Cubist Pharmaceuticals' (CBST) CEO Michael Bonney on Q2 2014 Results - Earnings Call Transcript

Jul.22.14 | About: Merck & (MRK)

Cubist Pharmaceuticals Inc. (CBST) Q2 2014 Earnings Conference Call July 22, 2014 5:00 PM ET

Executives

Eileen McIntyre – VP, IR

Michael Bonney – CEO

Michael Tomsicek – SVP and CFO

Robert Perez – President and COO

Steven Gilman – EVP, Research & Development and Chief Scientific Officer

Analysts

Eun Yang – Jefferies & Company

Terence Flynn – Goldman Sachs

Mario Corso – Mizuho Securities

Steve Byrne – Bank of America

Adnan Butt – RBC Capital

Jason Kantor – Credit Suisse Securities, LLC

Ken Cacciatore – Cowen & Company

Alan Carr – Needham & Company

Brian Skorney – Robert W. Baird

Gwen Cooper – Morgan Stanley

Liisa Bayko – JMP Securities LLC

Stephen Willey – Stifel Nicholas

Operator

Good day. My name is Brenan, and I will be your event manager today. At this time, I’I like to welcome everyone to the Cubist Pharmaceutical Second Quarter Earnings Conference Call and Webcast. All lines have been placed on mute to prevent any background noise. And please note today’s web conference is being recorded. (Operator Instructions).

At this time, I would like to turn today’s program over to Eileen McIntyre, Vice President, Investors Relations. Ms. McIntyre, you may begin.

Eileen McIntyre

Good afternoon and thank you for joining us for our review of the first quarter 2014 business performance and financial results for Cubist Pharmaceuticals.

Before introducing our speakers, I will read the Safe Harbor statement and describe the context for use of non-GAAP financial measures. Today’s presentation includes forward-looking statements relating to our business, including those set forth on this slide. We may also make forward-looking statements during the Q&A session following our prepared remarks.

These statements are neither promises nor guarantees, and there are a number of risks and uncertainties that could cause actual results to differ materially from those set forth in these forward-looking statements. These and other risk factors are described in the Risk Factors section of our most recent annual report on Form 10-K and subsequent quarterly reports on Form 10-Q filed with the SEC. Forward-looking statements are made as of today’s date, and we do not undertake any obligation to update any forward-looking statements.

We will also refer to certain non-GAAP financial measures that involve adjustments to GAAP figures in order to provide greater transparency regarding Cubist’s operating performance. Please refer to the slide being shown regarding our use of non-GAAP financial measures, as well as additional slides on the Investor Relations page of our website, which contain the reconciliations between our non-GAAP financial measures and GAAP financial measures.

Speakers on today’s call will include: Cubist’s CEO, Mike Bonney; President and Chief Operating Officer, Rob Perez; Chief Scientific Officer, Steve Gilman; and our Chief Financial Officer, Mike Tomsicek.

We’ll first hear from Mike Bonney. Mike.

Michael Bonney

Thanks, Eileen. The second quarter was an important one for Cubist in our role as the global leader in the development and commercialization of new therapy, treat infections caused by multidrug resistant bacteria in and around the hospital.

Following approval by the FDA on June 20th, we launched the SIVEXTRO as our fourth acute care therapy in the U.S. Three of the four are antibiotics for infections caused by pathogens the Centers for Disease Control considers urgent or serious public health threats.

Today, most of our U.S. net revenues comes from our well-established IV antibiotic CUBICIN used to treat patients with certain serious skin and bloodstream infections caused by susceptible Gram-positive bacteria including MRSA or multidrug resistant staph.

With net revenues of $235 million Q2, Cubist in U.S. performance continues to track towards peak your [ph] U.S. net revenues of more than $1 billion. June, we have launched the SIVEXTRO. It allows Cubist for the first time to offer an oral Gram-positive therapy option for hospitals.

These hospitals who are interested in either discharging approach patients from the susceptible Gram-positive skin infections, including those caused by MRSA, to complete therapy at home or to treat them as outpatients for a complete course of all the therapy.

In May, we introduced Cubist as the global antibiotic leader to the infectious disease community at ECCMID in Barcelona where we presented scientific and clinical data from multiple products and programs. Importantly, at ECCMID, we presented a four set of data from the two successful pivotal clinical trials of our Gram-negative IV antibiotic candidate ceftolozane/tazobactam.

In June, we also received confirmation from the FDA that the NDA we’ve submitted for ceftolozane/tazobactam in two indications has been accepted as a filing with a PDUFA or FDA action take of December 21st, now just five months away.

We believe ceftolozane/tazobactam assuming approvals will become a very important part of the infectious disease armamentarium. We have one update on Hospira litigation. We’re still waiting for a decision from Judge Sleet. In the mean time, to avoid time and money spent on a preliminary injunction battle for the three-month space had to expire in early August, Hospira has agreed to not launch at risk until at least December 1st. As approach December, if we still do not have a decision from Judge Sleet, we will revisit the issue with Hospira.

Embedded in this recent accomplishment is disciplined decision making tied to our long-term building blocks of growth or BBG strategic goals. Established two years ago, these aspirational goals guided us as we acquired Trius Therapeutics and Optimer Pharmaceuticals last fall. These acquisitions brought us two well-differentiated antibiotics assets – SIVEXTRO and DIFICID which are a good fit for Cubist both in terms of our antibiotic focus and the leverage in our acute care operational model.

In the month since, these BBG goals have provided a framework to make decisions in a timely manner as we’ve integrated critical programs and processes and people from Trius and Optimer. The building blocks of growth framework as we make well-considered investments in Europe to enable us to more fully realize the value of anticipated launches there of SIVEXTRO and Ceftolozane/Tazobactam.

Now Mike Tomsicek will provide some perspective on our second quarter financials.

Michael Tomsicek

Thanks, Mike. I’ll begin with an update on the integration of Trius and Optimer. At this stage, integration of both companies is materially complete. We’ve achieved the substantial synergies in infrastructure that we expected while retaining a small but valuable development presence in San Diego.

Future quarters’ G&A expenses will reflect this disciplined action. As a result, we still expect the Optimer acquisition to become accretive this year and the combined acquisition should be accretive in 2015.

Our total Q2 net revenue is up $294 million and $556 million on a year-to-date basis to give us an insight into our 2014 revenue range in guidance. And I’ll take you through some comments and guidance in a minute.

A couple of point first regarding some details behind the Q2 revenue numbers. While comparing Cubist and U.S. results with Q2 of last year, be aware of the difference in growth to net in the two periods. In Q2 of last year, we booked a $6.6 million favorable adjustment to revenue return which brought our growth to net down to 12.4% in that period compared to this quarter’s growth to net at16.7%. This quarter’s rate is closer to the rate we expect going forward in the absence of a new adjustment.

Our all other U.S. product revenues for Q2 of $30.5 million reflect U.S. net sales of ENTEREG of $14.6 million and DIFICID U.S. net sales of $15.9 million.3 For those of you tracking cumulative sales tied to the CVR, cumulative net revenues for all direct sales of DIFICID in the period that began July 1st of last year are now $62.1 million.

U.S. revenues for SIVEXTRO were not material for this quarter but Rob will be providing some color on the launch.

International revenues is $17.5 million in Q2, include Cubist’s share of sales at CUBICIN and Dificlir via international partners as well as direct revenues from Cubist’s sales of DIFICID in Canada.

Turning to COGS and operational expenses for the quarter. Cost of goods sold for Q2 at about $88.6 million is higher than a typical run rate and reflects our Q2 decision to reserve about $6 million in unshipped finished inventory, produced by the fill/finish line involved in the CUBICIN vial recall announced in April.

R&D expenses of $104.9 million in Q2 are tracking a bit lighter than originally forecast due largely to lighter than expected pre-launch spend on ceftolozane/tazobactam manufacturing. SG&A at $80 million for the quarter met our expectations.

For Q2, contingent consideration is a $24.8 million net income, not expense, reflecting the quarter end adjustment we are required to make to reflect the publicly traded price of the Optimer CVR. This adjustment led to GAAP operating income of $42.2 million, up 50% versus Q2 of last year.

Diluted EPS at $0.30 is up $0.07 from Q2 of last year. Cash equivalents and investments at quarter end was $643.5 million. In our news release today, we provided the table with line by line GAAP to non-GAAP reconciliations for all expense lines.

Now turning to guidance for 2014. Based on six months of results and our current expectations for the balance of the year, we believe whole year U.S. CUBICIN revenue is most likely to come in towards the lower end of our guidance range. At the same time, R&D spending is similarly trending towards the lower end of guidance, leaving us confident in our guidance and operating income for the year.

Now over to Rob.

Robert Perez

Thanks, Mike. We described 2014 as a year of execution for Cubist and as you’ve already heard, in Q2, we checked off some important accomplishments. I’ll first comment on our revenue results.

In an overall MRSA market that has seen a days of therapy decline of about 4% year-to-date, CUBICIN has been competing well and holding its share position. The MRSA market softness is consistent with the longer term erosion in MRSA incidents reported by the CDC late last year.

The key takeaway here is that in a still very large U.S. MRSA market, products like CUBICIN and SIVEXTRO can be successful based on differentiation in safety, efficacy and importantly, the overall value proposition for appropriate patients.

Turning to ENTEREG, sales momentum continues with Q2 net revenues for ENTEREG of $14.6 million, up 18% versus Q2 last year. For DIFICID, we saw and uptick in U.S. net revenues to $15.9 million for Q2 versus $14.4 million in Q1. But it is still early days in the U.S. re-launch effort begun in February.

Now I’d like to put a spotlight on three future value drivers – the U.S. launch of SIVEXTRO, the 2014 re-launch program for DIFICID and finally, an update on our European build.

First, SIVEXTRO, which in late June was approved and launched in the U.S. The fact that we launched the product and we’re ready to ship SIVEXTRO tablets on Monday morning, June 23rd after receiving the final label and approval after the close of business on Friday, June 20th demonstrates the planning and commitment to execution of the entire Cubist team.

We were first attracted to SIVEXTRO, acquired with the purchase of Trius last year, for three reasons. One, we saw the need in a large MRSA acute care market for a well tolerated oral therapy to provide an option for transition to outpatient. Two, we believed that such a therapy would complement CUBICIN and leverage the antibiotic expertise and acute care infrastructure we’ve built.

And three, assuming approval by the EMA, SIVEXTRO would give us a second product to launch directly in Europe, providing an opportunity to achieve profitability there faster than for just one product. Our assumptions about SIVEXTRO as a future value driver have now been reinforced by the timely approval of a well differentiated label in the U.S.

Our field based medical and commercial teams are now highlighting the role SIVEXTRO can play in the transition to outpatient of appropriate patients with acute bacterial skin and skin structure infections.

At our mid-year national sales meeting last week, we heard about the enthusiasm that our team is receiving from the hospital customers regarding SIVEXTRO. Obviously, it’s still very early. But the initial response from physicians and pharmacists suggest that our instincts about the need for a well tolerated oral therapy that can be used to transition patients out of a hospital are being confirmed.

In addition to the clinical and pharmacoeconomic benefits that SIVEXTRO can provide, Cubist is also rolling out a differentiated service plan with the SIVEXTRO launch. In conjunction with the launch of the product, Cubist is also launching a program called Access SIVEXTRO to help ensure ease of access for eligible patients being discharged with a SIVEXTRO prescription.

The Access SIVEXTRO program provides a seamless transition for hospital discharge case managers by handling the process from prescription through payer review and prescription fulfillment. We are also leveraging the thinking behind the Access SIVEXTRO program as we make enhancements to the DIFICID patient access program as well.

We believe both of these programs can become important parts of the Cubist brand in the acute care marketplace. As a leader in the hospital antibiotic market, we intend to be differentiating not only in the products we offer but in the positive experience we provide physicians and patients.

Of course, important to any antibiotic launch is gaining a critical mass to formulae acceptances. For many hospitals, a formulary review of SIVEXTRO will not take place for at least six months following approval. But we now expect an initial round of formulary review meetings in August and September.

Now an update on the DIFICID re-launch begun in Q1. Our re-launch plan is focused on three important initiatives – positioning DIFICID for use in appropriate patients, building new relationships with key opinion leaders outside of the ID space and improving patient access to DIFICID.

It is now just a little more than a quarter since we introduced a refined product positioning for DIFICID. Targeting use for patient populations at the highest risk of recurrence and who are most impacted by the consequences of an extended vow to see that [ph].

We have employed the same structured, rapid learning process that we’ve used effectively in the re-launch of ENTEREG as well as for CUBICIN and we’re making good progress.

We’ve learned how we might better pinpoint opportunities with gastroenterologists and other customer segments who treat targeted patient types. We’re building relationships with these prescribers through our commercial and medical affairs teams. Our market access team is working with payers to facilitate coverage of DIFICID outside the hospital setting for appropriate patients.

As mentioned earlier, we continue to enhance the DIFICID patient access program so that patients who are prescribed DIFICID can receive the support they need to acquire the drug. We’ve now expanded both patient eligibility criteria as well as patient financial support for commercial co-pays.

This program makes a big difference. Patients enrolled in what we now called Access DIFICID fill their prescriptions 80% of the time. This is substantially higher than for those not enrolled in the program. And we see opportunities to improve on this success rate.

Importantly, we’re getting very positive feedback from both patients and physicians about the benefits of this program. Our field organization continues to be enthusiastic about the opportunity for DIFICID to address the urgent public health threat associated with Clostridium difficile associated diarrhea.

Now turning to our European build. First of all, this is a very positive time to be embarking on an investment focused on the delivery of new antibiotic therapies in Europe. Earlier this month, U.K. Prime Minister David Cameron announced that he has commissioned an internationally focused review concerning antimicrobial resistance. The Prime Minister added that this initiative now has the support of other G7 nations and has received funding from the Wellcome Trust.

The international review will look broadly at the economic issues surrounding antimicrobial resistance, including how to incentivize the drug pipeline so that new drugs are developed. Cubist is proceeding with a phased build out in Europe.

In recent weeks, we completed the hiring of five country managers to oversee planning and execution for the first 15 European markets in which we plan to launch SIVEXTRO next year. The organization we are building in Europe is designed to address the needs of today’s acute care environment. And in that respect, the country managers will play a critical role.

Managing a very customer centric organization, they will oversee both account management and medical support teams and will also have responsibility for ensuring access from government reimbursement for formulary approval.

We believe that a flexible, agile approach by our leadership in Zurich as well as at the country manager level is key to success in Europe as it has been for us in the U.S. We are building in Europe to be both effective and efficient, consistent with our plan to achieve profitability in our international operations in 2016.

Now, over to Steve.

Steven Gilman

Thanks, Rob. This was a quarter in which Cubist expertise and global leadership in the fight against multidrug resistant bacteria was quite evident. First, coming out of a very successful advisory committee meeting for SIVEXTRO at the end of March, our clinical and regulatory teams did a terrific job of engaging with the FDA reviewers to ensure that we achieve timely approval of a label that appropriately represented the differentiating features of this important gram-positive antibiotic therapy.

We’re quite pleased with the SIVEXTRO label and the acute bacterial skin and skin structure infection indication approved by the FDA on June 20th and we are now fully engaged in the MAA review process in EU.

Since we launched SIVEXTRO late last month, our medical affairs professionals are engaging with infectious disease physicians, hospital pharmacists and microlab professionals across the U.S. to ensure that they have answers to questions that they may have about this new antibiotic therapy.

Also [indiscernible] SIVEXTRO, I can report that in June we enrolled the first patient in our Phase III study of SIVEXTRO in patients with hospital acquired and ventilator associated pneumonia caused by gram-positive pathogens. This is very early days in a large global trial but we are pleased to have patient formally underway.

In May, Cubist was quite visible at ECCMID, a key international scientific forum for infectious diseases scientists and medical professionals. Cubist scientists led 17 presentations, including details of the pivotal Phase III trial results for ceftolozane/tazobactam in complicated urinary tract infections or CUTI and complicated intra-abdominal infections or CIAI.

The infectious disease professionals we met with at ECCMID shared the enthusiasm we have for this antibiotic candidate. As you’ve heard us say many, many times, the unmet medical need for new therapies in the gram-negative space is quite significant. Three pathogens – Escherichia coli, Klebsiella pneumoniae and Pseudomonas aeruginosa are responsible for more than 70% of all healthcare associated gram-negative infections, wither the infection source is the urinary tract, the abdominal tract or the lung.

One prominent take away from the ECCMID meeting was the concern that physicians have not only with multi-drug resistant pseudomonas but also with the increasing incidence of infections caused by ESBL-producing E. coli and Klebsiella. The attributes of ceftolozane/tazobactam and the compelling data we presented from our Phase II trials in CUTI and CIAI suggest that this agent can play a significant role in addressing these concerns.

So it is with great enthusiasm that we are working with regulatory agencies to efficiently complete the NDA and MAA review process. Following our NDA submission in April 21st, the FDA accepted our submission, confirmed for review [ph] and set a December 21st PDUFA date for ceftolozane/tazobactam.

At this point, the FDA has indicated that an advisory committee may not be needed for ceftolozane/tazobactam. Importantly, we also continue to expect to submit the MAA in the second half of 2014.

We are very excited to have the possibility of FDA approval of two important new antibacterials in 2014 which may be unprecedented as well as continuing our efforts on Surotomycin and our early stage beta-lactamase program.

Outside of the antibiotic space, in the second quarter, Cubist participated in an FDA advisory committee focused on the safety of mu-opioid receptor antagonists as potential therapies for the treatment of opioid induced constipation or OIC. The majority of the panel members voted that a pre-approval cardiovascular outcome study should not be required for mu-opioid antagonists in OIC.

In addition, Salix announced that Relistor is approvable without additional cardiovascular safety data. While these are encouraging developments, we continue to wait additional information needed before assessing our path forward here.

These include insights we expect to gain from the FDA action on the naloxegol PDUFA date in September. Results from the data we will see later this year from our bevenopran long term safety trial. And the outcome of additional regulatory discussions on a feasible Phase III efficacy design from bevenopran.

Now back to Mike Bonney.

Michael Bonney

Thanks, Steve. We’ve passed the halfway point in a busy, eventful year. And as you’ve heard detail by Mike, Rob and Steve, we can now check off a number of accomplishments against the 2014 milestones shown on this slide that we established in January.

In the past year, we’ve seen considerable attention drawn to the need for new antibiotics. The international commission Rob mentioned is just the latest evidence of heightened concern regarding the impact of rising antibacterial drug resistance across the globe. We’ve begun to play a much more active role in these forums, including participating in the World Health Organization’s strategic and technical advisory group for antimicrobial resistance as well as the innovative medicines initiatives work in this area across Europe.

As the world’s leader in this space, we’re committed to being a major contributor that’s solving this dilemma. Now let’s open it up to your questions. Operator?

Question-and-Answer Session

Operator

(Operator instructions) Your first question comes from Eun Yang with Jefferies.

Eun Yang – Jefferies & Company

Question on the hospital litigation. I thought that initially you guys were expecting judge’s decision before the third month expiry. Is this still your expectation?

Michael Bonney

Well, frankly, Eun, Judge Sleet – like all drugs, that the Delaware Superior Court has to prioritize criminal cases over civil cases. We have no control over that workload. So we’re – this agreement with Hospira just represents a modicum of insurance so we don’t have to get into an expensive injunction fight should Judge Sleet require more time than the three months they allow us.

Eun Yang – Jefferies & Company

Okay. But is it fair to assume that your costness [ph] level is the same as before?

Michael Bonney

Absolutely.

Eun Yang – Jefferies & Company

Okay.

Michael Bonney

In terms of the regular outcome, we, again, we don’t have any insight into what Judge Sleet’s calendar looks like, so we can’t predict when he will rule. But we have confidence in the evidence that was presented at this trial.

Eun Yang – Jefferies & Company

Okay, thank you. And then just a quick question on the other revenue line. It’s $11.7 million, that’s quite high – much higher than other quarters. Can you talk about what’s in those other revenue lines?

Michael Tomsicek

There’s a number of milestones that’s okay with those lines, so milestone revenue is the explanation for the number that you refer to.

Eun Yang – Jefferies & Company

So milestone from Novartis?

Michael Tomsicek

I won’t get explicit into what’s driving, but milestones associated with development of product is driving that revenue.

Eun Yang – Jefferies & Company

Okay, thank you.

Operator

Your next question comes from Terence Flynn with Goldman Sachs.

Terence Flynn – Goldman Sachs

In my question, I apologize I missed the beginning, but I was just wondering if you could remind us about in the hospital P&T side, just how frequently those meetings happen. And again, if they’d happen all at once or is this something that would happen over a staggered fashion? And then maybe on the pace of those meetings, do you anticipate today’s one to be the same, faster or slower versus kind of your history with Cubist and maybe is that a good proxy as we think about the pace of the rollout? Thanks.

Michael Bonney

Sure, Terence. As far as P&T meetings, they do occur at very different times. Hospitals have very different kind of processes. Some have a very kind of strict policy that they wait a certain amount of time before they’ll even consider reviewing something for P&T. Often that’s a six-month timeframe. Other hospitals do kind of move based on their excitement on the product. So I think CUBICIN is a pretty good proxy. And what we saw with CUBICIN is – and again, I’ll say that the formularies are important and they matter, but they’re not the be all and all [ph] for products like this, you can get the patients put on the therapy without being on formulary. It is obviously better to be on formulary than not to be on formularies, but you can certainly get a lot of uptakes without formulary approval.

So we’re working the processes. We’re getting on formulary calendars and it will kind of staggered throughout the balance of really the next 12 months because it can in some instances take up to 12 months for a hospital to review a new product.

Terence Flynn – Goldman Sachs

Okay. And then on CXA, do you guys have any latest market research post the data presented at ECCMID that you can share with us?

Michael Bonney

Nothing later than what you saw kind of at ECCMID. I think the general summary, the most recent market research is – again, the reason why we’re enthusiastic about the UTI indication because much of the data that we’re reading around UTI is the concern around ESBL-producing E. coli and how some of the kind of pathogens associated with UTI are changing with ESBL producers. So that goes well for ceftolozane/tazobactam assuming approval that because of its coverage of ESBL and because of the statistical superiority that we saw in the trial, we think it will ultimately help that product to be even more differentiated in that space.

Terence Flynn – Goldman Sachs

Great, thank you.

Operator

Your next question comes from Mario Corso with Mizuho U.S.A.

Mario Corso – Mizuho Securities

Good evening. Thanks for taking my questions. A couple of things, on U.S. CUBICIN, can you talk about the vial growth trend looks like and also in terms of gross to net discounting maybe risings, I’m wondering what if anything is going on there. And on the Hospira situation, is December 1 just kind of an arbitrary date to capture something before year-end and before holidays or is there some other significance to that date. Thank you.

Michael Bonney

I’ll answer the Hospira question first and then Mike can talk to the gross to net and Robert can talk to trends here. Yes, the December 1st is just to provide some assurance over a period of time. It is a relatively arbitrary date. And as I said in the prepared remarks, should we get to December 1st or approach December 1st and Judge do not have made his decision yet, we would reengage Hospira to see about pushing that date out.

Michael Tomsicek

Right. And from a gross to net standpoint beyond the biggest factor which we mentioned both in the press release and on the call of the sort of onetime adjustment that we experienced last year in terms of the take back. The rate that you see this quarter is more along the line of a normal rate without unusual adjustments.

As we continued to take price increases when you look back in time, those price increases are not fully realized because of the way government pricing works. And so that’s one of the larger factors in continuing to drive up the gross to net as the product matures.

Robert Perez

And in terms of vial trends, if you look at Q2 ‘14 over Q2 ‘13, vials for CUBICIN in the U.S. were down 2.3%. If you look at Q2 ‘14 over Q1 ‘14, vials were up 12%. Keep reminded that’s something off a relatively soft Q1. But the 12% number was the highest Q2 over Q1 that we’ve seen since 2008 if I’m not mistaken. So I mean down 2.3 quarter-over-quarter the last but up 12% sequential quarters.

Operator

Your next question comes from Steve Byrne with Bank of America.

Steve Byrne – Bank of America

So Rob, I wanted to drill into the SIVEXTRO. Do you anticipate the primary of use of this to be a onetime infusion in the outpatient setting followed by a retail script of six packs? Is that the model that you think will drive outpatient use and share gains for SIVEXTRO?

Robert Perez

I think we’ll see it used in the hospital both in terms of starting patients on SIVEXTRO, but also we’ll see used to use SIVEXTRO to get patients out of the hospital. So I don’t necessarily see it as being a strong kind of hospital avoidance products, although, again, because that market is pretty underdeveloped. If it does develop, I think SIVEXTRO can compete well there.

But initially, we really think that the uptake will be in the hospital to start and then move to transition patients both off of SIVEXTRO as well as of vancomycin and other products because of its short course. So you’ll see a few days in the hospital and then the remainder of the course to therapy written for oral outside the hospital which was detailed in the retail setting.

Steve Byrne – Bank of America

And then just two follow ups to that. Is it right that the price for the IV formulation looks to be a bit of a discount to the IV formulation of Zyvox? Is that right and is that an attempt to help drive formulary access? And then on that retail comment you just made, is your program that you call Access SIVEXTRO, is that largely or at least in part to help with the copay assistance to the patient for that retail script?

Robert Perez

Yes. So in terms of pricing just to give you some reference numbers, but SIVEXTRO IV is priced at $235 and SIVEXTRO Oral is at $295. Zyvox IV per day is $279 and Zyvox Oral is $271. That I’ll give you, is they’re on the same range. But that will give you an idea of where the products are priced.

As far as Access SIVEXTRO, yes, we believe that a differentiating feature of Cubist frankly can be our program to get patients put on these therapies. We’ve been able to go to school a little bit on both what’s happened with DIFICID as well as studied a bit of the other oral products in this space and found that a real roadblock to some of the launches was the ability for patients to navigate the reimbursement, to navigate the copay issues that are very real to be able to get on therapy.

So our goal is to be able to provide the patients and physicians with information very quickly and to help patients as much as we can and as is appropriate to get on the therapy. So thus far, the program has been getting raised and one part, we are sales people who have a lot of confidence in it and putting patients through this process. So again, our believe is that when physicians are thinking about not only SIVEXTRO, but ultimately all Cubist products, they’ll think of them as easy to prescribe because they know their patients are going to get it and Cubist is going to be there to stand behind them if the patient has problems. So we’re very excited about the program.

Steve Byrne – Bank of America

Thank you.

Operator

Your next question comes from Adnan Butt with RBC Capital.

Adnan Butt – RBC Capital

Hi, everyone. Two questions. First, in terms of the paragraph for litigation, if a settlement answers the question now on both the company and Hospira and are now waiting for adjustment, is that fair?

Michael Bonney

I’m sorry, Adnan, could you repeat the question. I didn’t really understand it.

Adnan Butt – RBC Capital

Sure, sure. Is a settlement still a possibility or is it just a kind of a conclusion of judgment for the paragraph for litigation.

Michael Bonney

Well, if you look at certainly other paragraphs for litigations, they settle at any of a range of times. That is not a prediction about what will happen here. But it is certainly within the realm of possible that some of them could occur. But we’re not guiding to that. All we’re saying is that you shouldn’t be worried about Hospira launching at risk should Judge Sleet not make the decision by the end of the 30-month stay because we have signed an agreement that’s been submitted to the court where Hospira has agreed to launch at risk at least up until December 1st. So we’ve given Judge Sleet a little room to make his decision.

Adnan Butt – RBC Capital

Okay, thanks. And then a question on the SIVEXTRO Access program, first, is the IV available and our temptations to be discharged on the drug be oral? And then secondly, is Cubist kind of the first to have a program like this? What’s the advantages or disadvantages to having this direct program?

Michael Bonney

First of all, on IV, the IV at this point is not available to the market just yet. We have an administrative issue that we’re working through with the distributor in Italy. It’s just an administrative issue and we’re waiting for the Italian health authority to sign off on the release of that product. But we are hoping and expecting that that’s going to come very soon.

As far as being able to prescribe SIVEXTRO, the orals of course are available and patients can be discharged on SIVEXTRO regardless of what they were on while in the hospital. And the program where, again, now we’re very excited about it. It’s not the first reimbursement and market access program, but we’d like to think that we think we’ve got it right and we’re very excited about how it’s different than other programs.

I’m not going to get into all of the specifics of it because there are other companies that are launching products and we’d prefer not to give all of the secrets off to wait for this one but we really do feel that it can be a differentiator for Cubist and its products. And thus far, the promise of the program is working quite well. So we really do think that it could be an added benefit for SIVEXTRO as well as deficit in our other products.

Adnan Butt – RBC Capital

Rob, can you shed some extra light on how demand is progressing? Should we expect these third party services like IMS or Wolters Kluwer to be able to capture demand?

Robert Perez

I don’t expect that the third party services are going to be much better with SIVEXTRO. I assume, Adnan, you’re talking about SIVEXTRO and not the CUBICIN company [ph].

Adnan Butt – RBC Capital

Yes, yes, SIVEXTRO, yes.

Robert Perez

We are distributing SIVEXTRO similarly to the way we’re distributing CUBICIN. So even though there’s a retail – obviously a retail segment to SIVEXTRO, I don’t expect that the third party sources are going to be much better in tracking SIVEXTRO than they were CUBICIN. And especially early where the numbers are going to be low, you tend to have a wider error bar. So unfortunately, you’re still going to have to kind of wait a bit for our results.

Adnan Butt – RBC Capital

Okay. I’ll get back in line, thanks.

Operator

Your next question comes from Jason Kantor with Credit Suisse.

Jason Kantor – Credit Suisse Securities, LLC

Thanks for taking my question. I have two really. Can you – to get up there [ph], what did you have to give up in order to get Hospira to agree to that? I assume there was something that you had to give to them to have that delay in potential at risk launch.

And then on your discussion about OIC and in your product not [ph] space, can you walk us through the decision tree a little bit? You mentioned a bunch of contingent things that you’re looking at but what do you need to see to increase the investment or decrease the investment in that space? What can we expect?

Michael Bonney

Sure. With respect to your first question, Jason, we gave up nothing to get this agreement with Hospira. Zero, zilch, nada, nil. And in terms of OIC, I think Steve nailed it. We’re certainly encouraged by the results of the advisory committee and the recent Salix press release reflecting the FDA’s view that Relistor is approvable without additional cardiovascular data.

What we’re looking for are two additional pieces of information and one set of conversations. One piece of data is the results of the long term safety study that has concluded enrolment. We should see that data later this year. We’d like to see how the naloxegol PDUFA date transpires in September.

And lastly and perhaps most importantly, we need to engage with the FDA on efficacy studies that are not quite as intense as those we had agreed to earlier so that we have a better shot of enrolling patients if the other two things break favorably for this marketplace.

Jason Kantor – Credit Suisse Securities, LLC

Do you want to see the naloxegol get approved or you want to see what its label is or what is the –

Michael Bonney

Little of both. Yes, and what their post-approval commitments are as well.

Jason Kantor – Credit Suisse Securities, LLC

Got it. Okay, thank you.

Operator

Your next question comes from Ken Cacciatore with Cowen & Company.

Ken Cacciatore – Cowen & Company

Thanks. Just a couple of questions. First on CUBICIN as we try to think about the CXA-201 launch, just trying to understand what has gone on with CUBICIN in Europe, why the delta between its performance there versus the U.S. As we try to understand the CXA-201 opportunity in Europe, anything that we can learn from that understanding that you’re not marketing it, but anything we can learn from that launch as we try to better understand?

And then secondly, clearly the M&A environment’s been heated here and there seems to be an asset grab going on. Just wondering, are you getting more calls than normal, there’s musical chairs going on, has it increased the folks that are outreaching to you? Thanks a lot.

Michael Bonney

Sure, Ken, I’ll take the U.S. versus EU. There’s a lot of differences between the CUBICIN situation and the ceftolozane/tazobactam situation. First of all, just market differences because the MRSA market opportunity is much more U.S. focused than outside the U.S. So the market’s much larger for MRSA products in the U.S. than outside the U.S.

Also, outside the U.S. you have another MRSA competitor called Teicoplanin which is generic. So you have kind of another vancomycin type player outside the U.S. that’s another nuance that a lot of people forget about with comparing U.S. to ex-U.S.

And also, finally the outpatient opportunity where CUBICIN obviously has a significant outpatient business in the U.S. Yet that outpatient opportunity doesn’t really exist outside the U.S. So those are some of the reasons why we see significantly higher sales in the U.S. versus outside the U.S.

We’ve talked a little bit about Novartis and they’ve been certainly performing very well. Recently we’ve been seeing a lot of nice growth. It took them a while to get going but things are going well there.

Regarding ceftolozane/tazobactam, you don’t have an outpatient issue because the gram-negatives are predominantly in-patient products. And the market size is much more similar in the U.S. versus ex-U.S. So a key reason as we thought about building out and investing in our own organization in Europe is the market opportunity for ceftolozane/tazobactam is much larger. There’s much more at stake for us to make sure we’re executing with that product than there was for CUBICIN. So very, very different market dynamics between the two.

With respect to your second question, Ken, we don’t comment on market rumors and so forth. We have a very fulsome process for determining if we have something material to announce and we announce it when it reaches that level of maturity and materiality.

Ken Cacciatore – Cowen & Company

Thanks, guys.

Michael Bonney

Sure.

Operator

(Operator instructions) Your next question comes from Alan Carr with Needham & Company.

Alan Carr – Needham & Company

Questions – a couple of them. One, can you give us an update on CB-618 and also maybe a preview of what will be coming at ACAC [ph] or IDSA from Cubist. And then also you spoke earlier about the British taking an interest in the antimicrobial space. I’m wondering if you can comment on what you all see going on here in the U.S. from a legislative perspective if anything might happen in the near term. Thanks.

Steven Gilman

Well, I don’t know, too much to tell you about 618 other than what we talked about last time. We’re finishing the Phase I. The data still looks good. We’re packaging some information to have dialog with the FDA and EMA around the development plan. And once that’s more settled as the year progresses, we’ll be able to be more clear about our development options with that molecule.

Alan Carr – Needham & Company

ACAC [ph] and IDSA?

Steven Gilman

Well, ACAC [ph] and IDSA, we’re just now getting ready to submit. We have a number of presentations. Actually, I don’t have them in front of me right now but we’ll be putting up a pretty broad sweep of publications across our pipeline.

Michael Bonney

With respect to the legislative environment, I think a couple of things there, Alan. One I thought was very interesting that Prime Minister Cameron’s announcement, he included an announcement that an economist was going to run this commission which communicates very loudly to us that he views this, as do we, as largely an issue of incentive.

And I would say that while there is a piece of legislation currently making its way around the hill called the DISARM Act which would create a special category of antimicrobials where reimbursement would be outside of the DRG even in the hospital environment, I don’t expect that to be acted on in the short term. There are some I think challenges given some difference in language between DISARM and GAIN in terms of defining appropriate products and so forth that complicate that legislation. But we’re engaged in these conversations. I would say just generally that between the Innovative Medicines Initiative and Prime Minister Cameron’s recent announcement, it does appear that the European Union is really stepping forward in a very assertive way to try and figure out how best to solve this problem.

And we see them sort of moving ahead of where the U.S. has been over the last couple of years. They seem to have generated an awful lot of momentum across the European Union and even more broadly through that will help our organization to address these issues. And as Rob pointed out, we’re actively engaged in all these initiatives lending our voice to what we think would be helpful to stimulate investment in this area based on some other models that have worked historically in other therapeutic areas.

Adnan Butt – RBC Capital

Okay. Thanks very much.

Operator

Your next question comes from Brian Skorney with Robert W. Baird.

Brian Skorney – Robert W. Baird

Hey guys, good afternoon. Thanks for taking the questions. I guess to sort of just piggy back off Jason’s question on the Hospira litigation in their agreement not to launch until December, I guess without the exchange and consideration, what actually prevents them from launching at risk?

Michael Bonney

Well, this agreement which has been filed with the court is essentially a contract. So think of it as having the force of any contract.

Brian Skorney – Robert W. Baird

But it was before some of the contract without the – with only one sided consideration, it’s not a contract. That’s the finding of it.

Michael Bonney

We also agreed not to file a preliminary injunction motion. So what they got is maybe this was misleading on our respond to Jason’s questions. We agreed not to file a preliminary injunction and they agreed not to launch. So we basically said, let’s let the court decide this issue. And we both agreed to do that through this agreement.

Brian Skorney – Robert W. Baird

Got you, thanks. And then just real quick, Rob. I don’t know if I missed it earlier in the call. But did you breakout the vial growth for CUBICIN this quarter compared to second quarter 2013?

Robert Perez

Yes, I’ll give that again, Brian. Vials were down 2.3% versus Q2 of last year up 12% versus Q1 of this year. So down 2.3% year-over-year up 12% sequentially quarter-over-quarter.

Brian Skorney – Robert W. Baird

Got you, thanks.

Operator

Thank you. Your next question comes from David Friedman with Morgan Stanley.

Gwen Cooper – Morgan Stanley

Hi, this is Gwen Cooper [ph] calling in for Dave. Thanks for taking the question. I was just hoping you can provide some additional color around how you’re taking up the MRSA market trends going forward.

Michael Bonney

Sure. We’ve seen some decline in the market this year that’s directly been outside of what we had assumed. The market on a year-to-date basis is pretty much flat. But as I mentioned – I’m sorry, on the 12 months, rolling 12 months basis, it’s pretty much flat. But as I mentioned, year-to-date, it is down about 4%.

So there’s a lot of possible reasons for this. We can’t be sure because there are a lot of macro factors. One of the things we are seeing is we’re seeing some additional use and increased use of our products to treat methicillin-susceptible staph or MSSA which is not altogether a bad thing because our products, both CUBICIN and SIVEXTRO have efficacy against MSSA and equal efficacy against MSSA. And one of the things vancomycin lack as an empiric agent is it doesn’t work very well again MSSA.

So that is an opportunity should we continue to see this kind of trend for us to kind of leverage that feature of our products. We haven’t really used that in the past, but that’s an opportunity. So we’ll have to stay tuned and watch what happens with the market. Again, our assumption over the long-term is that we’d be looking at about a flat MRSA market. That’s what we assume certainly with both SIVEXTRO and with CUBICIN long-term. We’re seeing some headwinds with that market assumption right now. Whether they’re temporary or going to be more permanent, I just can’t say it.

Gwen Cooper – Morgan Stanley

Thank you.

Operator

Your next question comes from Liisa Bayko with JMP Securities. Liisa, your line is open.

Liisa Bayko – JMP Securities LLC

Hi there, sorry about that. I was wondering if you could give us sort of any metrics you can on how the turnaround for DIFICID is going. It looks like maybe you’re getting a little bit of traction, it’s fairly subtle. And anything we can talk of to see how effective you’re sort of relaunches there.

And then just if you could comment on what we could expect in terms of any selling of the channel or anything like that for Tobazo [ph] and how we should think about the first quarter. Thank you.

Michael Bonney

Sure. As far as DIFICID, I think that the best way to describe it is we expect that it’s going to take a while. We’re really in just over a quarter since our relaunch in February. The good news is since we launched, we are seeing some uptick as I mentioned. We’re up 9% versus Q1 in bottles and 11% versus Q1 in dollars. So we are seeing some increase.

But I will also say that like Entereg, this is something that is not going to happen overnight. It takes a number of calls on key decision makers in order to kind of reposition the product in their mind. So I think I mentioned this many times, with Entereg, it took us about a year. With DIFICID, every week I believe is going to be something similar.

So thus far we’re seeing some lift. We’re not seeing any fundamental change in the brand, but I think I gauged a lot based on the enthusiasm or our team and I don’t get the sense at all that our team is anything but optimistic, they remains very positive. And when we’re convincing people to try or retry DIFICID, the product is working. And that’s the most important thing for getting future use. So early days, but we’re starting to see hopefully the first signs of recovery for these products.

And as far as to juggle at stocking, as I said we’re not, we’re distributing this product in a way that’s very similar to CUBICIN. So you’re not going to see big stocking numbers in the demand for the product. What you’ll see is pretty much end-user demand.

There’s obviously always a little bit of stocking on some shelves of hospitals, et cetera, but it’s not like you’d see with other products that are stocked at wholesalers. So what you’ll end up seeing reported is pretty much end-user demand.

Liisa Bayko – JMP Securities LLC

And just – so back to the question about the overall MRSA market and sort of friends there, I know there’s been some payer and reimbursement strategies employed to try to reduce the number of med-ed patients through penalizing people for readmission, et cetera. Do you think those are starting to have an impact? Should that’d would be what’s driving at least in part of what we’re seeing? And if so, do you think that will continue?

Michael Bonney

Well, I think there’s two things. Certainly hospitals are paying more attention to infection control and doing what they can to keep these dangerous pathogens from proliferating in their institutions. So I think that’s part of it.

I also think that some of the growth we saw in the early days of the Cubist in market which was growth in the percentage of staff that was resistant versus susceptible, that’s kind of stabilized. So you’re not getting any growth in the MRSA market from that growth of resistant versus susceptible. That’s pretty stabilized.

So now any growth that you’re going to get is kind of got to come from either population or just bath [ph] in general. So a couple of things that I think were driving growth in the past you’re not seeing now.

Again, whether there’s long-term trends that are going to significantly reduce the market, I can’t say. What I can say is in the U.S., the market itself is very large. So if you can have a differentiates product in this space, you can grow a lot by taking share and I think we can do that particularly in the space that is transitioned to outpatient with SIVEXTRO. So stay tuned there.

Plus there’s really a piece of the market with SIVEXTRO that we don’t access with Cubist, that is really brand new and not included in our numbers. So as we launch SIVEXTRO, you’ll I think see some of the market trends there be perhaps a little different.

Liisa Bayko – JMP Securities LLC

Thank you.

Michael Bonney

Sure.

Operator

And your final question comes from the line of Stephen Willey with Stifel.

Stephen Willey – Stifel Nicholas

Thanks for squeezing me in. Just a quick follow up on the DIFICID relaunch question. I think some of the prior commentary I’ve heard around the relaunch was trying to drive the conversation away from price. And I think there was a price take that was incurred earlier this month that looked relatively similar to the buy a new increase of even taking on queue. So just kind of wondering if price taking is going to become a part of the strategy now going forward. Thanks.

Michael Bonney

Sure, Steve. I won’t comment on the price strategy going forward. You are absolutely correct that we believe that we need to get the – would get the conversation away from price. And I think we’re doing that. We’re talking about the appropriate patients for DIFICID who are most vulnerable and most at risk for recurrence.

We do believe and we did take a 5.5% price increase on DIFICID on July 1st and believe that DIFICID offers a tremendous value for those patients and that there’s room to take that kind of a price increase. So both things are true. We think that – we’re changing the conversation to value and we believe that in doing that, reasonable price increases like the one that we took can be achieved without significantly impacting demand.

Stephen Willey – Stifel Nicholas

Okay, thanks.

Michael Bonney

Okay. Thanks, everyone, for joining us this evening. And we look forward to providing our next quarterly update in October. Our best wishes to all of you and your families for a safe, happy and healthy balance this summer.

Operator

And thank you again for joining us today. This concludes today’s web conference, and you may now disconnect. Have a good day.

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