years experience on an averages as hospital sales representatives. So it's really the kind of team you want to launch strongly in the hospital setting.

Charles Duncan - JMP Securities

My final question is with regard to the activities of sales management, I know that you don't have anything to promote or go out in sale, but have you been able to go and do some additional market studies and/or have discussion with as an example [P&T] committee members, they might able to give you more confidence in call it the launch dynamics of OFIRMEV, should that be approved?

Ted Schroeder

Yes, sure. The sales management team, now that the recruiting is largely behind them it have been focused on in a priority way are profiling the accounts in their districts. So understanding, just as you said, Charles, the dynamics of the formulary, how you get a product moved on through the agenda, who the key decision makers are, what's the timing, etcetera, what they anticipated path to follow would be, and so that all, the information that they will be able to provide to the representatives once the product's approved and we will begin promoting the product. So, this made a lot of progress, a lot of good insight confirmed, a lot of our original assumptions and have certainly given us an opportunity to refine our launch plans.

Operator

Our next question comes from the Eric Schmidt with Cowen and Company.

Eric Schmidt - Cowen and Company

Bill, I think you said the headcount on the sales and marketing side is now around 38, did I catch that correctly?

Bill LaRue

That is correct, yes. So that's the sales management marketing, sales is up and few manufacturing.

Eric Schmidt - Cowen and Company

Is that going to change much between now and say PDUFA?

Bill LaRue

No, it will not. It will remain essentially flat between now and PDUFA. The real increase is going to be around the sales force, when we bring them on.

Eric Schmidt - Cowen and Company

It's been now several months since Baxter filed the response to the FDA sufficiency letter. Is there any insight you can provide on whether they regain compliance or what the FDA's response to that response has been?

Ted Schroede

The Baxter provided the response we believe that they have answered the questions fully. We believe that they have responded appropriately. I know there's been some back and forth between Baxter and the office of compliance and it appears that they are working away through the Baxter response. They seem to be doing the work to resolve and close the 483.

Eric Schmidt - Cowen and Company

So, we should assume that they haven't regained compliance?

Ted Schroeder

The 483, I think is fair to say the 483 has not been officially closed. So, I think that's really the gating item for the review division to move forward is notification of the 483 has been closed, and as far as we know as of today that has not occurred.

Jim Breitmeyer

Eric, it's Jim. They are producing other injectable products in that facility and they appear to be considered by FDA to be in general in GMP compliance for their other products.

Eric Schmidt - Cowen and Company

Have guys been able to ascertain from the FDA, whether the 483 is required to be closed prior to approval OFIRMEV or just the fact?

Ted Schroeder

No, absolutely Eric it needs to be closed. That in fact is, with the reason for the complete response letter. If there is an open 483 in your manufacturing facility, the FDA cannot approve a new product. So, it has to be closed first.

Eric Schmidt - Cowen and Company

So, could we expect since it seems to be a material event for you press release or in 8-K at the time the 483 is closed?

Ted Schroeder

Well, I think it depends on the timing all. Of course that will be communicated to Baxter and it will be communicated to the review division. I don't know that's exactly clear to us in what sequence that will occur. Of course, it's a response to Baxter. So, they understand our need to make disclosures. They've been very cooperative, but before any disclosures is made, they will meet the [buy-in] of Baxter, but it's possible that the review division could be notified and then Baxter and it might not even be meaningful by the time Baxter gets a letter. It depends on what the sequence is.

Eric Schmidt - Cowen and Company

Understood and then, last question. I think at one point Ted, you suggested that if an FDA re-inspection was required, you'd get a Class II, you got into Class II. That doesn't mean an FDA re-inspection is required, but do you have any insight until now that you gotten into Class II, why and do you think it does make it more likely that they will re-inspect?

Ted Schroeder

Our assumption is that they will re-inspect Eric. The rationale for the Class II was that the FDA wants to reserve the options to re-inspect the facility. I think the important thing is that the re-inspection is baked into the timeline. So, we do not believe that that's a risk to the November 4th PDUFA date at this time.

Operator

Our next question comes from Adam Cutler with Canaccord.

Adam Cutler - Canaccord

My guess is, continue the similar line of questioning. What will your disclosure policy be? What is your disclosure policy around a possible re-inspection? Will you let us know, that one has been scheduled or other one was completed, and I have a follow-up question after that.

Ted Schroeder

So, again there is no obligation as we understand it for the FDA to notify Baxter in advance that they will be inspecting the facility. In fact the inspection in the end of January or early February was an unannounced inspection. So, it's likely to be that way. So, we likely won't know in advance that they are inspecting, and again this is an inspection of the Baxter facility, this is Baxter's issue to handle. So, any disclosure will be in concert with Baxter and so its hard for us to commit they will disclose access at certain time because I think it requires us to access the materiality and it requires Baxter to agree.

Adam Cutler - Canaccord

Its a similar question about Incline, what can we look forward to in terms of updates on how Incline is doing with their development or their progress with the FDA, and for that matter, what progress might mean for Cadence's plans in terms of exercising the option?

Ted Schroeder

Again any disclosure around progress with the FDA will be Incline's disclosure, not Cadence is really the next material event for Cadence would be the decision exercise the option. So, I'm not sure what Incline's position will be as a private company of what press release is going now regulate to progress they are making.

Adam Cutler - Canaccord

Okay, but presumably there will be basic disclosures to you along the way, is that right?

Ted Schroeder

Yes, but I don't know unless and somehow accelerates the exercise of the option payment. I don't know that those would be events that would necessarily be material to Cadence until we make the decision to exercise the option.

Operator

Our next question comes from Greg Fraser with Banc of America-Merrill Lynch.

Greg Fraser - Banc of America-Merrill Lynch

On the last few questions, is the review of the resubmission basically on hold until the 483 is closed?

Jim Breitmeyer

There is nothing to review. So, I think what's on hold is finalizing the label and sending the letter, but there are no additional materials to review, and the finalization of label does not have to wait until the 483 is closed. The review division could like to complete all that work, but they can't issue the approval letter until the 483 is closed.

Greg Fraser - Banc of America-Merrill Lynch

If the FDA were to re-inspect the facility what's your best estimate as to when the inspection might occur, there is a rule of thumb for how far ahead of PDUFA date with the agency tends to expect the manufacturing line?

Ted Schroeder

Not one that we are aware of. I think it could happen in any time. I think office of compliance is acutely aware the PDUFA date. They participated in the April 16th meeting, and they understand the importance of OFIRMEV when the unmet medical need, and so I am confident that they will complete the review and if they are going to do an inspection in ample time to meet the November 4th date.

Greg Fraser - Banc of America Securities-Merrill Lynch

Okay. And just a quick question on the $1.2 million charge for the equipment order, does partially mean that there could be additional charges, and are there any other similar type charges that you expect to incur in the second half?

Bill LaRue

Had a partial does not mean that and if there is additional charges. It was the portion of the equipments that we have an alternative supplier for. We just have some design modifications which are going to improve productivity and efficiencies, and so we had incurred some expenses associated with it. So, it's 100% of what the write-off is, it just a partial component of the overall line. So there will be no other anticipated write-offs.

Operator

(Operator Instructions) Our next question comes from John Newman from Oppenheimer.

John Newman - Oppenheimer

I just had two questions actually. The first is, you said that you drew down $20 million from the debt facility. But I am just trying to rectify that, it looks like on the balance sheet you were saying the long-term debt is about 18. And then in terms of the amount of time that it would take you to produce large quantities of OFIRMEV, what would that be? And do you have material that you could use that you've already produced now or are you waiting for the 483 issues to be resolved? Thanks.

Ted Schroeder

I will answer the second part of that question. I'll let Bill answer that question around the debt facility. We are not going to manufacture product at risk in advance of the PDUFA date, because we believe that the dating will be about 12 months, and so every month that sits around just makes it that much more likely that it will be returned from wholesalers.

So we have plenty of time to produce launch quantities to ship to wholesalers. We anticipate that we will be able to launch within the same timeframe that we had guided earlier when we were anticipating the February approval we guided in early Q2 launch, I think with the November approval, we are comfortable that we will be able to launch early in Q1 of 2011. That gives a sign to bring the sales force on trading them, produce the marketing materials, and to produce launch quantities, get them into the wholesaler distribution channel and launch the product so that the hospitals can order the product at launch. So, we think we will be in good shape. It just nothing is really changed. It just shifted forward.

Bill LaRue

Okay and then with respect to your question on the debt, the gross amount is $20 million. That gross amount then is reduced by the legal and loan fees associated with the transaction as well as a discount associated with the warrants. There is a small number of warrants that were issued, and what you do as you do a Black-Scholes calculation on those warrants and then over the life of the loan you amortized interest expense of the cost of those warrants. So, it ends up being a net against the gross amount and that's why you see the approximately $18.5 million on the balance sheet at the end of the quarter.

John Newman - Oppenheimer

Okay, just one quick additional question. In terms of the equipment order that was partially cancelled. What exactly was the equipment that you guys decided to cancel the OFIRMEV, you mention that you had an alternative supplier for some of that?

Bill LaRue

Yes, John, we just don't get into that, the specificity in terms of what the specific piece of equivalent was, but the line two is comprised of a number of different components and this was just one component of that manufacture line.

Operator

At this time, there are no further questions. I will turn the conference back to Mr. Schroeder.

Ted Schroeder

Thanks everyone for joining the call today. I know it is a busy afternoon with the companies reporting, so we appreciate your continued and support and interest in our company. We are scheduled to be at the Canaccord Genuity 30th Annual Growth Conference in Boston and the BOA Merrill Lynch Specialty Pharmaceuticals Conference in Southampton next week. So we hope to see many of you there. Thanks and have a good evening.

Operator

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

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Cadence Pharmaceuticals Inc. Q2 2010 Earnings Call Transcript

Check out Seeking Alpha’s new Earnings Center »

This Transcript
All Transcripts