Cadence Pharmaceuticals Q3 2007 Earnings Call Transcript

Nov.15.07 | About: Mallinckrodt PLC (MNK)

Cadence Pharmaceuticals, Inc. (CADX) Q3 2007 Earnings Call November 15, 2007 8:30 PM ET

Executives

Bill LaRue - Senior Vice President and Chief Financial Officer

Ted Schroeder - President and Chief Executive Officer

Jim Breitmeyer - Executive Vice President and Chief Medical Officer

Analysts

Charles Duncan - JMP Securities

Greg Fraser - Merrill Lynch

Angela Larson - FIG

Charles Duncan - JMP securities

Matthew Jacobson - BDR Research

Operator

Good morning, and welcome to the Cadence Pharmaceuticals' Third Quarter 2007 Financial Results and Clinical Update Conference Call. At this time, I would like to inform you that this conference is being recorded and that all participants are in a listen-only mode. At the request of the company we will open the conference up for questions-and-answers after the management presentation (Operator Instructions).

Our first speaker is Bill LaRue, Senior Vice President and Chief Financial Officer of Cadence Pharmaceuticals. Go ahead, sir.

Bill LaRue

Thank you. Good morning, everyone, and thank you for joining us today. Before we get started, I would like to remind everyone that statements made during this conference call that are not a description of historical facts are forward-looking statements.

These include statements regarding the timeframes in which we expect to complete and disclose results from our clinical trial and to file applications for regulatory approval of our product candidates, the indications for use that maybe included in such applications, the likelihood that results of our clinical trails will be sufficient to support regulatory approvals, our expectations regarding the potential market demand for our product candidate, and our projected operating expenses and cash balances.

Such forward-looking statements are based on our current expectations, but our actual results may differ materially from those presented in this conference call, due to the risks and uncertainties inherent in our business, including without limitation, our dependence on the success of Acetavance and Omigard, any delays or significant regulatory issues we may experience concerning our clinical trials, unexpected adverse side effects or inadequate therapeutic efficacy of our product candidates that could delay or prevent the regulatory approval or commercialization or that could result in recalls or product liability claims, the adequacy of our clinical trial designs, delays or quality issues in developing testing and manufacturing Acetavance or Omigard, the market potential for our product candidates and our ability to compete in our targeted markets, fluctuations in quarterly and annual financial results are needed to obtain substantial additional financing to complete our product development plans, the potential that we may not be able to raise, sufficient capital were needed, and other risk detailed in our prior press releases and our periodic public filings with the Securities and Exchange Commission.

You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of today’s date. All forward-looking statements are qualified in their entirety by this cautionary statement and we undertake no obligation to revise or update the information presented in this conference call to reflect events or circumstances after the date hereof. This caution is made under the Section 21E of the Private Securities Litigation Reform Act of 1995.

If any one has not seen our third quarter 2007 financial results press release issued yesterday, you can access it on our website at www.cadencepharm.com. Additionally this conference call is being webcast through the company’s website and will be archived there for future reference.

On the call with me today are, Ted Schroeder, our President and CEO, and Dr. Jim Breitmeyer, our Executive Vice President and Chief Medical Officer.

I will now turn the call over to Ted.

Ted Schroeder

Good morning, everyone, and thank you for joining us today to discuss Cadence's third quarter 2007 and year-to-date financial results. In addition to reviewing our financial results, we will also provide you with an update of our ongoing clinical development programs and recap the key milestones we anticipate achieving in the next 12 months and beyond. Following the financial and clinical overview, we will open the call for your questions.

As you know, we currently have two Phase III product candidates in our clinical development pipeline. Intravenous acetaminophen for the treatment of acute pain and fever in adult and children and Omigard a topical antimicrobial gel, for the prevention of catheter-related infections.

We are pleased to announce that we have recently branded our IV acetaminophen product candidate, with the brand name Acetavance and have applied to registered this trademark with the U.S. and Canadian patent and trademark offices.

We continue to believe that our product candidates have a potential to satisfy unmet medical needs. We think that if approved Acetavance will be well positioned as the potential foundation for our multimodal approach to managing acute pain and fever in hospitalized adult and children, who cannot readily take medication by now.

As many of you are well aware there has been an increasing level of public awareness surrounding the need for new more effective ways to lower hospital site infection rates.

According to a recent high profile study drug resistance stiffens and effects more than 90,000 Americans a year and contributes to more than 18,000 deaths. Although a large portion of these infections occur outside of hospitals, they are believe to originate primarily in the hospital setting.

As results there is increased pressure on Healthcare Organizations to demonstrate that they have procedures and resources in place aimed at reducing MRSA infections. We therefore believe, that due to broad Bactericide or in fungicidal activity, we have seen preliminary studies, if approved, our product candidate Omigard maybe well positioned to address the growing medical need for preventing catheter-related infections. In other highlights, we are also pleased to report that effective with the market opening on Monday, November 19, Cadence will be included in the NASDAQ biotechnology index.

This index is the basis for the iShares NASDAQ Biotechnology Index Fund as well as options traded on several exchanges. I’ll now turn the call over to Bill for an overview of our third quarter and year-to-date financial results.

Bill LaRue

Thanks Ted. For the three months ended September 30th, 2007 we reported a net loss of $13 million or $0.45 per share compared to a net loss of $7.8 million or $6.01 per share in the third quarter of 2006.

After September 30th, 2007 we held cash and cash equivalents of $54.5 million. Total operating expenses for the third quarter were $13.6 million compared to $8 million for the third quarter of 2006. This increase was primarily due to the following items.

A $4 million increase in R&D expenses, personnel cost and regulatory cost associated with our ongoing Phase-III clinical trials of Omigard and Acetavance and pre-commercialization manufacturing development activities for Acetavance as well as a $1.2 million increase in general and administrative expenses due to increases in salaries and personnel costs, including stock-based compensation charges and costs related to operating as a public company.

For the nine-months ended September 30th, 2007 we reported a net loss of $37.5 million or $1.31 per share compared to a net loss of $43.2 million or $34.27 per share for the nine-months ended September 30th, 2006. Total operating expenses for the nine-months ended September 30, 2007 were $39.6 million compared to $43.9 million for the nine-months ended September 30, 2006.

The decrease in operating expenses was primarily related to a one-time $25.3 million initial license fee incurred during the first quarter of 2006, in connection with our acquisition of the rights to Acetavance and it was offset-by the following items.

A $16.5 million increase in cost during the first nine months of 2007 related to our ongoing Phase-III clinical trials of Omigard and Acetavance, pre-commercialization manufacturing development activities for both product candidates, personnel related costs due to the planned hiring of staff to support the clinical and regulatory efforts and a $3.5 million increase in general and administrative expenses due to increases in salary and related personnel costs, including stock-based compensation charges, depreciation expenses and costs related to operating as a public company.

In terms of guidance for the full year 2007, we expect our total operating expenses for the year will be between $54 million and $57 million, which is lower than the previous anticipated range of $57 million to $60 million.

The reduced operating expense projections include approximately $4 million in non-cash stock base compensation and reflect changes in the timing of our pre-commercialization manufacturing development expenditures and the initiation of certain planned clinical trials.

We anticipate the cash and cash equivalence at December 31st 2007 will be between $37 million and $40 million.

With that I’ll now turn the call over to our Chief Medical Officer Dr. Jim Breitmeyer for an update on our clinical development progress.

Jim Breitmeyer

Thank you, Bill. We are pleased to report that in October, we completed patient enrollment in our two Phase III clinical trials of Acetavance for the treatment of fewer in adults. One study compares Acetavance to placebo and the other compares Acetavance to orally-administered acetaminophen.

You might recall that in August 2007, we also completed enrollment in a pivotal Phase III clinical trial of Acetavance for the treatment of post-operative pain following abdominal gynecological surgery.

As previously communicated, we anticipate announcing the top line results from all three of these studies in early 2008. In line with previous guidance, we also plan to initiate two multi-day safety studies of Acetavance, one in adult and one in pediatric patients, in the fourth quarter of 2007.

In addition to these planned trials, in the fourth quarter of 2007, we also plan to initiate a Phase III clinical trial of Acetavance for the treatment of mild to moderate pain in adults following abdominal laparoscopic surgery.

The new trial is a randomized double blinded multi-center study of 240 subjects and is designed to evaluate the safety and efficacy of two doses of Acetavance compared to placebo that is 1,000 milligram every six hours and 650 milligrams every four hours.

The primary endpoint for the study will be some pain intensity differences from base line over 24 hours at a key value below 0.05 and it will be powered at the 90% level. The rational for the addition of this new study to our on going clinical development program is based on the following factors.

Less invasive surgeries such as laparoscopy on an increasingly common form of surgery and we should provide physicians with dosing information in these less invasive surgeries.

The additional study has intended to support a broader proposed label for Acetavance by providing safety and efficacy data at two different doses and dose intervals.

If our studies are successful and then NDA for r Acetavance is approved and expanded label may potentially expand the market opportunity for this product candidate to include patients with less severe pain. And the data for patients with mild to moderate acute pain, will supplement the result from the more severe pain modeled studied in our other clinical trials of the Acetavance.

Importantly, the addition of the new study is not expected to negatively impact our NDA filing timeline for Acetavance. We anticipate completing enrolment in the study. In the second quarter of 2008, and assuming a successful completion of all of our clinical trials of Acetavance.

We remained untarget to submit our 505(b)(2) NDA for this product candidate to the FDA in the second half of 2008. Switching gears to our Omigard clinical program for a moment, we continue to be pleased with its progress.

You may recall that earlier this year, we have increased the target enrolment in our ongoing Phase III clinical trial of Omigard from 1250 to 1850 patients and had completed enrolment of our original target of 1250 patients ahead of plan.

Based on our current enrolment rates, we continue to anticipate completing enrolment of our total goal of 1850 patients in the second quarter of 2008 and, if the results are positive, we plan to submit a new drug application for Omigard in the first half of 2009.

With that I will now turn the call back to Ted, for his closing remarks.

Ted Schroeder

Thanks, Jim. I'd like to wrap up the management review portion of today’s call by restating our continued commitments to meeting our clinical, regulatory and pre-commercialization goals and objectives for both of our product candidates, Acetavance and Omigard.

At this point, I’d like to turn the call back to the operator and open the line for questions. Operator?

Question-and-Answer Session

Operator

Our first question comes from Charles Duncan, JMP Securities.

Bill LaRue

Good morning, Charles.

Charles Duncan - JMP Securities

Hi, gentlemen. Good morning, can you hear me?

Bill LaRue

Yes.

Charles Duncan - JMP Securities

Excellent. First of all, congratulations on a good quarter progress.

Bill LaRue

Thank you.

Charles Duncan - JMP Securities

And thank you for taking my question. I had questions about next year in terms of the expenses structure of the income statement. Can you provide us a little bit of color as to what you’re anticipate the R&D and SG&A expense to be?

Bill LaRue

Good morning, Charles. This is Bill. We will provide guidance for next year with our fourth quarter call. And so that will be in late of February, it’s typically when we provide that guidance. We continue to have a significant expenditure in terms of the CMC and other related activities.

So, I think, the trends that you’re seeing are consistent, but we’ll provide more specific guidance in that timeframe.

Charles Duncan - JMP Securities

Okay. Perhaps you can help us to understand a little bit about the timing of both pre-commercialization manufacturing investment, as well as investment and marketing efforts? And then finally just review, I forgot, what the milestone requirements were for IV APAP as you file that, are there any that you need to payout?

Bill LaRue

Okay. I’ll take that first the payments for Acetavance, the first payment we have is on NDA approval.

Charles Duncan - JMP Securities

Okay.

Bill LaRue

So that would not effect the income statement in 2008. As we move through the year, we’ll actually see expenses ramp down from the clinical trials, as we complete those trials with both progress. It will be reasonably consistent in terms of the manufacturing expenses in terms of what we’ve seen this year and as we have complete the built-out. We’ll see those drop-off and they’re really is an offset by increases in the marketing spend, which will see some reasonable increases next year.

Charles Duncan - JMP Securities

Okay, good. I think, we can imagine kind of where it’s gone? Thank you for that added color. Quickly turning to Jim, with regard to laparoscopic surgery trial that’s a need trial. But, let me ask you is there any specific feedback from the FDA that you’re responding to? Or is that really just a response to where the current trends are in the marketplace?

Jim Breitmeyer

Charles, the primary purpose is to broaden the label and to reflect changes in the marketplaces, and we’re not responding to any specific concerns from the FDA.

Charles Duncan - JMP Securities

Okay. Good. Thanks for that added help.

Ted Schroeder

Yes. This is Ted. One of the things as we understand the market better and understand the use of the acetaminophen in the hospital. One of the things that we realized is about 50% of all acetaminophen used in the hospital is at the 650 milligram dosage.

And so, this is an attempt to provide a dosing guidance for dosage that physicians are familiar with and comfortable using in the hospital settings.

Charles Duncan - JMP Securities

Excellent. Thanks for that, Ted.

Ted Schroeder

You bet.

Operator

We’ll take our next question from Greg Fraser with Merrill Lynch.

Greg Fraser - Merrill Lynch

Good morning guys. Thanks for taking the question.

Ted Schroeder

Good morning, Greg.

Greg Fraser - Merrill Lynch

How should we think about the incremental hospital for last two or three study relative to what you’re already spending on the APAP program?

Ted Schroeder

Greg, it’s actually a relatively small incremental spend in terms of that, it’s not going to move the needle in terms of year-over-year expenses.

Greg Fraser - Merrill Lynch

Okay. And you expect to have the full data that included in the initial NDA submission.

Ted Schroeder

That is correct.

Greg Fraser - Merrill Lynch

Okay. And what’s the latest status on Bristol’s ongoing study?

Ted Schroeder

The Bristol-Spanish study is continuing to be pushed forward by Bristol; although, it seems with a, for the relatively low sense of urgency since it is a study that was designed primarily to support the Spanish orthopedics model.

It is not necessary for our NDA. And so, we will take the data when we get it. It will be included in the NDA, but it’s not part of core package.

Greg Fraser - Merrill Lynch

Okay. So, that couldn’t have negatively impact yours filing timing because you don’t…

Ted Schroeder

That’s correct. Yes, we are not relying on it. And so, whatever I mean we do believe that we’ll have data before our NDA, but we are not relying on it and we think that, it has very limited, if any, way that it could negatively impact our NDA.

Greg Fraser - Merrill Lynch

Okay. Thank you.

Ted Schroeder

Other questions.

Operator

And we’ll take our next question from Angela Larson, FIG.

Angela Larson - FIG

Good morning. Thanks for taking the question. I wanted to tie together a couple of your answers on the new studies, given that, it wasn’t inspired by comments from the FDA. But from our goals of expanding the label, and partially because you wanted to look to at the 650 milligram dose, is it fair to seem that you don’t have a lot of data available on those dosing of that spread?

Jim Breitmeyer

Hi. This is Jim, Angela, that’s correct. Bristol-Myers did not study a 650-milligram dose at all, and we don’t have as much color about our prescribing practices in Europe. But we did as, Ted mentioned, we did find that the 650-milligram dose is, remains in common use in among hospitals physicians. So, IMF data showed for example, that there are a lot of 325-milligram regular strength acetaminophen tablets being sold, within the hospital.

Angela Larson - FIG

Okay. And then as you've been going to release trials. How has the enrollments been, has the physician and patient community been receptive to the IB formulation?

James Breitmeyer

Absolutely, enrollment has been very brisk. We completed enrollment of our gynecologic surgery study ahead of schedule.

Angela Larson - FIG

Fantastic, thank you.

Operator

(Operator Instructions) and we’ll take a follow-up from Charles Duncan of JMP securities.

Charles Duncan - JMP securities

Thanks guys for taking the follow-up. I wanted to ask you about your current thoughts about the marketplace relative to the pricing flexibility that you may have certainly compared to the reference pricing in Europe. I don’t expect that you name a price but what’s your thought there and the logic behind it in terms of medical value add?

James Breitmeyer

Sure Charles, as you know from a medical value add, there is a pretty big whole in the armamentarium in the U.S. with only opioids and a single NSAID available to treat acute pain in the hospital.

So the flexibility among prescribers in the U.S. is limited because of the certainly the side effects of both the opioids and the NSAIDs particularly bleeding with NSAIDs. So the chance to do multi-model approach to managing pain is somewhat limited in the U.S.

And that’s where we see acetaminophen really filling beyond that need as the first drug on board, and then opioids principally will be added to that if pain increases. And that of course, is where we see in well-controlled clinical trials between a 33 and a 50% reduction in opioids consumption, which is certainly clinically meaningful.

From a pricing perspective, we anticipate and we've discussed this before our price in the eight to $10 price range, that is comparable to the price of IV acetaminophen in the Northern European countries where Bristol prices the product between $7 and $9 per dose.

That’s also consistent with the price of Toradol when it was branded 10 years ago, which was also about $7 a dose. And of course, both drugs are administered four times a day. We continue to do market research around pricing although we were not complete a formal pricing study until just before launch.

And I don’t anticipate, we’ll say anything more specific about pricing until we launch the product. But I think we are highly confident based on our ongoing market research that the $8 to $10 price range is acceptable, and is the assumption that we have on in our models.

Charles Duncan - JMP securities

Ted, is kind of an academic question. But, do you have any Pharmacoeconomics studies ongoing that you’ll be able to provide at least to the marketplace after FDA approval helping the market to understand really the value add here. Or is it going pretty obvious to hospital administrators?

Ted Schroeder

Well, I think it's going to pretty obvious. And I’ll give you an example of market research study that we just completed. The extensive study, talking to prescriber’s potential prescribers. So, these are orthopedic surgeons, general surgeons, GYN surgeons et cetera.

More than 70% of the respondents when asked, what their adoption of IV acetaminophen would be? So when would they first adopt the product? At the standard market research question in new product planning, are they early adopters?

Are they somewhat late adopters? Are they lagers? Et cetera. When 70% of they responded and said that they would immediately begin prescribing IV acetaminophen. So, it's seems apparent to us the physicians clearly understand the role to product and where it fits. And that group of physicians also was anticipating a price between $8 and $10 of dose.

So, you think it's, rather say, of evident. Although in our ongoing clinical trials we are collecting data that would be basis for our Pharmacoeconomic analysis once the primary end points and the primary goals of the study are completed. We'll then take those data and turn them into a Pharmacoeconomics rational as well.

Charles Duncan - JMP securities

It's helpful. And I know I’ve ask you this before, but do have any news to ask on kind of a size of the sales force that you’ll use to market this drug?

Ted Schroeder

Yeah, we believe that we need to penetrate 2,000 hospitals, which will get us to 80% of the market potential. And to do that we anticipate a sales force between 150 and 200 sales reps.

Charles Duncan - JMP securities

Okay. Super. Thanks for the added information.

Ted Schroeder

Thank you, Charles.

Operator

And we’ll take our next question from Matthew Jacobson of BDR Research.

Ted Schroeder

Good morning Matt.

Matthew Jacobson - BDR Research

Hi, thanks for taking my question. I just wanted quickly if you could give a little color on the timelines for the data analysis for the Jovian trial? So figuring the last patient enrolled late August early September, 30-day follow up considering at the beginning of October.

Where are you guys at this point, has the database been locked or are you beginning to punch numbers, any color on the process that would be great?

Jim Breitmeyer

Sure Matt. This is Jim. The timeline is that we are in the data-cleaning phase.

Matthew Jacobson - BDR Research

Okay.

Jim Breitmeyer

And also we're doing some routine and fairly typical auditing of data. So making sure that what's in the case report form, is what is in the database. And then after that it will be database lock, we are planning to have the after unblinding then we're going to have the -- which doesn’t happen yet, we're going to have the CRO work independently from the company for a while, on the analysis to make sure that all of the data go through the analytical process and clean.

I am sure you know that sometimes when data are unblinded that anomalies pop-up, they need to go back and be corrected and so we want to remain blinded. Well, that final phase of data analysis comes up.

Then after that a small group within the company will be involved in looking at the unblinded data and then shortly after that then we would plan to announce topline results. So we remained on track for our early '08 announcement of topline results.

Matthew Jacobson - BDR Research

Great. Thanks. That is helpful.

Operator

(Operator Instructions) And at this time, there are no further questions. I'd like to turn the call back over to Mr. Schroeder for any closing remarks.

Ted Schroeder

Well, thank you all again for participating in our third quarter 2007 financial results and development highlights conference call. And have a great rest of the day. Thank you.

Operator

Ladies and gentlemen, this concludes our conference call for today. You may now disconnect.

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