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Acorda Therapeutics Inc. (NASDAQ:ACOR)

Q3 2007 Earnings Call

November 06, 2007 8.30 am ET

Executives

Tierney Saccavino - VP, Corporate Communications

Ron Cohen - Chairman, President, CEO

Dave Lawrence - CFO

Analysts

Joel Sendek - Lazard Capital

David Amsellem - FBR

Phil Nadeau - Cowen

Caroline Stewart - Piper Jaffray

Eugene Trogan - Morgan Joseph and Co.

Operator

Thank you for holding. Welcome to the Acorda Therapeutics Third Quarter 2007 Financial Results Webcast and Conference Call. At this time all participants are in a listen-only mode. There will be a question-and-answer session to follow. Please be advised that this call is being taped at the company's request.

And now I'd like to introduce your host for today, Tierney Saccavino, Vice President, Corporate Communications at Acorda Therapeutics. Please go ahead.

Tierney Saccavino

Good morning, everyone, and welcome to Acorda's third quarter 2007 webcast and conference call.

With me today are Dr. Ron Cohen, our President and Chief Executive Officer; and David Lawrence, Chief Financial Officer. Before we begin, let me remind you that this presentation includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical facts, regarding management's expectations, beliefs, goals, plans or prospects should be considered forward-looking.

These statements are subject to risks and uncertainties that could cause actual results to differ materially, including Acorda Therapeutics' ability to successfully market and sell Zanaflex Capsules, the risk of unfavorable results from future studies of Fampridine-SR, delays in obtaining or failure to obtain FDA approval of Fampridine-SR, competition, failure to protect its intellectual property or to defend against the intellectual property claims of others, the ability to obtain additional financing to support Acorda Therapeutics' operations, and unfavorable results from its preclinical programs.

These and other risks are described in greater detail in Acorda Therapeutics' filings with the Securities and Exchange Commission. Acorda Therapeutics may not actually achieve the goals or plans described in its forward-looking statements, and investors should not place undue reliance on these statements.

Acorda Therapeutics disclaims any intent or obligation to update any forward-looking statements as a result of developments occurring after the date of this presentation.

I will now turn the call over to our CEO, Ron Cohen.

Ron Cohen

Thanks, Tierney. Welcome everyone. Thanks for joining us this morning. Today, I'm going to provide you with updates on our Fampridine-SR clinical program and our Zanaflex capsules business, as well as, corporate update and then Dave will review the financials with you.

Regarding Fampridine-SR, as of November 2, our second Phase III MS-F204 had 198 participants enrolled out of the required 200. We are obviously very pleased with the rapid pace of enrollment in this study. We now expect to complete enrollment around the middle of this month, and we will make an official announcement when we have reached that milestone.

Please note that we do anticipate some over enrollment, due both to allowance for potential dropouts, as well as, overall enthusiasm for the study. And we now expect data from the study in the second quarter of 2008. In September, we began our thorough QT Study and we expect data from that study in the first quarter of 2008.

Finally, we were invited to make both a platform and to post year presentation at the prestigious annual meeting of ACTRIMS, the European Committee on Treatment and Research in Multiple Sclerosis which took place in Prague in October.

Moving on to Zanaflex, we continue to see gratifying progress of our Zanaflex capsules franchise in the third quarter. Shipments to wholesalers in the quarter were 11.9 million, and Zanaflex tablet shipments were 1.3 million for total shipments of $13.2 million. That represents an increase of 52% over third quarter 2006 shipments of 8.7 million. I would like to remind all of you that, dip that you see in the first quarter of '07 actually reflects wholesaler overstocking that occurred in the fourth quarter of '06 with de-stocking in the first quarter and you can see we have resumed the growth curve, since then.

On the next slide, you get, I think a more accurate picture of the actual prescription growth as reported by IMS. We've had consistent quarter-over-quarter growth in Zanaflex capsules prescriptions since the launch in the second quarter of '05. Dollarized prescription growth is reported by IMS grew 9.6% from the second to the third quarter of '07. The market share of total Zanaflex capsule and tablet prescriptions is now 6.7% and total share of the market for new prescriptions is close to 8%. Based on our current projections, we expect the Zanaflex commercial operations to be cash flow neutral by the end of the calendar 2007 year and cash flow positive in 2008.

Moving on to our corporate update, we recently reported some impressive progress on our preclinical pipeline. As many of you know, we are working with the Mayo clinic on the development of a monoclonal antibody technology, which has been shown to promote the growth of myelin in the central nervous system in animal studies.

On October 9, scientists from Mayo presented details from a preclinical study at the American Neurological Association meeting in Washington DC. This study shows that the antibodies were able to repair myelin in a mouse model of progressive demyelination that is similar to certain types of multiple sclerosis.

Media coverage of that presentation generated over 50 stories in international broadcast and print and Acorda and Mayo are collaborating to move this technology towards an investigational new drug application IND and clinical trials.

During the quarter, Acorda was also added to the NASDAQ NeuroInsights Neurotech Index. And on September 5th, we've received notification from Apotex Inc. that they had filed an Abbreviated New Drug Application or ANDA for generic versions of Zanaflex Capsules.

On October 11th, we announced that we had filed a lawsuit against Apotex Corp. and Apotex Inc. for patent infringement of our intellectual property related to Zanaflex Capsules.

Finally, we filed an S-3 Shelf last night. We think it is prudent financial management to keep a shelf available, but we should make it clear that we do not have any plans for financing at this time.

And with that let me move the discussion to Dave Lawrence, who will provide you with a financial update.

Dave Lawrence

Thank you, Ron. In our press release this morning, we outlined our third quarter financial results for 2007. I'll now review some of the financial information in more detail. As of September 30th 2007, Acorda held cash, cash equivalents and short-term investments of $105.1 million.

Turning to the operating statement data. For the quarter ended September 30th 2007, we reported gross sales of $11.5 million, compared to gross sales of $6.5 million for the same period in 2006. Note that, included in gross sales in the third quarter of 2007, is a $0.5 million of recognized revenue from 2 milligram tablet deferred revenue. In August of 2007, the right to return this product expired, allowing the company to recognize the $0.5 million deferred revenue as gross sales.

Operating expenses for the quarter ended September 30th 2007 were $17.2 million compare to $11.3 million for the same quarter in 2006, an increase of $5.9 million. This increase was primarily due to an increase of $3 million in research and development expenses related to the continued clinical research and development of Fampridine-SR.

Sales and marketing expenses increased approximately $2.6 million due to increases in salaries, benefits and other selling-related expenses resulting from the expansion of our Zanaflex Capsules sales force.

General and administrative expenses increased approximately $0.3 million due to increases in headcount and third-party services related to cost associated with compliance activities from being a publicly-traded company.

We reported a net loss of $8.5 million for the quarter ended September 30th, 2007, or $0.30 per diluted common share, compared to a net loss of $7.2 million or $0.37 per diluted common share for the same quarter in 2006.

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

Ron Cohen

Thanks, Dave. So summing up, we saw excellent progress on the company's key initiatives in the third quarter. And I'd like to open up the call now for your questions. Operator?

Question-and-Answer Session

Operator

Thank you. (Operator Instructions). And our first question comes from the line of Joel Sendek with Lazard Capital. Please proceed.

Joel Sendek - Lazard Capital

Hi. Good morning, thanks. If I look back at my notes, it looks like you previously said that the data would come around mid-'08. So is the 2Q '08 potential acceleration of the timeline?

Ron Cohen

Yes. The enrollment went rapidly, and we are able to give a little bit more specificity there.

Joel Sendek - Lazard Capital

And how about any update on when you could file if the data is good?

Ron Cohen

We haven’t said Joel, so I don’t want to project that out now. I will tell you that, let me ask you, what are you used to seeing in terms of time line for companies from the time they get the last study done to a NDA filing.

Joel Sendek - Lazard Capital

Well it;’, we would to be conservative, we would put an year, but in this situation I think I would hope you to do it quicker than that.

Ron Cohen

Yeah, we would hope so.

Joel Sendek - Lazard Capital

And then just quickly on Zanaflex, you mentioned the cash flow positivity, can you quantify how much cash it could generate in '08?

Ron Cohen

We cannot. It’s always tough to project that particularly with a product like this, it’s done, we think extremely well, considering the type of product it was, and the market we are selling into. But, we are glad we are seeing continued growth, its just hard to know when that’s going to plateau. I think, we are comfortable saying that it should be cash flow positive next year, but how positive is, I think that’s a matter of speculation and everyone's going to have their best guess at that.

Joel Sendek - Lazard Capital

Okay. Alright, thanks a lot.

Operator

And our next question comes from the line of David Amsellem with FBR. Please proceed.

David Amsellem - FBR

Hi, Ron. Thanks for taking my question. So, just as you think about the launch of Fampridine and just in light of the shelf, that was filed this morning. Can you provide some color on the extent to which you are going to be expanding the sales force? And when you may look to access the capital markets to fund commercialization activities?

Ron Cohen

Well, I guess there are two questions embedded there, with regard to the sales force, we think its approximately a doubling of where we are now to get to full strength for a Fampridine launch. Right now, we have a sales force of 65 out of which 52 are actually on the ground in the offices calling on the Docs and the rest is various levels of sales management, and national account managers and so forth. So, we think it's approximately a double from there.

With regard to financing, we have no plans at this point with regard to financing, its something that we will continue to assess as we go forward. So again, the shelf is really in our view a routine financial housekeeping if you will just to make sure we have a shelf available overtime for such time as we may need it. But right now, we have no plans specifically for financing and I really couldn't comment as to when, if and when we might decide to access the capital markets again.

David Amsellem - FBR

Okay, that's helpful. And then just one last question if I may, has your thinking at all regarding an ex-U.S. partner for Fampridine changed or evolve at all and may be just go through how you are thinking about it or your most up to date way of thinking about it?

Ron Cohen

Well, the short answer is, we're continuing to assess that. I think at this point, we don't feel any urgency to push ourselves in one direction and other, we think we have time to make that decision given that we have a couple of milestones coming up, clinical milestones coming up. So, we are continuing to assess it but we have no decision on that at this time.

David Amsellem - FBR

Okay, thank you.

Ron Cohen

One thing I will say is that we have been stepping up our own activities with regard to Europe, because regardless of whether we do a partner or not we want to have as much information about the European front as possible. So we are engaged with regulatory consultants, we are looking to meet with regulatory agencies in Europe and make sure that we are covered as much as possible with the information we need. So even if decide to go with a European partner, we will be in a good position to discuss that, negotiate that because we will have the information we need.

David Amsellem - FBR

That’s helpful. Thanks a lot.

Operator

And now our next question comes from the line of Phil Nadeau with Cowen. Please proceed.

Phil Nadeau - Cowen

Good morning and thanks for taking my question. First is on the IP around Zanaflex capsules, could you maybe briefly describe what is claimed in your patent?

Ron Cohen

It’s a patent in the Orange Book, Phil that goes to 2021. It involves a number of claims having to do with methods of use, uses, PK characteristics of the formulation and so forth. So there are actually a number of claims embedded in that patent. It's obviously a published and issued patent, so we would be happy to get you a copy offline.

Phil Nadeau - Cowen

Okay, fair enough. Then second, on Phase II trial, you mentioned the trial might be somewhat over enrolled just because of the momentum of the trial. Can you remind us what is the current powering if you have any idea what that powering could become, once the final enrollment is completed, I will be interested in hearing that…?

Ron Cohen

Yeah, we powered it at over 90% to hit the primary outcome. And I know you recall there is only one primary outcome measure in this study, which is the timed walk response, the FDA under our SPA did not require the other two measures that we needed in the first Phase III trial. So with 200 subjects it was powered for over 90% to hit that and we actually trimmed both sides of the differential so that whereas in the past we've seen consistently to see about a 35% responder rate in the drug group versus about 8%, 8.5% in the placebo group. We assume, I believe it was a 10% response rate in the placebo group and a 30% response rate in the drug group and we powered it at over 90% on that basis. So it's actually powered for more than 90% to hit the difference that we've seen already in a couple of studies. In terms of how high that powering would go, with the overall enrolment, I don't know. I don't know the answer to that.

Phil Nadeau - Cowen

Okay. And then, last question.

Ron Cohen

It's already pretty high.

Phil Nadeau - Cowen

Yes, it's very high. Last question is on QTC. I think it was on the last call you shared with us some hERG data that you have. Have you accumulated any additional preclinical data in the last three months that speaks to Fampridine, see their binding to the hERG channel or propensity to increase the QTC interval?

Ron Cohen

No, we've done no preclinical studies at all. We've met the required burden already. So there really wasn't any reason to do any more preclinical work. As far as we know, we've done pretty much what is available to do including the optional dog Purkinje fiber testing and I think you've seen that in our filings before. So the preclinical data remain as they have been, which is that in the hERG channel testing the IC50 and for those who on the call who may not know that the concentration at which we inhibit 50% of the hERG channels is at about 10,000 times the therapeutic concentrations achieved at 10 milligrams twice a day with Fampridine.

Phil Nadeau - Cowen

Okay, great. Thank you very much.

Operator

(Operator Instructions). And our next question comes from the line of Caroline Stewart with Piper Jaffray. Please proceed.

Caroline Stewart - Piper Jaffray

Hi, good morning. Most of my questions have been answered, but just a couple of follow-ups. Can you comment on the drop-out rates at all for the second pivotal Phase III is it more or less approximately the same as what we have seen in the previous studies?

Ron Cohen

No, I can’t.

Caroline Stewart - Piper Jaffray

Thanks a lot, Ron.

Ron Cohen

But I will tell you that, overall we are very pleased with the way this study has enrolled and has been conducted.

Caroline Stewart - Piper Jaffray

Okay. And then, when you are talking about over enrollment, approximately how many are you targeting for over enrollment and at what point you cut it off?

Ron Cohen

Yeah, it’s always a fun exercise to try to calibrate that, because what happens is particularly when you have enthusiasm for a trial, as you get closer to the end, the investigators get as many patients who are left in the trial is possible. So, you wind up in some senses kind of holding your hand up against the tide, coming in. So, we manage that as best we can. I can’t give you a specific number because there is some delay in the logs coming in on this stuff. So, that’s part of the challenge and the exercise of closing of enrollment in the study. You also want to make sure that you maintain the good relationships that you have built up with your investigators and the patients, so you don't want to arbitrarily tell people who believe that they were going to be in the study, "No, sorry, we are done." So as I say, by the middle of the month, which I guess is the end of next weekish we will be done, until then I really won't know exactly how many we have in.

Caroline Stewart - Piper Jaffray

And then, I guess lastly, probably, you won't answer this but you really ready with the timeline for the QTC study completion. Is there any commentary or color you can give?

Ron Cohen

No. That's two questions that you've given me that I can just answer no. There is nothing we can tell you other than that the study is in progress and we still expect data in the first quarter. We get no information on data from the study until it's un-blinded. And we get the report, which again, would be in the first quarter.

Operator

Looks like her line has dropped. And our next question comes from the line of Eugene Trogan with Morgan Joseph and Company. Please proceed.

Eugene Trogan - Morgan Joseph and Co.

Hi. Good morning. Thank you for taking my questions. I was wondering Ron, if you can comment as to how many patients are on the open-label portion probably going back to the Phase II, F203 and the first Phase III trial. And also, if you can give, perhaps what is the maximal time that a patient has been on Fampridine-SR?

Ron Cohen

Yeah. Eugene, I don't have a current number for you. We update that on a bi-yearly basis. So, you know, every six months because otherwise just three months is not enough to get you enough of a change to make it materially we feel. So, when we last updated in the second quarter, I think, you may have those numbers and I think they would be in the, where they in the Q in the second quarter

Tierney Saccavino

They are in the Q and the press release.

Ron Cohen

Yeah. They are in the Q and the press release for the second quarter, I don’t have them on my finger tips, but it was something like 65%, we are still in the 202 extension, and about 80% we are still in the 203 extension. The 202 extension started with a 177 subjects, the 203 started with 268 subjects. So, you can follow it from there.

With regards to the longest exposure, it's over three and half years by now. So, the 202 study, I think even in the end of the second quarter, the average time for the people who were still on the study for that 80% or so who were still on the study was about three years or somewhat over three years, that’s the 202 study. And in the 203 the average time was over a year at that point.

Eugene Trogan - Morgan Joseph and Co.

Right. Another question on the expense side, you mentioned that you expect to be cash flow positive next year. Do your estimates include legal fees related to the Apotex filing, generic filing in terms of defending your patents?

Ron Cohen

We can't comment on legal fees, because we don’t have those fees yet. It's purely speculative. So this would be on an operating basis for the business.

Eugene Trogan - Morgan Joseph and Co.

I see, okay. Thank you very much.

Operator

And there appears to be no additional questions at this time. I will now like to turn the call over to Mr. Ron Cohen for any closing remarks.

Ron Cohen

Well, that concludes our call for today. Thank you all for joining us, and we appreciate your interest. That will conclude the call, thank you, operator.

Operator

Thank you. This concludes your presentation. You may now disconnect and have a great day.

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