Merrimack Pharmaceuticals (NASDAQ:MACK)
Q2 2016 Earnings Conference Call
August 04, 2016 4:30 PM ET
Geoff Grande - IR
Bob Mulroy - President and CEO
Tad Stewart - Head of Commercial
Yasir Al-Wakeel - CFO and Head of Corporate Development
Yuko Oku - JP Morgan
Jake Seide - Guggenheim Partners
Good day, ladies and gentlemen, and welcome to the Merrimack Pharmaceuticals Second Quarter 2016 Investor Call. At this time all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions]. As a reminder, this conference may be recorded.
I would now turn the call over to your host, Geoff Grande, Investor Relations. Please go ahead.
Thanks, Stephanie. Good afternoon, everyone, and thank you for joining us on our call to discuss our second quarter 2016 financials and our recent commercial and clinical progress. A press release detailing this information issued a short while ago can be found in the Investors section of our website, merrimack.com under the Press Releases heading. This call is being broadcast live and will be archived on our website for six weeks.
Joining me on the call today are Bob Mulroy, our President and CEO; Tad Stewart, our Head of Commercial; Yasir Al-Wakeel, our CFO and Head of Corporate Development. We’ll end the formal portion of the call with time for Q&A.
Before we begin, I need to remind you that during this call, we will be making forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These may include statements about our future expectations and plans, the potential success of our products and product candidates, clinical development timelines, and financial projections. These statements involve risks and uncertainties which are described in the Risk Factors section of our most recent Form 10-Q and the other reports we file with the SEC, which are available online at sec.gov. While these forward-looking statements represent our views as of today, they should not be relied upon as representing our views in the future. We may update these statements in the future, but we are not taking on an obligation to do so.
During this call, we will also be referring to non-GAAP financial measures. These non-GAAP measures are not prepared in accordance with generally accepted accounting principles. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures is available in the press release that we issued a short while ago, which is on our website as previously mentioned.
And with that, I’ll turn the call over to Bob.
Well, Thank you, Geoff, and good afternoon, everyone. It’s a pleasure to speak with you today, to update you on our recent progress. The past few months have been busy but more importantly ones in which we have made significant progress on our strategic goals.
We completed our second full quarter of the ONIVYDE launch in the United States, increasing sales by about 30% over the first quarter and driving our account base to around 800 clinical institutions. We believe we've achieved a strong foundation on which to build future growth.
We've also made progress in building a global revenue opportunity for ONIVYDE. Last week, we announced that our partner, Shire, received a positive opinion from the CHMP setting the stage for an EU launch in the months ahead.
On the clinical front, the U.S. FDA granted seribantumab, formally known as MM-121, Fast Track status for non-small cell lung cancer and we announced updated overall survival data for seribantumab in breast cancer. These key events further reinforce the medical importance and significant commercial opportunity for seribantumab in treating solid tumors.
We also initiated a groundbreaking basket study involving three Merrimack pipeline products. It is the first to characterize patients based on multiple biomarkers and then tailored to regimen specific to their disease. We believe this represents the cutting-edge of real-world precision medicine.
We also continue to prudently manage our business and are reducing our expense guidance for 2016 by $20 million. We'll touch on each of these topics over the next few minutes, but now let me turn the call over to Tad Steward, our Head of Commercial to report on our launch, and then Yasir Al-Wakeel, our CFO and Head of Corporate Development, to review our financials. Tad?
Thanks, Bob, and good afternoon, everyone. It's great to be able to talk to you today about the commercialization of ONIVYDE in the U.S. Overall we are happy with the progress we've made on our initial launch objectives. The progress our field team is making in educating the medical community and we believe we are well-positioned to execute on our next set of goals to establish the ONIVYDE regimen as a new standard of care in post gemcitabine metastatic pancreatic cancer.
First, let me start with the high-level results for the second quarter of 2016. Gross revenue for the quarter was $14.8 million. Net revenue for the quarter was $12.9 million, which reflects a gross to net discount of approximately 13% for the quarter and growth of approximately 30% compared to Q1.
As I’ve discussed on previous calls, our primary goals for ONIVYDE out of the gate were to access an initial set of priority accounts, build awareness of Merrimack and ONIVYDE, and I'm happy to say that we very successfully developed a broad base of oncologists who are utilizing the product. Awareness of Merrimack and ONIVYDE among oncologists is high and we've exceeded our goals on access and breadth of institutional use.
Through Q2, we shipped ONIVYDE to about 800 unique facilities across the U.S. and we continue to sustain our pace of adding roughly 20 new accounts per week. We are pleased with the foundation that we've built, but we understand that the opportunity in post-gem pancreatic cancer is complex and will take time to develop. It's a new indication, so our goal is not only to define it but also to make ONIVYDE the standard of care.
It's important to remember that this indication is an unmet need that historically was often not even treated, and when it was, was treated with a wide array of therapies that were neither FDA-approved nor recognized by the NCCN guidelines. We are aiming to make ONIVYDE the clear choice immediately following treatment with Gem/Abraxane or any Gem containing regimen. Based on the strength of the survival data observed in the NAPOLI study, we have a very strong case, and with broad access achieved, our job now shifts to making that case and ensuring that the usage of the ONIVYDE regimen matches what we saw in the NAPOLI-1 trial.
Early on in the launch, we're finding that when oncologists initially try ONIVYDE, their usage has been skewed towards later line patients. It isn't surprising since these patients don't have many other treatment options and oncologists can gain familiarity with the ONIVYDE regimen. But as you'll see, we are highly focused on making sure that we continue to change that patient mix going forward.
Our data provides confidence that ONIVYDE will be used more in earlier line patients for a number of reasons that I want to highlight briefly before covering some of the key actions we’re taking to achieve our goal.
First, our market research continues to indicate that oncologists are planning to use ONIVYDE in the patient populations similar to that seen in the NAPOLI-1 study. As a reminder, about 53% of patients in the NAPOLI-1 study were second-line metastatic patients. That market research also indicates that ONIVYDE is displacing FOLFOX, the predominant regimen in the post- gemcitabine setting which is a sign that the differentiation of ONIVYDE is gaining traction.
Second and very importantly, time on therapy has been increasing each month as we receive new data. The phenomenon of our new drug being tried at later line or salvage patient should run its course as the quality of the NAPOLI trial are placed in the NCCN guidelines and growing familiarity with the use of ONIVYDE reinforce oncologists’ comfort with the product.
And third, some very encouraging discussions are starting to happen in the oncology community around sequencing of ONIVYDE after Gem/Abraxane. While sequencing is a common strategy in many other types of cancer, it is not been part of the discussion in pancreatic cancer until now. With the rise of Gem/Abraxane in the first-line setting and the approval and NCCN endorsement of the ONIVYDE regimen following progression on a gem-based therapy, this sequence is gaining greater share of voice in clinical discussions.
The limited overlapping toxicities between the two regimens, further enhances the argument for sequencing. And taken together, the totality of the Gem/Abraxane and NAPOLI data should establish the sequence of these two regimens as the new standard of care to extend overall survival for a broad set of pancreatic cancer patients.
With those points as background, I want to discuss three actions that we are taking to make sure we are optimizing our efforts in the field. First, we've refined and recalibrated our priority target accounts on a territory by territory basis, based on everything we learned so far on treatment patterns, access and order in dynamics. Second, in coordination with that recalibration, we are making a few targeted additions to our field team, a team which our market research indicates, is proven to be very effective with respect to building awareness and intend to prescribe among oncologists.
And third, on the educational front, we are honing the messages and tools we are using to communicate around the importance of treating patients consistent with those who were enrolled in the NAPOLI-1 study. The NAPOLI trial demonstrated compelling gains in median overall survival and in 12 months survival rate, and of course we want to continue to focus on those important elements. We are confident that these actions will maximize the reach and effectiveness of our field team and assure that we're building oncologists understanding of ONIVYDE, so they see it as the natural treatment choice after a gemcitabine-based therapy.
So overall, we are happy with the number of oncologists utilizing the ONIVYDE regimen and we are taking actions to ensure that the broader set of patients, those consistent with the NAPOLI-1 study are given this treatment option. We're working to create a new standard of care in post-gem pancreatic cancer and changing clinical practice which takes time.
Our view of the post-gem opportunity for ONIVYDE remains unchanged and we've made very positive progress toward our initial goals. We are excited to be hearing reports from the field that patients who have started on ONIVYDE close to launch and who remain on therapy today. We’re excited to see KOLs at major conferences talking about the patients they’ve sequenced from Gem/Abraxane to ONIVYDE and the results that they've achieved, and we are focused now on our next phase in our next set of goals developing a new standard of care and getting ONIVYDE to patients who need it.
With that, I'll turn it over to Yasir.
Thanks, Tad, and good afternoon, everyone. Over the next few minutes, I plan on discussing both our Q2 2016 financial results, as well as providing updated financial guidance.
Let me turn now to our financial results, which were included in our press release distributed just a short while ago. Total revenues for the quarter were $33.7 million. This includes $12.9 million of net product revenues from sales of ONIVYDE, which as Tad mentioned, represents an approximate 30% increase compared to Q1 2016.
We also recognized $19.3 million of license and collaboration revenues during the quarter, $10 million of which was a result of a substantive milestone achieved during Q2 related to the South Korean FDA equivalent accepting for review a new drug application filed by Shire for ONIVYDE. The remaining license and collaboration revenue was recognized under our proportional performance model related to our ongoing collaboration with Shire.
Finally, we recognized $1.5 million of revenue that is classified as other revenue on our income statement. This revenue is manufacturing revenue that relates to bulk ONIVYDE that we ship to Shire and PharmaEngine, which is intended for their subsequent sale within their respective territories. After selling through zero-cost inventory, we expect revenue from these sources to generate a gross margin in the mid-single digits once normalized.
Cost of revenue for the second quarter was $1.9 million, with $975,000 related to supplying ONIVYDE to Shire and PharmaEngine, and $897,000 of costs related to our net product revenue. This 93% margin on net product revenue includes one-time Q2 strap costs whose impact is offset by the sale of zero-cost inventory.
Continuing down our income statement, aggregate R&D and SG&A expense for Q2 was $61.7 million, of which approximately $41 million or 66% consisted of R&D expenses. It's important to understand that included in this R&D amount is $10 million of expenses related to a milestone payment that we've made to PharmaEngine in Q2. This milestone was the same milestone in dollar amounts I previously discussed relating to Shire’s South Korean filing and has no net impact on earnings.
Excluding the $10 million of expense related to this milestone payment, aggregate R&D and SG&A expenses were $51.7 million for the quarter, which is comprised of R&D expenses of $31 million and SG&A expenses of $20.7 million, as compared to R&D expenses of $32.9 million and SG&A expenses of $17.8 million in the prior quarter.
Also during the second quarter, we recorded $21.1 million of interest expense, $14.6 million of which was a one-time non-cash charge related to the elimination of $64.2 million of our convertible notes that we discussed in detail during our last call, which resulted in the removal of $13 million in future interest payments. These items were the primary contributors to the $50.8 million of net loss attributable to Merrimack during the second quarter of 2016.
Finally turning to guidance which has been disclosed in our recent press release. We expect to achieve $46.5 million of net milestones related to ONIVYDE in 2016. Today we have provided an added level of detail by outlining what inflows and outflows make up this net amount. Please refer to our press release for the additional details.
Furthermore, we are lowering our expense guidance range for 2016 by $20 million. This means we expect our aggregate R&D and SG&A expenses excluding milestone obligations to PharmaEngine to be in the range of $205 million to $225 million for the year. This is as a result of our continued focus on prudent financial management of our business.
With that, I'll turn the call back over to Bob.
Thank you, Yasir. Let me now turn to a few updates on our pipeline. First, an update on a commercial partner for ONIVYDE. As many of you are aware, our partner, Baxalta, was acquired by Shire during the second quarter. We continued to work very closely with the team at Shire to make ONIVYDE the standard of care for post-gem pancreatic cancer across the globe.
As you may have seen, last week we announced the positive opinion by the Committee for Medicinal Products for Human Use, or CHMP, from the European Medicines Agency. This action sets the stage for an approval on launch of ONIVYDE in the EU in the months ahead. We are continuing to work with our colleague at Shire to advance the regulatory process in post-gem pancreatic cancer around the globe, while also pursuing the development of ONIVYDE in several expansion indications.
One of the leading development opportunities for ONIVYDE is front-line pancreatic cancer. Our Phase 2 study of ONIVYDE in the front-line setting is progressing very well and is on track to transition from part one to part two in the near future. You will recall that this trial is evaluating the approved ONIVYDE regimen as well as ONIVYDE plus [indiscernible] which we are calling NAPOX versus the current standard of care GEM plus Abraxane.
We believe both the approved ONIVYDE regimen and the new NAPOX regimen have the potential for success as treatment options in front-line pancreatic cancer patients. We are currently progressing through part one of the front-line study which is designed primarily at the safety and tolerability of the NAPOX regimen. Through the initial evaluation period, we and our investigators have been pleased with performance of NAPOX demonstrating preliminary evidence of both good tolerability and clinical activity.
We are confident that data generated to-date will support moving forward into part two of the study, the randomized efficacy phase and we're looking forward to updating you on that transition. We expect PSS data from part two of the study to read out in 2017.
We also continue to expect data later this year from the three ongoing studies investigating ONIVYDE in additional tumor types, including pediatric sarcoma, glioma and breast cancer. At our Analyst Day in May, we updated you on our development plans for ONIVYDE in two other significant indications, small-cell lung and colorectal cancers. If you haven't already done so, I would encourage you to review the presentation on our website for a detailed discussion of our rationale in each of these indications.
In summary, we plan to initiate a Phase 3 study evaluating ONIVYDE in small-cell lung cancer later this year. And in collateral cancer, we initiated a Phase 1 trial of ONIVYDE in combination with MM-151, our super potent EGFR inhibitor. This study was at the safety, tolerability and preliminary efficacy of the approved ONIVYDE regimen plus 151 as a first or second line treatment to patients with RAS wild-type metastatic colorectal cancer.
At ASCO this year, one of the presentations featured the final Phase 1 data from our study of MM-151 in refractory solid tumors including colorectal cancer. Data from this study showed positive clinical activity in a heavily pretreated patient population. 54% of the evaluable patients in the metastatic colorectal cancer cohort showed a decrease in tumor size and 21% of the patients in the same cohort achieved an objective response.
For comparison, the two most recent approved drugs full for late-stage metastatic colorectal cancer demonstrated objective response rates of less than 2%. Importantly, MM-151 exhibited positive clinical activity in both EGFR treatment refractory and EGFR treatment naïve populations, including patients with a wide variety of mutations. We are excited by MM-151’s ability to impair of broad range of EGFR-driven signaling and address the significant unmet need in this large patient population. We look forward to updating you further as we press forward with both early and late-line development opportunities.
Moving now beyond ONIVYDE, as you know we have two other programs in studies designed to support registration, seribantumab and MM-302. We were pleased to announce a few weeks ago that seribantumab had received a Fast Track designation from the U.S. FDA for patients with heregulin-positive locally advanced or metastatic non-small cell lung cancer, whose disease has progressed following immunotherapy. This designation points to the significant need faced by patients in the post-immunooncology setting. We estimate that there are over 100,000 patients with heregulin-positive non-small cell lung cancer tumors in the United States alone.
Also this quarter, presented updated overall survival data for seribantumab in HER2-negative hormone receptor positive breast cancer, demonstrating a greater than 50% reduction in the risk of death. This data is strengthens our belief in the critical medical importance of heregulin-positive disease and the significant opportunity for seribantumab improving the treatment of a wide range of cancers.
The ongoing non-small cell lung cancer registration study named SHERLOC is well underway. Screen prevalence for heregulin-positive patients continues in line with our expectations and enrollment is progressing as planned. We continue to expect data readout from this pivotal study in 2018.
MM-302 is the second Merrimack targeted therapeutic program in a study design to support registration. MM-302 which is the first of our antibody-directed nanotherapeutics or ADN candidates is a HER2-directed payload of doxorubicin. The study underway, the HERMIONE trial is a Phase 2 study of MM-302 in anthracycline naïve HER2-positive breast cancer designed to support an accelerated approval. The HERMIONE study remains on track to deliver data in 2017.
MM-141 is our bispecific antibody, which is engineered for the treatment of IGF positive tumors. MM-141 is currently advancing in a Phase 2 study in front-line pancreatic cancer in combination with Gem and Abraxane. Part two of the study are randomized blinded and placebo-controlled trial of Gem plus Abraxane plus or minus MM-141 is now underway. We continue to expect data from this study in 2018.
Finally, we initiated a strategically important Phase 1 multi-arm basket study investigating the combination of MM-151 with MM-121, MM-141 and trametinib in EGFR-positive lung, colorectal and head and neck cancers. This groundbreaking study is diagnosing patient’s tumors on multiple biomarkers and in matching patients with a combination regimen tailored to their disease. In testing and sorting patient biopsies by EGFR for regular and IGS status, as well as KRAS and NRAS mutations, more than 95% of eligible patients are expected to qualify for enrolment into one of the arms of the study.
Initiation of the study is the culmination of Merrimack system’s biology efforts to enable the multiplex diagnosis and treatment of cancer in what we believe is the beginning of a new era of a biomarker-directed clinical development in oncology.
In all, we had a successful operating quarter and are well positioned with several upcoming clinical beat outs. We look forward to updating you further as we continue to advance towards those milestones.
With that, I'll turn the call back over to Geoff.
Thanks Bob. Before we wrap up, I'd like to mention we’ll be attending the Morgan Stanley Global Healthcare Conference on September 12 in New York and we hope to some of you there. And with that, we're happy to take any questions.
[Operator Instructions]. Our first question comes from Anupam Rama with JP Morgan. Your line is open.
Hi, this is Yuko on the call for Anupam. Thanks for taking my questions. Regarding the initial portion of front-line pancreatic trial with ONIVYDE, what criteria are you looking forward in selecting of those forward regimens?
So, Yuko, thanks for the message and the question. I think the criteria really is around tolerability. The core question for NAPOX that we have had and our investigators have had is tolerability in a patient population that typically would not be eligible for FOLFIRINOX. FOLFIRINOX is a regimen that well effective has safety and side-effect issues that limit its use in patients with the highest performance status. We believe that the characteristics qualities and engineering behind ONIVYDE would allow us to build the regimen that could reproduce or improve on the benefits off FOLFIRINOX while making it accessible with better tolerability to much broader response to patients.
So tolerability is the key metric and we feel that we are well on path to having that and are confident the data we’ve seen to-date on that will allow us to move forward.
Great. Thank you.
[Operator Instructions] Our next question comes from Tony Butler with Guggenheim Securities. Your line is now open.
Hey guys. It’s actually Jake Seide on for Tony. Just wondered if you could give a little bit of color on new patient stats [ph] in Q2 as well as duration therapy? Thanks.
Sure, Jake. Thanks very much for the question. This is Tad. As far as duration of therapy, as we mentioned, we’re very pleased with the fact that that’s been growing as we’ve been collecting more data over time. In terms of the breadth of use, we’re very happy with the breadth that we’re seeing right now in terms of accounts. We’ve seen - we’re up to about 800 accounts through Q2. We’re seeing that pace sustained of about 20 new accounts per week, so we’re certainly seeing growth there that we’re very pleased with, and we think again that as recognition of the benefits that the physicians are seeing in ONIVYDE and the resonance that the overall survival and the 12-month survival rate really has with them.
Thank you. Ladies and gentlemen, this concludes the Q&A session. I’ll now turn the call back over to management for closing remarks.
Okay. Well, thanks everyone for joining us. We look forward to updating you again next quarter.
Thank you. Ladies and gentlemen, that does conclude today’s conference. You may all disconnect and everyone had a great day.
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