CV Therapeutics, Inc. Q2 2008 Earnings Call Transcript

Executives

John Bluth - IR

Louis Lange - Chairman and CEO

Dan Spiegelman - CFO

Analysts

Jim Birchenough - Lehman Brothers

Thomas Wei - Piper Jaffray

Eric Schmidt

George Zavoico - Cantor Fitzgerald

Brett Andy - Private Investor

CV Therapeutics Inc (CVTX) Q2 2008 Earnings Call July 31, 2008 5:00 PM ET

Operator

Good afternoon. At this time, I would like to welcome everyone to the second quarter 2008 Earnings Call. (Operator Instruction).

Mr. John Bluth, you may begin your conference.

John Bluth

Thank you very much. Welcome to the CV Therapeutics second quarter earnings 2008 earnings conference call. I am joined today by Dr. Louis Lange, our Chairman and Chief Executive Officer and Dan Spiegelman, our Chief Financial Officer.

Let me remind everyone that some of the following remarks may include forward-looking statements. These statements include those relating to our future product development, regulatory review and approval of our products, clinical programs, commercialization efforts and financial performance. The company's actual results may differ materially from those suggested here. I encourage you to review the cautionary statements contained under the heading risk factors in our annual report on Form 10-K and other documents that we have filed with the SEC for additional information concerning factors that could cause differences. We disclaim any intent or obligation to update these forward-looking statements.

Ranolazine has been approved in the United States by the FDA and in Europe by the EMEA for its specified indications. Lexiscan has been approved in the United States by the FDA for its specified indication. Our other pipeline product candidates have not been approved by the FDA or regulatory authorities outside the United States.

CV Therapeutics pipeline product candidates have not been determined to be safer effective in human training uses. Now, I would like to turn the call over to Lou to provide a business update. Following Lou's remarks, Dan will provide a financial review for the quarter.

Louis Lange

Thanks John, and thanks to all of you for joining our call this afternoon. It is very exciting to talk with you today about our results in the second quarter, which were exceptional by many measures. Top line Ranexa revenues were $25.4 million representing our ninth consecutive quarter of revenue growth and an overall increase of more than 15% over Q1 and with particularly strong sales growth in the Northeast, our largest potential region.

Even with our existing restrictive labeling, we are growing the business consistently and now tracking to over a $100 million in annualized net sales of Ranexa for 2008. Also in Q2, the FDA approved Lexiscan, which triggered a milestone payment of $12 million from our partner, Astellas.

Astellas also moved quickly to launch Lexiscan and we are very pleased to recognize our first royalty revenue from Lexiscan products sales in Q2. In future quarters, we may also begin receiving royalties on another Astellas product. We also significantly strengthened the balance sheet this quarter. Following the Lexiscan approval; we announced a $185 million non-dilutive financing transaction with TPG-Axon Capital. And over the course of the quarter, we repurchased $53 million of our convertible debt at a discount to face value.

In April, we received a positive opinion in Europe for ranolazine for the symptomatic treatment of patients with stable angina who were inadequately controlled or intolerant to first-line antianginal therapies.

Earlier this month, we have received the marketing authorization from EMEA for all 27 countries of the EU. The approved European labeling, which the EMEA made available publicly early today, reflects data from the MERLIN TIMI-36 and other recently reported studies, including data showing statistically significant reductions in ventricular arrhythmias with ranolazine.

The labeling also notes the ability of ranolazine to reduce cellular calcium overload which is expected to improve myocardial relaxation and decrease left ventricular diastolic stiffness. We have also received a positive opinion from the EMEA for the use of brand name Ranexa in the EU; this should be finalized in the next 30 days.

We continue to have numerous partnership discussions of interest and expect to have on the lines concluded for Ranexa that would allow to us to generate revenues from European ranolazine sales in the first half of 2009. European sales of ranolazine would represent a potential fourth product-related revenue stream for CVT.

In the US, we are working hard to continue growing the business. We had another big Managed Care win this quarter, as we signed a contract with one of the largest Part D payers in the country, adding over 5 million additional Medicare Part D payers at Tier 2.

Our total number of commercialized cover at Tier 2 has risen to about 130 million. Overall, more than 575,000 Ranexa scripts have been written for more than 125,000 patients since launch, and we continue to get excellent feedback from doctors and patients.

As I mentioned, we are consistently growing the Ranexa business with the existing restrictive Ranexa labeling. Of course, we believe there is substantial additional opportunity for Ranexa that exists with potential label expansion.

We announced on Monday that the FDA did not take action on the PDUFA date of July 27, and the agency is continuing to review our pending application for Ranexa, seeking a first line angina indication and promotable claims for reduction of hemoglobin A1c and V-tach in patients with coronary disease.

The FDA has informed us that the company should receive draft labeling in the next few weeks. In accordance with a special protocol assessment agreement between the FDA and CVT, we believe that the data from MERLIN TIMI-36 should support expansion of the existing Ranexa indication of first line angina.

We remain very confident that we are on a path to renew Ranexa labeling, and will be better than existing labeling, but we do not have any information to share yet. In addition to this substantial progress we have made with Ranexa and Lexiscan, the pipeline continues to offer multiple opportunities.

Our partner Biogen Idec announced last week that they intend to advance to dentary in the Phase III clinical trials in Q3 for patients with acute decompensated heart failure. We are pleased to see continued progress to this dentary program, and note that the start of this Phase III program would trigger additional milestones for CVT.

The potential for additional Ranexa indications, such as atrial fibrillation and diabetes also remains of continued interest, and we are on track to submit an MAA for regadenoson to European regulatory authorities by the end of 2008. The future of CVT is very promising and we remain confident that our R&D investment over the last decade will continue to generate returns for shareholders.

Now I would like to turn the call over to Dan for a review of the outstanding financial quarter.

Daniel Spiegelman

Thank you, Lou. Earlier today, we issued our second quarter financial press release which was our best quarter ever for Ranexa sales and total revenues and our lowest quarterly loss since 1998. Complete details are available in the press release, so I encourage you to refer to that document for further information.

Starting with revenues, for the quarter ended June 30, 2008, we recorded total revenues of $51.6 million and total net product sales of Ranexa of $25.4 million. The $25.4 million of net Ranexa product sales represents an increase of 15% compared to the $22 million recorded in the prior quarter and a 56% increase compared to the $15.3 million in the same quarter a year ago.

With $25.4 million in quarterly net sales, we are now generating sales at an annual run rate in excess of $100 million per year. The 15 % increase in net product sales quarter-over-quarter was driven by both; an 8% increase in end user demand as measured by TRx, reported by IMS; and an increase in inventory at both, the wholesale and pharmacy level.

Increased inventory was driven in part by increased weekly demand and also by a small increase in weeks of inventory on hand, primarily at the pharmacy level. Total revenues this quarter included $4 million of royalty revenue related to Lexiscan, which was approved and launched this quarter. The $4 million includes $2.6 million from the amortization of the $175 million upfront payment we received in exchange for rights to 50% of our royalty on North American sales of Lexiscan, and $1.3 million of royalty revenue generated from sales of Lexiscan by Astellas during the quarter.

The $22 million of license collaboration and other revenue included $12 million relating to a milestone payment from Astellas associated with approval of Lexiscan and $10 million relating to a milestone payment from TPG-Axon capital associated with the commercial launch of Lexiscan.

Turning now to total costs and expenses. Costs and expenses were $56.8 million for the quarter ended June 30, 2008. This compares to total cost and expenses of $53.1 million for the prior quarter. The increase for the quarter ended June 30 compared to the prior quarter was primarily due to higher Ranexa marketing and sales expenses.

Net in revenues and expenses, for the second quarter we reported a net loss of $4.3 million, or $0.07 per share. This compares to a net loss of $31.9 million, or $0.53 per share for the prior quarter and $57.6 million, or $0.97 per share for the same quarter in 2007.

At June 30, the company had cash, cash equivalents, marketable securities and restricted cash of $274.7 million, compared to $151 million at March 31. During this quarter we had several unusual events which affected cash flow. As previously discussed, we received two payments totaling $185 million from TPG-Axon Capital in exchange for 50% of our rights to North American sales of Lexiscan.

In addition and previously mentioned, we received a 12 million milestone from Astellas upon FDA approval. Offsetting these cash inflows, $48.4 million was used to repurchase $53 million face value of our convertible subordinated notes, and in addition to that we made an estimated cash payment of $3.2 million associated with an alternative minimum pass, due primarily as a result of the cash received from the TPG-Axon Capital transaction.

Excluding these unusual cash items, our cash utilized for the quarter ended June 30, 2008 was $21.7 million. So, we ended the second quarter in a very solid financial position. Sales of Ranexa continued to grow, even prior to a potential label change. With this sales growth and the royalty revenue resulting from the Lexiscan approval received in early April, we are solidly on track to exceed $100 million in total product sales and royalties for 2008, even with the current Ranexa label.

With the cash received from TPG-Axon and taking into consideration that we will have a $9 million milestone payment to Roche in the third quarter for Ranexa approval in Europe, we anticipate ending the year with at least $200 million in cash, cash equivalents and marketable securities, not including the possible effect of any potential future bond repurchases.

As noted earlier, cash utilized was $21.7 million in the second quarter and $28 million in the quarter before that. Moreover, with respect to guidance, we expected the total operating expenses, not including cost of goods, will be approximately $220 million for calendar year 2008.

So in summary, the second quarter was an important and successful quarter from a financial perspective. We reached a new high in Ranexa revenues and are now on a $100 million per year annual run rate. And, we now have the regulatory approvals that will give us four revenue sources, Ranexa sales in the US, Ranexa revenues from Europe, Lexiscan royalties and royalties from another Astellas product. Moreover, we strengthened our balance sheet both through a $185 million non-dilutive financing and the retirement of $53 million in convertible debt.

Now I will turn the call over to the operator for Q&A.

Question-and-Answer Session

Operator

(Operator Instruction). Your first question comes from the line of Jim Birchenough with Lehman Brothers.

Jim Birchenough - Lehman Brothers.

Guys, congratulations on the quarter.

Louis Lange

Thanks, Jim.

Jim Birchenough - Lehman Brothers.

So, just a question on the process with FDA right now around the Ranexa label, you mentioned that you should get a draft label within the next few weeks. Is this really the first draft label you are getting from FDA, does that begin a process, or is this a final label that you are expecting within the next few weeks? And maybe if you just gave us a few more details on this process?

Louis Lange

Jim, this will be the first look that we have had at the label on how far away it is from the final label, we do not know, but it begins a process of labeled discussion, but we are very pleased to be getting a label and it shows that we are making a fair amount of progress.

Jim Birchenough - Lehman Brothers.

And so, just to clarify, at this point you are not too certain on what the final timelines will be for final label?

Louis Lange

No, we do not have any clarity right now. The point of the fact is, the label's coming and so they are getting there.

Jim Birchenough - Lehman Brothers.

And then, just following up on that, you have got a number of strategic questions in front of you, including the partnership you alluded to for ex-US Ranexa. What happens if the final label gets delayed in the US? How do you think about the choice between a global partnership and an ex-US partnership if you don't have the final label to use to make that decision with?

Louis Lange

Well, I don't think the label is necessarily the driver of partnership discussions. It is important, but partners are very sophisticated at looking at data and where the future may lie. That having been said, we need to partner Europe whether it is approved, it is a great label, there is revenue lying there. We are on a timeframe to conclude a partnership in time to launch it in Europe in the first part of next year. Whether it involves broader rights than that is a question that depends on how opportunistic we can be. But this is not a tab low; this is something that can evolve overtime. We are very happy with current sales and current sales growing the way they are has only increased any potential deal that we might consider doing in the US.

Jim Birchenough - Lehman Brothers.

Great. Thanks for taking the questions.

Louis Lange

Thanks, Jim.

Operator

Your next question comes from the line of Thomas Wei with Piper Jaffray.

Thomas Wei - Piper Jaffray

Thanks. I had two questions. One was if you had the number of prescribing cardiologists and internists during the second quarter for Ranexa, and then whatever market research you can share with us that you have done on what the potential impact of that. The FDA, if approved would be on usage patterns for Ranexa, what should we expect?

Louis Lange

We have about 12,300 cardiologists that have written at least a script on Ranolazine and we have about $31,000 doctors that have written scripts all together, the rest being mostly internists and primary care docs. We have done a tremendous amount of market research, Thomas, on what we could expect from new label variations, but it would be premature to share anything with the Street.

I think that the label will be better. I think it will be suitable for internal medicine and primary care. I think it will be very attractive to cardiologists. What flavor we end up with, I do not know yet, but the data is the data. The MERLIN study is very solid. I think everybody knows that and I think the label will reflect the data that we have in over 10,000 patients in controlled clinical studies, as well as over two years in the marketplace with no new safety concerns being raised.

Operator

Your next question comes from the line of Eric Schmidt.

Eric Schmidt

Lou, in terms of the Ranexa US regulatory review path, do you expect at some point to get a complete review letter, starting a new review cycle, or do you think this label discussion will just extend out without any new PDUFA clock and…?

Louis Lange

I think it is more the latter. I think the fact that we are getting a draft label sometime soon reflects the fact that they are nearing the end of the process. They are not at the end obviously, but they are nearing the end. They have gotten past on the bulk of it and now comes the more interesting stuff.

Eric Schmidt

Okay. And Dan, in terms of the $1.3 billion of Lexiscan royalties in the quarter, that is all Lexiscan, so there is no Adenoscan payment in that?

Daniel Spiegelman

Correct. Correct. Adenoscan, if you remember, the other product that we might be entitled to revenues on would not start until the third quarter.

Louis Lange

And remember, Eric, Lexiscan launch was in mid-to-late June, so that represents a couple weeks of sales or whatever.

Eric Schmidt

I mean, so I read this, they basically sold $13 million worth of end user sales in that short period, is that correct?

Daniel Spiegelman

Yes, that is a reasonable reverse engineering of the number, yes.

Eric Schmidt

And, basically that is stocking or how should we think about that?

Daniel Spiegelman

Yes, that is a little harder for us to comment on, because they are the seller of the product. It would certainly be logical that there would be stocking at the very beginning.

Eric Schmidt

Okay. So we will have to just follow their end user sales?

Daniel Spiegelman

Yes.

Eric Schmidt

Okay. Thank you.

Louis Lange

Okay.

Operator

(Operator Instructions) Your next question comes from the line of George Zavoico with Cantor Fitzgerald.