Executives
Bill LaRue - Senior Vice President and Chief FinancialOfficer
Ted Schroeder - President and Chief Executive Officer
Jim Breitmeyer - Executive Vice President and Chief MedicalOfficer
Analysts
Charles Duncan - JMP Securities
Greg Fraser - Merrill Lynch
Angela Larson - FIG
Charles Duncan - JMP securities
Matthew Jacobson - BDR Research
Cadence Pharmaceuticals, Inc. (CADX) Q3 2007 Earnings Call November 15, 2007 8:30 PM ET
Operator
Good morning, and welcome to the Cadence Pharmaceuticals'Third Quarter 2007 Financial Results and Clinical Update Conference Call. Atthis time, I would like to inform you that this conference is being recordedand that all participants are in a listen-only mode. At the request of thecompany we will open the conference up for questions-and-answers after themanagement presentation (Operator Instructions).
Our first speaker is Bill LaRue, Senior Vice President andChief Financial Officer of Cadence Pharmaceuticals. Go ahead, sir.
Bill LaRue
Thank you. Good morning, everyone, and thank you for joiningus today. Before we get started, I would like to remind everyone thatstatements made during this conference call that are not a description ofhistorical facts are forward-looking statements.
These include statements regarding the timeframes in whichwe expect to complete and disclose results from our clinical trial and to fileapplications for regulatory approval of our product candidates, the indicationsfor use that maybe included in such applications, the likelihood that resultsof our clinical trails will be sufficient to support regulatory approvals, ourexpectations 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 currentexpectations, but our actual results may differ materially from those presentedin this conference call, due to the risks and uncertainties inherent in ourbusiness, including without limitation, our dependence on the success ofAcetavance and Omigard, any delays or significant regulatory issues we mayexperience concerning our clinical trials, unexpected adverse side effects orinadequate therapeutic efficacy of our product candidates that could delay orprevent the regulatory approval or commercialization or that could result inrecalls or product liability claims, the adequacy of our clinical trialdesigns, delays or quality issues in developing testing and manufacturing Acetavanceor Omigard, the market potential for our product candidates and our ability tocompete in our targeted markets, fluctuations in quarterly and annual financialresults are needed to obtain substantial additional financing to complete ourproduct development plans, the potential that we may not be able to raise,sufficient capital were needed, and other risk detailed in our prior pressreleases and our periodic public filings with the Securities and ExchangeCommission.
You are cautioned not to place undue reliance on theseforward-looking statements, which speak only as of today’s date. Allforward-looking statements are qualified in their entirety by this cautionarystatement and we undertake no obligation to revise or update the informationpresented in this conference call to reflect events or circumstances after thedate hereof. This caution is made under the Section 21E of the PrivateSecurities Litigation Reform Act of 1995.
If any one has not seen our third quarter 2007 financialresults press release issued yesterday, you can access it on our website at www.cadencepharm.com. Additionally thisconference call is being webcast through the company’s website and will bearchived there for future reference.
On the call with me today are, Ted Schroeder, our Presidentand CEO, and Dr. Jim Breitmeyer, our Executive Vice President and Chief MedicalOfficer.
I will now turn the call over to Ted.
Ted Schroeder
Good morning, everyone, and thank you for joining us todayto discuss Cadence's third quarter 2007 and year-to-date financial results. Inaddition to reviewing our financial results, we will also provide you with anupdate of our ongoing clinical development programs and recap the key milestoneswe anticipate achieving in the next 12 months and beyond. Following thefinancial and clinical overview, we will open the call for your questions.
As you know, we currently have two Phase III productcandidates in our clinical development pipeline. Intravenous acetaminophen forthe treatment of acute pain and fever in adult and children and Omigard atopical antimicrobial gel, for the prevention of catheter-related infections.
We are pleased to announce that we have recently branded ourIV acetaminophen product candidate, with the brand name Acetavance and haveapplied to registered this trademark with the U.S. and Canadian patent andtrademark offices.
We continue to believe that our product candidates have apotential to satisfy unmet medical needs. We think that if approved Acetavancewill be well positioned as the potential foundation for our multimodal approachto managing acute pain and fever in hospitalized adult and children, who cannotreadily take medication by now.
As many of you are well aware there has been an increasinglevel of public awareness surrounding the need for new more effective ways tolower hospital site infection rates.
According to a recent high profile study drug resistancestiffens and effects more than 90,000 Americans a year and contributes to morethan 18,000 deaths. Although a large portion of these infections occur outsideof hospitals, they are believe to originate primarily in the hospital setting.
As results there is increased pressure on HealthcareOrganizations to demonstrate that they have procedures and resources in placeaimed at reducing MRSA infections. We therefore believe, that due to broadBactericide or in fungicidal activity, we have seen preliminary studies, ifapproved, our product candidate Omigard maybe well positioned to address thegrowing medical need for preventing catheter-related infections. In otherhighlights, we are also pleased to report that effective with the marketopening on Monday, November 19, Cadence will be included in the NASDAQ biotechnologyindex.
This index is the basis for the iShares NASDAQ BiotechnologyIndex Fund as well as options traded on several exchanges. I’ll now turn thecall over to Bill for an overview of our third quarter and year-to-datefinancial results.
Bill LaRue
Thanks Ted. For the three months ended September 30th, 2007we reported a net loss of $13 million or $0.45 per share compared to a net lossof $7.8 million or $6.01 per share in the third quarter of 2006.
After September 30th, 2007 we held cash and cash equivalentsof $54.5 million. Total operating expenses for the third quarter were $13.6million compared to $8 million for the third quarter of 2006. This increase wasprimarily due to the following items.
A $4 million increase in R&D expenses, personnel costand regulatory cost associated with our ongoing Phase-III clinical trials ofOmigard and Acetavance and pre-commercialization manufacturing developmentactivities for Acetavance as well as a $1.2 million increase in general andadministrative expenses due to increases in salaries and personnel costs,including stock-based compensation charges and costs related to operating as apublic company.
For the nine-months ended September 30th, 2007 we reported anet loss of $37.5 million or $1.31 per share compared to a net loss of $43.2million 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 toa one-time $25.3 million initial license fee incurred during the first quarterof 2006, in connection with our acquisition of the rights to Acetavance and itwas offset-by the following items.
A $16.5 million increase in cost during the first ninemonths of 2007 related to our ongoing Phase-III clinical trials of Omigard andAcetavance, pre-commercialization manufacturing development activities for bothproduct candidates, personnel related costs due to the planned hiring of staffto support the clinical and regulatory efforts and a $3.5 million increase ingeneral and administrative expenses due to increases in salary and relatedpersonnel costs, including stock-based compensation charges, depreciationexpenses and costs related to operating as a public company.
In terms of guidance for the full year 2007, we expect ourtotal operating expenses for the year will be between $54 million and $57million, which is lower than the previous anticipated range of $57 million to$60 million.
The reduced operating expense projections includeapproximately $4 million in non-cash stock base compensation and reflectchanges in the timing of our pre-commercialization manufacturing developmentexpenditures and the initiation of certain planned clinical trials.
We anticipate the cash and cash equivalence at December 31st2007 will be between $37 million and $40 million.
With that I’ll now turn the call over to our Chief MedicalOfficer 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 ofAcetavance for the treatment of fewer in adults. One study compares Acetavanceto placebo and the other compares Acetavance to orally-administeredacetaminophen.
You might recall that in August 2007, we also completedenrollment in a pivotal Phase III clinical trial of Acetavance for the treatmentof post-operative pain following abdominal gynecological surgery.
As previously communicated, we anticipate announcing the topline results from all three of these studies in early 2008. In line withprevious guidance, we also plan to initiate two multi-day safety studies ofAcetavance, one in adult and one in pediatric patients, in the fourth quarterof 2007.
In addition to these planned trials, in the fourth quarterof 2007, we also plan to initiate a Phase III clinical trial of Acetavance forthe treatment of mild to moderate pain in adults following abdominallaparoscopic surgery.
The new trial is a randomized double blinded multi-centerstudy of 240 subjects and is designed to evaluate the safety and efficacy oftwo doses of Acetavance compared to placebo that is 1,000 milligram every sixhours and 650 milligrams every four hours.
The primary endpoint for the study will be some painintensity differences from base line over 24 hours at a key value below 0.05and it will be powered at the 90% level. The rational for the addition of thisnew study to our on going clinical development program is based on thefollowing factors.
Less invasive surgeries such as laparoscopy on anincreasingly common form of surgery and we should provide physicians withdosing information in these less invasive surgeries.
The additional study has intended to support a broaderproposed label for Acetavance by providing safety and efficacy data at twodifferent doses and dose intervals.
If our studies are successful and then NDA for r Acetavanceis approved and expanded label may potentially expand the market opportunityfor this product candidate to include patients with less severe pain. And thedata for patients with mild to moderate acute pain, will supplement the resultfrom the more severe pain modeled studied in our other clinical trials of theAcetavance.
Importantly, the addition of the new study is not expectedto negatively impact our NDA filing timeline for Acetavance. We anticipatecompleting enrolment in the study. In the second quarter of 2008, and assuminga successful completion of all of our clinical trials of Acetavance.
We remained untarget to submit our 505(b)(2) NDA for thisproduct candidate to the FDA in the second half of 2008. Switching gears to ourOmigard clinical program for a moment, we continue to be pleased with itsprogress.
You may recall that earlier this year, we have increased thetarget enrolment in our ongoing Phase III clinical trial of Omigard from 1250to 1850 patients and had completed enrolment of our original target of 1250patients ahead of plan.
Based on our current enrolment rates, we continue toanticipate completing enrolment of our total goal of 1850 patients in thesecond quarter of 2008 and, if the results are positive, we plan to submit anew drug application for Omigard in the first half of 2009.
With that I will now turn the call back to Ted, for hisclosing remarks.
Ted Schroeder
Thanks, Jim. I'd like to wrap up the management reviewportion of today’s call by restating our continued commitments to meeting ourclinical, regulatory and pre-commercialization goals and objectives for both ofour product candidates, Acetavance and Omigard.
At this point, I’d like to turn the call back to theoperator and open the line for questions. Operator?
Question-and-Answer Session
Operator
Our first question comes from Charles Duncan, JMPSecurities.
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 quarterprogress.
Bill LaRue
Thank you.
Charles Duncan - JMP Securities
And thank you for taking my question. I had questions aboutnext year in terms of the expenses structure of the income statement. Can youprovide us a little bit of color as to what you’re anticipate the R&D andSG&A expense to be?
Bill LaRue
Good morning, Charles. This is Bill. We will provideguidance for next year with our fourth quarter call. And so that will be inlate of February, it’s typically when we provide that guidance. We continue tohave 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 bitabout the timing of both pre-commercialization manufacturing investment, aswell as investment and marketing efforts? And then finally just review, Iforgot, what the milestone requirements were for IV APAP as you file that, arethere any that you need to payout?
Bill LaRue
Okay. I’ll take that first the payments for Acetavance, thefirst 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 wemove through the year, we’ll actually see expenses ramp down from the clinicaltrials, as we complete those trials with both progress. It will be reasonablyconsistent in terms of the manufacturing expenses in terms of what we’ve seenthis year and as we have complete the built-out. We’ll see those drop-off andthey’re really is an offset by increases in the marketing spend, which will seesome 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 tolaparoscopic surgery trial that’s a need trial. But, let me ask you is thereany specific feedback from the FDA that you’re responding to? Or is that reallyjust a response to where the current trends are in the marketplace?
Jim Breitmeyer
Charles, the primary purpose is to broaden the label and toreflect changes in the marketplaces, and we’re not responding to any specificconcerns 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 themarket better and understand the use of the acetaminophen in the hospital. Oneof the things that we realized is about 50% of all acetaminophen used in thehospital is at the 650 milligram dosage.
And so, this is an attempt to provide a dosing guidance fordosage that physicians are familiar with and comfortable using in the hospitalsettings.
Charles Duncan - JMP Securities
Excellent. Thanks for that, Ted.
Ted Schroeder
You bet.
Operator
We’ll take our next question from Greg Fraser with MerrillLynch.
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 lasttwo or three study relative to what you’re already spending on the APAPprogram?
Ted Schroeder
Greg, it’s actually a relatively small incremental spend interms of that, it’s not going to move the needle in terms of year-over-yearexpenses.
Greg Fraser - Merrill Lynch
Okay. And you expect to have the full data that included inthe initial NDA submission.
Ted Schroeder
That is correct.
Greg Fraser - Merrill Lynch
Okay. And what’s the latest status on Bristol’s ongoingstudy?
Ted Schroeder
The Bristol-Spanish study is continuing to be pushed forwardby Bristol; although, it seems with a, for the relatively low sense of urgencysince it is a study that was designed primarily to support the Spanishorthopedics model.
It is not necessary for our NDA. And so, we will take thedata when we get it. It will be included in the NDA, but it’s not part of corepackage.
Greg Fraser - Merrill Lynch
Okay. So, that couldn’t have negatively impact yours filingtiming 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 arenot relying on it and we think that, it has very limited, if any, way that itcould 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 totie together a couple of your answers on the new studies, given that, it wasn’tinspired 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 itfair to seem that you don’t have a lot of data available on those dosing ofthat spread?
Jim Breitmeyer
Hi. This is Jim, Angela, that’s correct. Bristol-Myers didnot study a 650-milligram dose at all, and we don’t have as much color aboutour prescribing practices in Europe. But we did as, Ted mentioned, we did findthat the 650-milligram dose is, remains in common use in among hospitalsphysicians. So, IMF data showed for example, that there are a lot of325-milligram regular strength acetaminophen tablets being sold, within thehospital.
Angela Larson - FIG
Okay. And then as you've been going to release trials. Howhas the enrollments been, has the physician and patient community beenreceptive to the IB formulation?
James Breitmeyer
Absolutely, enrollment has been very brisk. We completedenrollment of our gynecologic surgery study ahead of schedule.
Angela Larson - FIG
Fantastic, thank you.
Operator
(Operator Instructions) and we’ll take a follow-up fromCharles Duncan of JMP securities.
Charles Duncan - JMP securities
Thanks guys for taking the follow-up. I wanted to ask youabout your current thoughts about the marketplace relative to the pricingflexibility that you may have certainly compared to the reference pricing inEurope. I don’t expect that you name a price but what’s your thought there andthe logic behind it in terms of medical value add?
James Breitmeyer
Sure Charles, as you know from a medical value add, there isa pretty big whole in the armamentarium in the U.S. with only opioids and asingle NSAID available to treat acute pain in the hospital.
So the flexibility among prescribers in the U.S. is limitedbecause of the certainly the side effects of both the opioids and the NSAIDsparticularly bleeding with NSAIDs. So the chance to do multi-model approach tomanaging pain is somewhat limited in the U.S.
And that’s where we see acetaminophen really filling beyondthat need as the first drug on board, and then opioids principally will beadded to that if pain increases. And that of course, is where we see inwell-controlled clinical trials between a 33 and a 50% reduction in opioidsconsumption, which is certainly clinically meaningful.
From a pricing perspective, we anticipate and we'vediscussed this before our price in the eight to $10 price range, that iscomparable to the price of IV acetaminophen in the Northern European countrieswhere Bristol prices the product between $7 and $9 per dose.
That’s also consistent with the price of Toradol when it wasbranded 10 years ago, which was also about $7 a dose. And of course, both drugsare administered four times a day. We continue to do market research aroundpricing although we were not complete a formal pricing study until just beforelaunch.
And I don’t anticipate, we’ll say anything more specificabout pricing until we launch the product. But I think we are highly confidentbased on our ongoing market research that the $8 to $10 price range isacceptable, 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 anyPharmacoeconomics studies ongoing that you’ll be able to provide at least tothe marketplace after FDA approval helping the market to understand really thevalue 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 giveyou an example of market research study that we just completed. The extensivestudy, talking to prescriber’s potential prescribers. So, these are orthopedicsurgeons, general surgeons, GYN surgeons et cetera.
More than 70% of the respondents when asked, what theiradoption of IV acetaminophen would be? So when would they first adopt theproduct? At the standard market research question in new product planning, arethey early adopters?
Are they somewhat late adopters? Are they lagers? Et cetera.When 70% of they responded and said that they would immediately beginprescribing IV acetaminophen. So, it's seems apparent to us the physiciansclearly understand the role to product and where it fits. And that group ofphysicians also was anticipating a price between $8 and $10 of dose.
So, you think it's, rather say, of evident. Although in ourongoing clinical trials we are collecting data that would be basis for ourPharmacoeconomic analysis once the primary end points and the primary goals ofthe study are completed. We'll then take those data and turn them into aPharmacoeconomics rational as well.
Charles Duncan - JMP securities
It's helpful. And I know I’ve ask you this before, but dohave any news to ask on kind of a size of the sales force that you’ll use tomarket 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 anticipatea 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 ofBDR Research.
Ted Schroeder
Good morning Matt.
Matthew Jacobson - BDR Research
Hi, thanks for taking my question. I just wanted quickly ifyou could give a little color on the timelines for the data analysis for theJovian trial? So figuring the last patient enrolled late August earlySeptember, 30-day follow up considering at the beginning of October.
Where are you guys at this point, has the database beenlocked or are you beginning to punch numbers, any color on the process thatwould be great?
Jim Breitmeyer
Sure Matt. This is Jim. The timeline is that we are in thedata-cleaning phase.
Matthew Jacobson - BDR Research
Okay.
Jim Breitmeyer
And also we're doing some routine and fairly typicalauditing of data. So making sure that what's in the case report form, is whatis in the database. And then after that it will be database lock, we areplanning to have the after unblinding then we're going to have the -- whichdoesn’t happen yet, we're going to have the CRO work independently from thecompany for a while, on the analysis to make sure that all of the data gothrough the analytical process and clean.
I am sure you know that sometimes when data are unblindedthat anomalies pop-up, they need to go back and be corrected and so we want toremain blinded. Well, that final phase of data analysis comes up.
Then after that a small group within the company will beinvolved in looking at the unblinded data and then shortly after that then wewould 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 nofurther questions. I'd like to turn the call back over to Mr. Schroeder for anyclosing remarks.
Ted Schroeder
Well, thank you all again for participating in our thirdquarter 2007 financial results and development highlights conference call. Andhave a great rest of the day. Thank you.
Operator
Ladies and gentlemen, this concludes our conference call fortoday. You may now disconnect.
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