Cardiome Pharma's (CRME) CEO on Q2 2014 Results - Earnings Call Transcript

Aug.11.14 | About: Cardiome Pharma (CRME)

Cardiome Pharma Corp. (NASDAQ:CRME)

Q2 2014 Results Earnings Conference Call

August 11, 2014 08:00 AM ET

Executives

Dr. Bill Hunter - President and CEO

Jennifer Archibald - Chief Financial Officer

Analysts

Difei Yang - R.F. Lafferty

David Dean - Cormark Securities

Neil Maruoka - Canaccord Genuity

Operator

Good morning ladies and gentlemen and welcome to the Cardiome 2014 Second Quarter Financial Results Conference Call. Please be advised that this call is being recorded. On the call today are Dr. Bill Hunter, President and Chief Executive Officer of Cardiome 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 industry results to be materially different from any future results, performance 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 Jennifer Archibald, Chief Financial Officer. Please go ahead.

Jennifer Archibald

Thank you. Cardiome has issued its second quarter 2014 financial results. The financial results, press release and a replay of this conference call will be available later today on our website at Cardiome.com.

I will now provide an overview of our second quarter 2014 financial results. Amounts, unless specified otherwise, are expressed in U.S. dollars and in accordance with Generally Accepted Accounting Principles used in the United States of America.

As of June 30, 2014, we had cash and cash equivalents of $9.4 million compared to $13.2 million as of March 31, 2014. The balance of the deferred consideration related to our acquisition of Correvio was $9.1 million compared to $9.8 million as of March 31, 2014.

Revenue of $7.7 million achieved in the second quarter of 2014 from worldwide sales of both Aggrastat and Brinavess is on plan. Total Aggrastat sales continued to be stable and above expectations. We expect the growth in Brinavess sales going forward to exceed any decline in Aggrastat sales from generic competition.

We recorded a net loss of $4.2 million for the second quarter of 2014 compared to a net loss of $2.8 million for the second quarter of 2013. The net loss in the second quarter of this year is according to plan and it's primarily driven by our marketing efforts and other cost required to support the commercialization of Brinavess and the sales of Aggrastat.

Subsequent to the quarter end on July 18, 2014, we closed the senior secured term loan facility with MidCap Financial, LLC for up to $22 million. This facility is available in two tranches; the first tranche of $12 million is available for working capital and general corporate purposes. The second tranche is available to support our business development plans; up to $10 million is available to support a product or company acquisitions. The facility bears interest at a rate of LIBOR plus 8% carries the term of 48 months and is secured by the assets of the company.

We believe that our current cash position and expected cash inflows from the sales of Aggrastat and Brinavess along with better financial vehicles available to us will be sufficient to finance our operational and capital needs for the foreseeable future. We intend to seek additional financing to support our expansion and development activities such as to support acquisition of products which is related to advancing our vernakalant IV program in the U.S. and the vernakalant oral program.

I will now turn the call over to Dr. Bill Hunter to provide you with our second quarter operational review and concluding comments.

Dr. Bill Hunter

Thanks Jennifer. So, as Jennifer alluded to, the quarter was precisely on plan as we had been laying out for the year. I am particularly gratified that we are so close to target given the fact that beginning of the year we were trying to forecast two things that are extraordinarily difficult to do in our industry. One is the generic erosion from an existing product and the second being a product launch of a new chemical entity in Europe, which is perhaps even more of a challenge to try and forecast than it is in United States given all the different jurisdictions and all the different moving parts. So the fact that we stay right where we need to be. We are well on our way to the $30 million plus year that we had anticipated its very gratifying but it is also unfolding the way we expected it to.

In the first quarter, AGGRASTAT did as well as we could have hoped as Jennifer said that the asset has been quite stable, it has declined but has done so at a lesser rate than we anticipated if that makes sense. In the first quarter, BRINAVESS was really just getting off the ground. In the second quarter, we saw BRINAVESS grown up to catch up and match the decline of AGGRASTAT in the second quarter. And then in the third and fourth quarter we expect the growth of BRINAVESS to exceed the decline in AGGRASTAT. And so the year is unfolding exactly as we had hoped, and having done over $7.5 million in each of the first two quarters the 30 is within reach and, then if we have growth in the last in the third and fourth quarter we should be well above the 30 plus that we’d forecasted and everything should be relatively close to how we had anticipated.

We are still dealing with the law in small members with respect to the BRINAVESS asset as most of you know by the time we got BRINAVESS back from Merck it was at a below $2 million annual run rate and so we weren’t starting off of the huge base but nonetheless as we look at the difference between first and second quarter, we are seeing signs that the things are heading in the right direction, the distributor revenues are always lumpy, they are up I wouldn’t read too much into the 12% quarter-over-quarter just because the distributor orders on the last one quarter versus the first day of another it gives you kind of a false sense of directionality but what we do see with the distributors is that they are continuing to order, they are continuing to come online and that business is proceeding as hoped.

Probably the more important thing to look at is the direct sales numbers, the direct sales numbers were up over 50% Q2 over Q1 and that I think is a sign that the product is responding to direct marketing, it is responding to the message that we have out there and we hope to continue to see that and obviously over well over 30% quarter-over-quarter growth is a good sign as we go forward as well.

So we are pretty much up and running everywhere we need to be direct wise as of right now, most everything was online by the middle of the second quarter as we discussed in our last conference call. So we expect those trends to continue and so far as I said things are heading where we expect them to and we feel good about that.

As we head towards the end of the summer and into late August and early September, it’s big time for us from a sales and marketing perspective the European Society of Cardiology is always probably our central event of the year with respect to reaching out to our customers in the Cardiology space in Europe. We have a lot of things comings up to look at, we have a Satellite symposium set up that will at different things on vernakalant and ESC guideline. As you will probably remember, we ran something similar to this last year and it was highly successful. We had over 1,000 people attend. And I think that now that we are actually up and running and marketing that will be even more beneficial to us. When we ran it last year, we have not got the product back yet from Merck. But again, we’re quite gratified to see that people are very interested in the changing landscape with respect to how atrial fibrillation is being managed. I think the RHYTHM-AF study which will be presented in greater detail at ESC will be quite impactful. I’ll update people on that and our third quarter call. But I think what we’re starting to see as that time is important in management of atrial fibrillation and since we believe that unquestionably we have the fastest way to convert people from atrial fib into normal sinus rhythm that trend is really going to help us in the years going forward.

There is a lot of interest in ESC guideline, because again how things are being managed is really rapidly evolving right now in atrial fibrillation. Probably for 30, 40 years there was not much in the way of change in how A fib was managed and now in the last three, four years, there’s been a lot of debate and controversy and a lot of evolution in terms of how A fib is managed and being managed more aggressively; our conversion being done more aggressively, anti-coagulation being done more aggressively. So a lot of people are trying to keep up with that. And we do have the opportunity to have a lot more real world type presentations. And one of our biggest and best centers Kuopio in Finland will be presenting data on that.

We’re also -- a number of things going on with the Aggrastat business, probably have no surprise to those of you who follow this space for a long time. No matter how many new drugs have come along, no matter how many different approaches have come along in PCI and any anti-coagulation, this remains a hot topic of the day. And I think what we’re seeing is that everything old is new again with respect to anti-coagulation in the space. And I think I wouldn't call the resurgence in Aggrastat, I think one of the reasons we're seeing Aggrastat being more stable than we anticipated, is that some of the reason clinical trial data on other agents that have been -- that have just gone through pivotal studies with less than encouraging results have driven people to some back to some of the processes they used a number of years ago. And we're certainly seeing that Aggrastat is featuring prominently in that regards, so we've the beneficiary of that.

And the third quarter, excuse me, the second quarter was and into the third quarter, was an important point and time for us with respect to market access. Brinavess as you know is really economically speaking, only available in about half of Europe and we don’t have reimbursement in the UK, France, Italy or Belgium. And collectively that’s literally at least 50% of the European market.

So, getting our pricing reimbursement submitted in the hopes of being able to get reimbursement and add those products to the bag in those countries in 2015 is a big part of next year’s plan. We submitted dossiers for France and Belgium just a while ago. We expect Italy to go out very soon. The UK as I mentioned in the past is a little bit more difficult to forecast. That maybe a while longer another six to eight months before we’re ready to go forward with the UK, because they have some specific requests that are going to take us a while to put together and design. But we feel good about what we have submitted. And because we are saying that we had a lot of work to do there, obviously the reason we are submitting now is because Merck had not been successful there first time through. So we had to undo and redo a lot of work in that regard. And so getting set up with France in particular which we think will be an important market for us and Belgium was a big operational step forward. And the Italian submission which should come up in the next month or so is also something that's important to us. If we are able to get those markets on line then the 2015 plan looks a lot more solid than it would obviously in the absence of having those markets on line.

So, those are important things for us to watch over the next six months to eight months as we get feedback from those government agencies.

When we look to the blue sky part of the business on the U.S. IV side, we have as many -- had conversations with the FDA at somewhat informal nature and we are now conducting some animal studies to address the hemodynamic effects of the drug. The drug was put on clinical hold a number of years ago as a result of hypertensive episode that led to the death of one patient in South America. One of the things we are going to need to do is to understand the nature of the hemodynamic effect and we have to start it by modeling that in animals and then ultimately confirming that in human being. We believe those are necessary steps towards getting off clinical hold and moving forward and getting into a formalized development plan. We are in the process of those studies now and we expect that in October, we will have that data and be in a position to initiate more formal discussions with the agency in terms of what the right steps forward would be on the IV program. And obviously we're hopeful that, that program will go according to plan and that in 2015 we’ll be back on the clinical path in North America with respect to the U.S. IV. So, that program is rolling out as forecasted earlier in the year as well. On the oral side, we believe there is a real tranche of hidden value there. We’re looking for ways to take what was Phase 3 ready asset and move it forward. Obviously, we don’t have the financial or human resources of big pharma and I don’t think in the future of the oral in our hands is going to be the way it would have been say three or four years ago in the Merck plan where we’ll be looking at a massive Phase 3 study and we’ll be looking at lifetime therapy opportunity for oral as kind of a maintenance therapy.

And instead what we’ve started to do is look at opportunities for using the drug in more finite if you will clinical opportunities and one of the process that we’re looking at right now is following Ablation therapy. For those of you who aren’t familiar with the field, one of the treatments for atrial fibrillation is to use an ablation catheter where some form of energy be it RF or heat or cold is used to eliminate abnormal electrical pathways in the heart and if you can identify the abnormal electrical pathway that is leading to the atrial fibrillation and you’re able to ablate that, then in many cases this can be a curative procedure and the patient no longer has atrial fibrillation. Ablation is growing at a very rapid rate worldwide and it is highly effective in the patients where that type of an [enemy] exists. One of the things that clinicians are finding is that once they’ve done the ablation, there is tendency for the patient to flip back and forth on atrial fibrillation into normal sinus rhythm that actually hinders the ability to keep the patient in normal sinus rhythm and is thought to decrease the overall effectiveness of ablation and so one of the things people are starting to look at is kind of finite therapies of pharmaceutical interactions to prevent that flipping back and forth there is no drug currently approved for that and we think there is a real opportunity to use BRINAVESS is that situation. So the patient would come in, get an ablation and then go on a course of BRINAVESS therapy designed to keep them in normal sinus rhythm until the ablation in (inaudible) and then the patient could come off the drug and hopefully the ablation would leave them in normal sinus rhythm for a much longer period of time if not indefinitely.

How long one needs to do that is a matter of some debate but it could be somewhere between three and six months of oral therapy and we think that first off that being a new indication no other drug approved for it is a nice opportunity and secondly just from a drug development point of view it’s a nice opportunity for us because putting together a toxicology, pharmacology package for a drug that it is only going to be used, let’s say three to six months is very different than one that a patient might be on for the rest of their life. And last but not least, the number of patients that one would have to do in this type of trial is quite a bit different than that type of trial as well.

So we are not on clinical hold in Europe it is obvious in terms of sales of the IV and we are on label for the IV in a number of indications. So look for us to try and move forward with the oral program in the not too distant future looking at starting a trial in 2015 and doing that outside of the U.S. to add a product to our pipeline if you will, to our OUS commercial infrastructure.

So that’s the highlights of the quarter and we did almost 7.7 million in revenue, which was perfectly on plan combining out with first quarter where ahead of the pace to do over $30 million in 2014 revenue and so the forecasting exercise who enter the beginning of the year has turned out to be surprisingly robust.

AGGRASTAT sales have continued to be as we expected they are declining, but they are declining at a lesser rate than we had forecast so they’ve been reasonably stable and above expectation. All-in-all, I think the Correvio acquisition for us has been a very, very good one, it provided us clearly with the infrastructure to build that out rapidly in Europe. We now look at ourselves as a fairly well go type commercial organization in Europe and AGGRASTAT itself has turned out to be a good revenue generator and has helped fund the cost of having that sales force on the ground and having more BRINAVESS reps out there.

Across over quarter in that regard in the sense that in the first quarter, when BRINAVESS was really affectively launched in our hands the growth in BRINAVESS did not match the decline in AGGRASTAT in the second quarter those two balanced out, which gave us a flat for lack of better term second quarter although we were up marginally second over first. And as we look to third and fourth quarter, we expect that growth of BRINAVESS will now start to out-strip to decline in AGGRASTAT and so we should see sequential growth in the quarters going forward.

Keep in mind of what the magnitude of that growth will be like AGGRASTAT say, high $20 million asset in terms of annual revenue and BRINAVESS is kind of in the 3 to 4 range. So it's not going to be an exponential leap, but it is going exactly as we have hoped. And I think we're going to end the year pretty much dead on plan that we had laid out before.

I think we are starting to see signs that Brinavess is responding to the direct sales effort. It is a longer sale cycle. We do have to go into the hospital, we do have to speak to cardiology, we do have to get cardiology on site to using Brinavess, we then have to walk the drug down to formulary and get the pharmacist to sign off on it and bring it into the hospital and then last but not least, we have to walk in the emergency department and get the attending sort of seeing the acute cases of A fib to consider using Brinavess instead of DC cardioversion.

So, when you consider that those types of pharmaceutical committees may meet once a quarter and just the logistics are getting in hospital champion, you’re looking at a sales cycle that can be around six months in total. But looking now that we’ve been about six months in total and you’re seeing over 50% quarter-over-quarter direct sales growth, it looks like we’re starting to get some attraction there, it looks like we’re starting ahead in direction that we wanted to. We never anticipated those to be a hockey stick type ramp up because of the nature of that but we did expect that it would be a slow and steady accumulative. By that I mean once a hospital is on-board, once people start using the drug, it tends to be a fairly sticky drug, it doesn't tend to go backward. So once you have gone through the effort to get physicians to use it, they often become loyal users going forward.

So, it is progressing as we had hoped and we hope that we can continue to add on top of that quarter-over-quarter and that those numbers will start to show up towards the end of the year and we'll end up exactly where we had forecast.

We did the financing with MidCap that I think was important for us. The $12 million serves a number of purposes for us. It does work as kind of a revolver if you will. Our business needs somewhere around $10 million in working capital in order to function in multiple currencies in Europe and around the world. And so having that $12 million of debt and thus free up some of our cash for other activities, it also puts us in a position where we can do some of the work that I just alluded to in terms of clinical development, getting those animal studies done, getting ready to reengage with the FDA and hopefully start U.S. programs. We brought [KLLs] together on the oral side and we are starting to design an oral trial and get ready to move that program forward. Those elements are all outside of the budget that we laid out over the course of the year; and so having the extra dollars to do that sets up 2015 for us.

So, as I look at 2015, we’re kind of heading towards where we need to be for 2015. We've done the reimbursement work to help grow the sales of products going forward. We're starting to see our sales response for the direct marketing effort that we’re doing; we’re getting the development work done that we need to do to set up for potential clinical studies in 2015. Obviously looking at the numbers, we don't have enough cash on hand to run those types of clinical studies out of our operating plans.

So, if we are fortunate enough to be in a position to move forward clinically, we’ll have to think about funding those trials going forward. But since I personally believe that those would be significant value generating exercises for the company as a whole, my hope is that putting a corporate finance plan around those will not be a really difficult, if we find ourselves in that position in 2015.

So, things are geared up in that direction, the last of the major boxes to take for this company, I think is to add another product in the bag sooner rather than later. I can't or I won’t give you a timeline on that but we’re aggressively looking at adding additional products in Europe. I do believe that if we could get to say a $50 million run rate in Europe, not only would we more than breakeven on the sales and marketing side, but we’d probably be able to generate enough cash to start funding development efforts as well. So, that takes us from kind of the stability function that we reach now and move those into more of a growth function. So that’s an important step for us going forward and we’re addressing a little bit of that with the MidCap financing because we have another $10 million tranche we can draw upon in the future to fund business development if we’re fortunate enough to find the right product to put into our hospital sales force bag. So, so far so good; we’re through the first half of year where we want to be and the second half of the year is setting up the way we hope it would. And as we look into 2015, we’re starting to see signs that everything lining up nicely for 2015.

So, with that I will turn it over to the audience for questions. And thank you for especially on the West Coast getting up early and participating.

Question-and-Answer Session

Operator

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. (Operator Instructions). Your first question is from Difei Yang, R.F. Lafferty. Difei, please go ahead.

Difei Yang - R.F. Lafferty

Hi, good morning. Thanks for taking my questions; just a couple of quick ones. So, with regards to the product revenue, would you, Jennifer, would you help us break down the revenue between Aggrastat versus Brinavess? And then a follow-up question is with regards to cost of goods sold. It looks like Q2 that ratio has gone up somewhat, maybe you could help us to understand a little bit more?

Dr. Bill Hunter

I will take the first part and Jen second part. As I said, we will ultimately breakout Brinavess; we are not trying to be cute. But in the early stages, we decided not to do that just because of the lumpiness of the way the revenues coming in. And I think it would lead to misleading interpretations of the sales just because they are growing off a small base and $400,000 distributor order can make one quarter look dramatically different than another quarter.

But I think from a trend perspective, one of the things we do look at the most, again because the distributors are quite lumpy is the direct sales trend. The direct sales trend is exactly where we needed to be. We’ve gone on record of saying that we think Brinavess is going to be kind of in that $3 million to $4 million range this year and we still believe that that’s where we are going to end up. So that should give me an idea of where we are on the revenue side. While I think about this, I am just going to make one quick comment on the seasonality of sales in Europe. It is not uncommon for your third quarter to be not great in European businesses. That doesn’t mean we are having a bad third quarter, we aren’t. But I do want to put that in the back of people’s mind. A lot of elective procedures, a lot of stuff in hospitals just absolutely shut down in the July and particularly in the August timeframe. And so, it’s been my experience running a number of businesses in Europe that the third quarter is typically your weakest quarter of the year and fourth quarter is a nice bounce back quarter.

So as we look at the trends, don’t read too much into them, but they are heading in the direction that we want them to.

Difei Yang - R.F. Lafferty

Thank you.

Jennifer Archibald

As to the cost of goods sold, there was an adjustment in the second quarter which leads to it being a bit higher than the first quarter. The first quarter was also a little bit lower because we have to make sure of inventory, we have some inventory leftover with based on some higher cost raw material sales which was from some previous purchases by Correvio, and now we are with a contract manufacturer which is being the value share has been produce that over lower costs. And in the second quarter there was especially a shipment out with that previous material that was at a higher costs, but in the first quarter, it was only shipments of the newer contract manufacturing products.

So it just depends which country and which products are being shipped up, but we're right now in transition, I wouldn't necessarily look at either quarters that run rate for a cost of goods sold, I think that as the products are being shift and that inventory is being sent through by in the few months quarter and the runway should be a bit more stable and should be, and what you would be looking at in terms of percentage wise as our going forward run rate.

Difei Yang - R.F. Lafferty

Thank you, that's very helpful.

Operator

Thank you. Your next question is from David Dean, Cormark Securities. David, please go ahead.

David Dean - Cormark Securities

Hi, guys. So if we look at your total revenue line at 7.7. Am I thinking about it correctly that 6.5 is direct and the 1.2 is distributor revenue? Hello?

Dr. Bill Hunter

Yes, we're here. We're just rapidly going through our sheets.

Jennifer Archibald

Are you looking at the licensing royalty and other fees?

David Dean - Cormark Securities

That's right, yes.

Jennifer Archibald

But, well no, no. So the product revenues include both direct and distributor sales. Where is the licensing royalty and other fees is really as with one of the contracts which is just the way that particular distributor contract is set, in terms of the type of revenue. It's designated but it's not the direct or distributor sales.

David Dean - Cormark Securities

Okay. So beyond what you had in the slides, is there anything you could tell us about how direct and distributor might have been split during the quarter?

Dr. Bill Hunter

It's pretty much as it has always been. On the AGGRASTAT side it's kind of roughly 50% distributor, 50% direct; on the BRINAVESS side it's – I don't have that off-hand. I think BRINAVESS distributor revenue right now is a little bit higher than the direct sales revenue.

David Dean - Cormark Securities

Okay, and on the couple of operational questions. Can you just characterize kind of what your sales force looks like now as far as how many bodies do you have in principal locations?

Dr. Bill Hunter

Sure. It's -- if you go back to some old slides we got there, it's pretty close to that from a geographical perspective and we are 22, 23 reps in that neighborhood, we move from our biggest change I guess has been primarily in Germany where we're using kind of a where Correvio was, when we acquired the company it was using more of a rental rep strategy in Germany and we’ve gone through with more direct strategy there, Correvio employees type strategy there so it’s been some I wouldn't say turnover but replacement in that regard in terms of switching over. So, it's still 22, 23 we're most heavily weighted in Germany about five or six reps direct in Germany. The rest spread out elsewhere we have a few reps that are in AGGRASTAT only territories, so we do have reps and France and Italy, even though we do not sell BRINAVESS there, that will be a nice advantage for us because if we do get reimbursement in France and Italy and those we just submitted, we'll already have feet on the street there to pick up the bag.

And then we have another three folks in medical affairs including two cardiologists seeing who we had from our side and (inaudible) who came on board with Correvio. So, we've got a pretty good back up with respect to clinical folks as well.

David Dean - Cormark Securities

Okay. So, if you do get expanded access in France and Italy. Do you anticipate having to increase the size of the sales force there at all or at least in the earlier days?

Dr. Bill Hunter

It will be a nice problem to have. I would say we wouldn't initially, we’d just go with the folks we have and if sales want to might expand a bit. I will say that, I'm going to be watching France and Italy closely, personally, because I think they are both are very good pharmaceutical conversion markets.

Germany as you know is kind of 80% DC Cardioversion market and Italy is almost the other way around it's kind of 75% pharmaceutical conversion and France is kind of half way in between it like 50-50. So, we expect both of those markets are one sort of receptive to pharmaceuticals.

So, we'll probably watch with what we have, but if it turns out that we can drive further growth with further bodies in those sort of couple of markets where we probably aggressively expand into it, if we saw the right trends.

David Dean - Cormark Securities

Okay. One last question, I think when you joined Cardiome, you found that there was a very small number of hospitals that were using kind of the majority of the BRINAVESS that you were selling in, are you still finding that or do you find its more broadly distributed where you have more centers using a smaller amount or what’s your observation?

Dr. Bill Hunter

Yes. it’s the best way I can describe it is as that it’s kind of an even (inaudible) effort. And by that I mean that when we converted a hospital it tends to stay that way, so the centers that we have they are reconcentrated like the Kuopios in Finland or Malmos in Sweden they have stayed as high users. There was a bit of a drop-off a tiny drop-off when there was a period of time when the drug wasn’t marketed and there was issues with availability and all that, goods stuff and we’re transitioning over for Merck, but for the most part big and pretty steady. And then we’re starting to add a center here, a center there that’s kind of cumulative.

So, there is a lot of effort to get it there and then once it’s there it tends to stick and then as we add hospitals we see the territories grow. So, it’s not a broad way, it’s kind of a front-by-front type thing, but so far it’s pretty effective. I mean if we’re able to keep that growth rate up quarter-over-quarter for a while we start to have meaningful numbers.

David Dean - Cormark Securities

Okay, great. Thanks a lot guys.

Dr. Bill Hunter

Thank you.

Operator

(Operator Instructions). Your next question is from Neil Maruoka, Canaccord Genuity. Neil please go ahead.

Neil Maruoka - Canaccord Genuity

Good morning Bill, Jennifer.

Dr. Bill Hunter

Hi Neil.

Jennifer Archibald

Good morning.

Neil Maruoka - Canaccord Genuity

It is a good takeaway into my question just regarding what’s really driving the traction that you’re getting with the new facility with the new hospitals, is it your message on pharma coeconomic advantages, is it the guidelines and the support of clinical data that you have there, or are you seeing them responding to so some of the discounting that you’re doing? And then can you maybe give us a little bit of more color on discounting that you are doing and can you maybe give us a little bit of more color on the discounting at those hospitals?

Dr. Bill Hunter

Sure. I think part of it is a function of time which is why I have been preaching patients that the sales cycle takes a while. And so we are starting to get towards the end of some sales cycles here, so we are starting to get some momentum. Just logistically, you walk into a hospital and even if they are favorably inclined, it’s going to take a number of months to actually start registering sales by the time you go through all the committees. So part of it is just the folks have been there for a while and they’re starting to -- those accounts that they have been calling on are now starting to become buying accounts. And we think that trend is going to continue a lot.

I think some of the programs we have run have been very effective. Last quarter, we spoke about these kind of center of excellence programs where we will send 20-25 people up to places like Malmö or Kuopio, and they get to see how the drug is used and follow the flow of A fib patients and then take that back to their hospital. I think that has started to contribute. Spain, the launch has gone really pretty well and we only had -- we really only got going mid Q2 in Spain. So, I’m expecting that that will continue in the third quarter as well. So those -- the confluence of those things I think have been very good.

On the other side, to address the second kind of half of your question, pricing continues to be the number one cited issue. So I think being in a position to do the price discounting is important from a logistics perspective. That was another thing we weren’t really able to do until the middle of the second quarter. And so we hope that that will help in the out quarters in Q3 and Q4 going forward as well because clearly the $380 price point is painful or EUR 380 price point is painful for people in a lot of jurisdictions. And I think the volume price discounting we expect to really help the traction in the second half of the year.

Neil Maruoka - Canaccord Genuity

Okay, great. And just on reimbursement; is that more of an iterative process that you go through? I think you had mentioned that you’re expecting to hear back within six to eight months. And then the challenges that Merck had, is that becoming a challenge for you as you deal directly with the authorities in the respective country?

Dr. Bill Hunter

Sure. On the first part of that, yes it is quite iterative. And even with the submission, there has been a lot of dialogue that’s going into the submission. And in many cases, different European countries who want to do some sort of follow-up monitoring after they reimburse, just in terms of studies be the economic or be they just user studies, that’s certainly the case in Italy.

And so, we’ve been having those dial dialogues for a number of months and making sure that we had the right dossier before we even submitted. There was clearly no point just resubmitting what we had and getting kind of similar results, which brings me to the second part of your question. And I think Merck obviously knows what they're doing. So it's not a discouraging remark to Merck. But what was lacking in the dossiers say a couple of years ago when Merck started the process is they didn't really have any pharmacoeconomic data. And that's the piece that was really not there.

And in the last six, seven months, we’ve been able to put together a number of pieces with that puzzle, the Malmö data certainly helped with that and there has been data in the Finland, there has actually been some other pharmacoeconomic data just actually looking at the cost of DC cardioversion independent of Brinavess. And so, we’ve been able to bring that together, both specific data with respect to our drug and some broader data with respect to management of atrial fibrillation as a whole. And that was really the missing piece, particularly France than to maybe a lesser extent in Italy in the Merck dose.

So, we – that's what we've added to it. We think we have that story now filled out. That's an important story for us from a sales and marketing perspective as well so that was money and time well spent in a number of different respects, but we think that's piece that will make the difference in the submission.

Neil Maruoka - Canaccord Genuity

Okay, great. And final question just on your business development activities. Obviously you're focusing on hospital focused products, are you looking at indications outside of cardiovascular?

Dr. Bill Hunter

In a perfect world I’d really like to stay in cardiology just because it just makes life easier for your sales reps and we don't have, it's not a 100% field for us. So, in a perfect world I'd love to stay in the IV cardiology study. That's not a big space. There's not a lot of stuff there to bring on board so it's a [chosen element] and we're looking a difficult things that could do that or at least be close enough to that we hope that to execute on but that's a difficult thing to execute on.

If you broaden that circle out, the opportunities set out of that and you start to look at drugs that can be used in the acute care setting in the hospital emergency room, then there is more things to do. If you look at something like medicines company, they’d gone from anticoagulants and they’ve added antibiotics to the bag because the acute care facility uses both of those in high numbers.

So, there is some miles out there [acute], it’s the same thing. There some things that you can look at that are not Cardiology, but that don't involve having a rep tracing in all over the hospitals to different apartments. And so if we can't go cardiology, we're going to look more into that kind of acute care space that ER space.

Neil Maruoka - Canaccord Genuity

Okay, great. Thank you.

Operator

Thank you. There are no further questions at this time. Please proceed.

Dr. Bill Hunter

Well, thank you very much. And all in all, a kind of as hoped fourth quarter and so far and as hoped for a year. All the indicators are where we need them to be, I think that the business has a few things, it does need to execute on, we do need to continue to grow BRINAVESS obviously, I think another product in the bag is something that would be very helpful for the company.

And in terms of blue sky looking out two or three years, we clearly need to get the development efforts going forward on both the oral and the IV side in the U.S. in order to provide kind of expansive opportunity set for us and in 2015 and beyond.

The Midcap financing, I think was an important thing for the company this year to bring in non-dilutive capital at this stage, I think was the right way to do it, it does really serve a purpose a revolver for us and we do have second tranche getting help on the BD side, which makes it when companies are looking at our balance sheet and deciding whether or not they want to license the products say, or look at as a potential partner and having the ability to drive down additional firms certainly makes that process easier rather than having to go and secure that after the fact, having it in advances, it's certainly helping us on our BD side.

So, all in all, pretty close if not read on top of where we'd like to be. And I look forward to talking people again in the third quarter. As always, we're available for calls over the next days or so, if anybody needs more color or anything. And I thank you for your attention and your attention and interest in the company.

Operator

Thank you. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.

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!