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Acorda Therapeutics Inc. (NASDAQ:ACOR)

Q3 2007 Earnings Call

November 06, 2007 8.30 am ET

Executives

Tierney Saccavino - VP, CorporateCommunications

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 andCo.

Operator

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

And now I'd like to introduceyour host for today, Tierney Saccavino, Vice President, CorporateCommunications at Acorda Therapeutics. Please go ahead.

Tierney Saccavino

Good morning, everyone, andwelcome 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 FinancialOfficer. Before we begin, let me remind you that this presentation includesforward-looking statements within the meaning of the Private SecuritiesLitigation Reform Act of 1995. All statements, other than statements ofhistorical facts, regarding management's expectations, beliefs, goals, plans orprospects should be considered forward-looking.

These statements are subject torisks and uncertainties that could cause actual results to differ materially,including Acorda Therapeutics' ability to successfully market and sell ZanaflexCapsules, 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 againstthe intellectual property claims of others, the ability to obtain additionalfinancing to support Acorda Therapeutics' operations, and unfavorable resultsfrom its preclinical programs.

These and other risks aredescribed in greater detail in Acorda Therapeutics' filings with the Securitiesand Exchange Commission. Acorda Therapeutics may not actually achieve the goalsor plans described in its forward-looking statements, and investors should notplace undue reliance on these statements.

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

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

Ron Cohen

Thanks, Tierney. Welcomeeveryone. Thanks for joining us this morning. Today, I'm going to provide youwith updates on our Fampridine-SR clinical program and our Zanaflex capsulesbusiness, as well as, corporate update and then Dave will review the financialswith you.

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

Please note that we do anticipatesome 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 thesecond quarter of 2008. In September, we began our thorough QT Study and weexpect data from that study in the first quarter of 2008.

Finally, we were invited to makeboth a platform and to post year presentation at the prestigious annual meetingof ACTRIMS, the European Committee on Treatment and Research in MultipleSclerosis which took place in Praguein October.

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

On the next slide, you get, Ithink a more accurate picture of the actual prescription growth as reported byIMS. We've had consistent quarter-over-quarter growth in Zanaflex capsulesprescriptions since the launch in the second quarter of '05. Dollarizedprescription growth is reported by IMS grew 9.6% from the second to the thirdquarter of '07. The market share of total Zanaflex capsule andtablet prescriptions is now 6.7% and total share of the market fornew prescriptions is close to 8%. Based on our current projections, we expectthe Zanaflex commercial operations to be cash flow neutral by the end of thecalendar 2007 year and cash flow positive in 2008.

Moving on to our corporateupdate, we recently reported some impressive progress on our preclinicalpipeline. As many of you know, we are working with the Mayo clinic on thedevelopment of a monoclonal antibody technology, which has been shown topromote the growth of myelin in the central nervous system in animal studies.

On October 9, scientists fromMayo presented details from a preclinical study at the American NeurologicalAssociation meeting in Washington DC. This study shows that theantibodies were able to repair myelin in a mouse model of progressivedemyelination that is similar to certain types of multiple sclerosis.

Media coverage of thatpresentation generated over 50 stories in international broadcast and print andAcorda and Mayo are collaborating to move this technology towards an investigationalnew drug application INDand clinical trials.

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

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

Finally, we filed an S-3 Shelf last night. We think it isprudent financial management to keep a shelf available, but we should make itclear 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, weoutlined our third quarter financial results for 2007. I'll now review some ofthe financial information in more detail. As of September 30th 2007, Acordaheld cash, cash equivalents and short-term investments of $105.1 million.

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

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

Sales and marketing expenses increased approximately $2.6million due to increases in salaries, benefits and other selling-relatedexpenses 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 tocost associated with compliance activities from being a publicly-tradedcompany.

We reported a net loss of $8.5 million for the quarter endedSeptember 30th, 2007, or $0.30 per diluted common share, compared to a net lossof $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 onthe company's key initiatives in the third quarter. And I'd like to open up thecall now for your questions. Operator?

Question-and-AnswerSession

Operator

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

Joel Sendek - LazardCapital

Hi. Good morning, thanks. If I look back at my notes, it lookslike 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 alittle bit more specificity there.

Joel Sendek - LazardCapital

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

Ron Cohen

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

Joel Sendek - LazardCapital

Well it;’, we would to be conservative, we would put anyear, but in this situation I think I would hope you to do it quicker thanthat.

Ron Cohen

Yeah, we would hope so.

Joel Sendek - LazardCapital

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

Ron Cohen

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

Joel Sendek - LazardCapital

Okay. Alright, thanks a lot.

Operator

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

David Amsellem - FBR

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

Ron Cohen

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

With regard to financing, we have no plans at this pointwith regard to financing, its something that we will continue to assess as wego forward. So again, the shelf is really in our view a routine financialhousekeeping if you will just to make sure we have a shelf available overtimefor such time as we may need it. But right now, we have no plans specificallyfor financing and I really couldn't comment as to when, if and when we mightdecide to access the capital markets again.

David Amsellem - FBR

Okay, that's helpful. And then just one last question if Imay, has your thinking at all regarding an ex-U.S. partner for Fampridinechanged or evolve at all and may be just go through how you are thinking aboutit 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 onedirection and other, we think we have time to make that decision given that wehave a couple of milestones coming up, clinical milestones coming up. So, weare 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 ourown activities with regard to Europe, becauseregardless of whether we do a partner or not we want to have as muchinformation about the European front as possible. So we are engaged withregulatory consultants, we are looking to meet with regulatory agencies in Europe and make sure that we are covered as much aspossible with the information we need. So even if decide to go with a Europeanpartner, we will be in a good position to discuss that, negotiate that becausewe 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 Nadeauwith Cowen. Please proceed.

Phil Nadeau - Cowen

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

Ron Cohen

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

Phil Nadeau - Cowen

Okay, fair enough. Then second, on Phase II trial, youmentioned the trial might be somewhat over enrolled just because of themomentum of the trial. Can you remind us what is the current powering if you haveany idea what that powering could become, once the final enrollment iscompleted, 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 theother two measures that we needed in the first Phase III trial. So with 200subjects it was powered for over 90% to hit that and we actually trimmed bothsides of the differential so that whereas in the past we've seen consistentlyto see about a 35% responder rate in the drug group versus about 8%, 8.5% inthe placebo group. We assume, I believe it was a 10% response rate in theplacebo group and a 30% response rate in the drug group and we powered it atover 90% on that basis. So it's actually powered for more than 90% to hit thedifference that we've seen already in a couple of studies. In terms of how highthat powering would go, with the overall enrolment, I don't know. I don't knowthe 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 wason the last call you shared with us some hERG data that you have. Have youaccumulated any additional preclinical data in the last three months thatspeaks to Fampridine, see their binding to the hERG channel or propensity toincrease the QTC interval?

Ron Cohen

No, we've done no preclinicalstudies at all. We've met the required burden already. So there really wasn'tany reason to do any more preclinical work. As far as we know, we've donepretty much what is available to do including the optional dog Purkinje fibertesting and I think you've seen that in our filings before. So the preclinicaldata remain as they have been, which is that in the hERG channel testing theIC50 and for those who on the call who may not know that the concentration atwhich we inhibit 50% of the hERG channels is at about 10,000 times thetherapeutic concentrations achieved at 10 milligrams twice a day withFampridine.

Phil Nadeau - Cowen

Okay, great. Thank you very much.

Operator

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

Caroline Stewart - Piper Jaffray

Hi, good morning. Most of myquestions have been answered, but just a couple of follow-ups. Can you commenton the drop-out rates at all for the second pivotal Phase III is it more orless 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, overallwe are very pleased with the way this study has enrolled and has beenconducted.

Caroline Stewart - Piper Jaffray

Okay. And then, when you aretalking about over enrollment, approximately how many are you targeting forover 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, asyou get closer to the end, the investigators get as many patients who are leftin the trial is possible. So, you wind up in some senses kind of holding yourhand up against the tide, coming in. So, we manage that as best we can. I can’tgive you a specific number because there is some delay in the logs coming in onthis stuff. So, that’s part of the challenge and the exercise of closing ofenrollment in the study. You also want to make sure that you maintain the goodrelationships 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 goingto be in the study, "No, sorry, we are done." So as I say, by themiddle 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 thisbut you really ready with the timeline for the QTC study completion. Is thereany commentary or color you can give?

Ron Cohen

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

Operator

Looks like her line hasdropped. And our next question comes from the line of Eugene Trogan with MorganJoseph and Company. Please proceed.

Eugene Trogan -Morgan Joseph and Co.

Hi. Good morning. Thank you for taking my questions. I waswondering Ron, if you can comment as to how many patients are on the open-labelportion probably going back to the Phase II, F203 and the first Phase IIItrial. And also, if you can give, perhaps what is the maximal time that apatient 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 toget you enough of a change to make it materially we feel. So, when we lastupdated in the second quarter, I think, you may have those numbers and I thinkthey 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 secondquarter, I don’t have them on my finger tips, but it was something like 65%, weare still in the 202 extension, and about 80% we are still in the 203extension. The 202 extension started with a 177 subjects, the 203 started with268 subjects. So, you can follow it from there.

With regards to the longest exposure, it's over three andhalf years by now. So, the 202 study, I think even in the end of the secondquarter, the average time for the people who were still on the study for that80% or so who were still on the study was about three years or somewhat overthree years, that’s the 202 study. And in the 203 the average time was over ayear at that point.

Eugene Trogan -Morgan Joseph and Co.

Right. Another question on the expense side, you mentionedthat you expect to be cash flow positive next year. Do your estimates includelegal fees related to the Apotex filing, generic filing in terms of defendingyour patents?

Ron Cohen

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

Eugene Trogan -Morgan Joseph and Co.

I see, okay. Thank you very much.

Operator

And there appears to be no additional questions at thistime. I will now like to turn the call over to Mr. Ron Cohen for any closingremarks.

Ron Cohen

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

Operator

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

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