Acura Pharmaceuticals (NASDAQ:ACUR)
Q3 2012 Earnings Call
November 7, 2012 8:30 a.m. ET
Peter Clemens - Senior VP and CFO
Bob Jones - President and CEO
Michael Tong - Wells Fargo
Thomas Marks - Bankers & Investors
Good morning ladies and gentlemen, and welcome to the Acura Pharmaceuticals third quarter 2012 results conference call. [Operator instructions.] I’d now like to turn the meeting over to Mr. Peter Clemens, senior VP and CFO. Please go ahead sir.
Thank you and good morning everyone. Thank you for joining us. Before we begin, I’d like to remind you that any discussion that takes place during this conference call may contain forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.
Such statements reflect management’s current view of future events and operations, including but not limited to statements pertaining to the company’s expectations regarding OXECTA, licensed to Pfizer; commercial plans for the NEXAFED product; our ability to enter into additional license agreements for our other product candidates; the ability of our patents to protect our products from generic competition, and the company’s strategy for long term growth.
Forward-looking statements involve certain significant risks and uncertainties, and actual results may differ materially. Given these uncertainties, you should not place undue reliance on these forward-looking statements.
Certain factors that may cause actual results to differ materially from the forward-looking statements are discussed in the company's press release issued yesterday evening and in the Risk Factors section and other sections of the company's Form 10-K for the year ended December 31, 2011, and the form 10-Q for the quarter ended September 30, 2012 as filed with the Securities and Exchange Commission yesterday evening.
Acura does not undertake to publicly update or revise any of its forward-looking statements, even if experience or future changes show that the indicated results or events will not be realized.
I'll now turn the call over to Bob Jones, president and CEO of Acura Pharmaceuticals.
Thanks, Pete. Good morning and thank you for joining us to discuss our third quarter 2012 financial results and corporate update. Let’s start with NEXAFED. NEXAFED is our nonprescription pseudoephedrine product that uses our IMPEDE technology. IMPEDE is an advanced polymer matrix that disrupts the extraction or conversion of the pseudoephedrine into the illicit drug methamphetamine hydrochloride, which is commonly known as meth.
We’ve commenced manufacturing process validation and remain on track to make NEXAFED commercially available to pharmacies in December. We intend to market NEXAFED pursuant to FDA’s OTC monograph regulations that do not require us to submit an NDA or ANDA with the FDA.
We are establishing vendor relationships with several national and regional wholesalers who have expressed willingness to stock NEXAFED, which has the potential to provide distribution and product availability throughout the United States.
We have begun executing a plan to generate awareness of NEXAFED with pharmacists to support stocking of NEXAFED in the pharmacies and generate consumer recommendations by the pharmacists. We have met numerous independent pharmacists from several states at recent trade shows, and have found an enthusiastic level of interest in NEXAFED. These pharmacists appear pleased that we intend to offer NEXAFED at a price comparable to similar branded products.
Now let me provide an update regarding our Aversion opioid products. Aversion opioid products are designed to discourage some of the common methods of tampering associated with the abuse and intentional misuse of opioids. On July 27 of this year, we announced Pfizer decided to return three Aversion opioid products in development to us while continuing to commercialize the approved product, OXECTA.
On September 26, we reached agreement with Pfizer for the immediate return of these three development-stage products, allowing us to reinitiate development and, if approved, commercialize them. We now control the timing and execution of these products, and we believe we have the resources and the expertise to execute the development plan for them.
Our Aversion hydrocodone acetaminophen product is the most advanced of these returned products. Pfizer successfully completed the pivotal study demonstrating bioequivalence of our product to its reference listed drug for both hydrocodone and acetaminophen. Pfizer also held a pre-IND meeting with the FDA in May of 2012.
We expect our clinical development program for our hydrocodone acetaminophen product to consist of five clinical components. First, we’ll need a pharmacokinetic study to establish a bridge to a new contract manufacturer. We will be required to transfer this product from Pfizer’s manufacturing facilities.
This study will also be designed to establish a safety bridge for acetaminophen and for hydrocodone bitartrate, which was requested by the FDA in the pre-IND meeting. Second, we plan to run a pharmacokinetic study demonstrating dose proportionality and evaluating the food effect of our product. This study is consistent with the work Pfizer performed for OXECTA.
Third, we plan to perform a nasal abuse liability liking study against a reference drug. Our challenge in this study will be to eliminate the sequence affect that was observed in a similar study that was run for OXECTA. If we are successful in removing the sequence effect and generate comparable results to those that were observed for OXECTA, we believe our label for the hydrocodone acetaminophen product will be improved.
Fourth, we plan to run a battery of laboratory studies demonstrating extractions, syringing, and particle size characteristics of our product. And finally, we will perform an assessment of the routes of abuse of hydrocodone products as requested by the FDA.
Our IND for the hydrocodone acetaminophen product will include documents and studies transferred to us by Pfizer and we are assessing these. We currently expect to submit an IND for our product with the FDA by the end of 2012, which, if accepted by the FDA, will allow us to commence clinical development in early 2013. Based on the development program outlined above, we anticipate preparing and submitting a 505(b)(2) NDA for our hydrocodone acetaminophen product in the first half of 2014.
In terms of our commercial strategy for our Aversion opioid products, we continue to evaluate possible partnering of our Aversion development products with current strategic partners. Regarding OXECTA, we remain hopeful that Pfizer will reach agreement with the FDA soon on the promotional materials for OXECTA and commence physician education in 2013. Pfizer has marketing capabilities that have the potential to position OXECTA as part of the solution to combat the abuse and misuse of opioids. However, to date, sales remain nominal.
We’ve received paragraph four certification notices from four generic sponsors referencing OXECTA. Each paragraph four certification notice states that the generic sponsor believes that our patents covering OXECTA are invalid, unenforceable, and/or will not be infringed. We had discussions with the FDA as to the apparent discrepancy in allowing these generics to reference OXECTA as a listed drug, despite OXECTA not being considered as a listed drug in the authoritative Orange Book.
The FDA has advised us that the entire class of abuse-resistant drugs, including reference drug listing, is under review. Notwithstanding this FDA review, on October 31 of 2012 we initiated suits against all four generic applicants in the United States District Court for the District of Delaware, alleging infringement of our patent number 7510726. The commencement of these suits prohibits the FDA from granting approval to the NDAs until the earliest of 30 months from the date the FDA accepted the application for filing or the conclusion of litigation.
Our intellectual property strategy for the Aversion technology products is a combination of Orange Book patent listings and regulatory listing. We have three issued patents listed in the Orange Book for OXECTA. Pfizer has received FDA approved labeling for OXECTA containing elements that are unique to the Aversion technology in our patents.
OXECTA’s label differentiates it from the other immediate release oxycodone products on the market, and by designating OXECTA as its own reference listed drug, we believe the FDA will be acknowledging these label differences and the distinctive abuse-resistant benefits of our patented technology imparts on the products.
We believe the FDA’s review of abuse-deterrent products and the reference listing for these drugs was prompted by the enactment of the FDA Safety and Innovation Act. The act requires the FDA to promulgate guidance on the development of abuse-deterrent drug products. This guidance may include the regulatory listing part of our strategy, the pathway for generics to be considered therapeutically equivalent to OXECTA.
Although there can be no assurances at this time, we believe any ANDA that refers to OXECTA should be required to have substantially equivalent, if not identical, abuse-deterrent characteristics to be considered by the FDA as therapeutically equivalent to OXECTA.
Consistent with this reasoning, on September 21, 2012, Pfizer, as licensee of our Aversion technology use in OXECTA, filed a citizen’s petition with the FDA. The petition requests the FDA to require generics to use the same active agreements as those in OXECTA. We believe this approach should be adopted by the FDA in order to ensure that the abuse-resistant performance of the generics is as expected. The FDA has not yet responded to this citizen’s petition, and there can be no assurance as to how the FDA will respond.
I’ll now turn the call over to Pete Clements, who will review our third quarter financial results.
Thanks, Bob. In the third quarter of 2012, we reported a net loss of $2.1 million, or $0.04 per diluted share, compared to a net loss of, again, $2.1 million or $0.05 per diluted share for the same period in 2011. As expected, we did not record any revenue in the three months ended September 30, 2012, as was the case in the same period last year.
Research and development expenses associated with product candidates utilizing the company’s Aversion and IMPEDE technologies were $0.7 million in the third quarter of 2012, compared to $1 million for the same period in 2011. And marketing, general, and administrative expenses were $1.5 million in the third quarter of 2012 versus $1.2 million in the same period last year.
As of September 30, 2012, we had cash and cash equivalents of $29.3 million, and no long term debt. We expect our cash burn to approximate $9 million in 2012 and, depending upon the cost of prosecuting the paragraph four litigation, expect a slightly higher burn in 2013.
Accordingly, we believe we have sufficient resources to develop the hydrocodone with acetaminophen product through NDA filing, as outlined by Bob earlier in the call.
Operator, now we’ll open up the call for questions.
[Operator instructions.] We’ll go first to Michael Tong with Wells Fargo.
Michael Tong - Wells Fargo
Pete, how much would you think the pivotal studies for the hydrocodone product would cost you from now until you’re able to submit the 505(b)(2). And then secondly, maybe for Bob, as you think about commercialization of NEXAFED, how do you think about that from a distribution perspective? Is it going to be behind the counter, over the counter? Just some color on that would be great.
As to the first, we expect that the entire development plan, all the clinical studies, etc., would be probably less than $5 million. And that’s built into our burn that I was talking about earlier. So it’s pretty modest in terms of both the number of subjects that we’re going to have to enroll in some of these liking studies, the duration that they take.
And one thing we like about these studies, while there’s no guarantee of the outcome, clearly we’ve got a lot of experience with the nasal inhalation study and some of the other studies, based upon what happened with OXECTA. So we’re pretty confident to the outcome. We think we’ve got some enhancements on the protocol, as Bob said, that would eliminate some of the deficiencies that we saw in the OXECTA trials that might enable us to get superior labeling.
So we think it’s less than $5 million, and a pretty short time span.
Just a quick clarifier on Pete’s estimate. That does not include the PDUFA fee for the NDA application. Now, with regard to NEXAFED, the single overarching sales restriction from the Combat Methamphetamine Epidemic Act of 2006, that requires all pseudoephedrine products to be placed behind the counter. There also are some local laws that are more stringent than that. For example, Oregon is a prescription-only state, as is the state of Mississippi.
When our product comes out, since it contains pseudoephedrine, we will be under those restrictions. So by and large we will be a nonprescription product in 48 states. We will be behind the counter.
Our long term objective is really twofold. One is to continue to improve upon our technology, which we believe we can do, and the second would be, after we demonstrate some real, practical experience in the marketplace, relative to disrupting meth production, would then be to make applications to these individual states, or to the DEA, in order to get exemptions from some of these behind the counter or prescription requirements.
And we’ll go next to Thomas Marks with Bankers & Investors.
Thomas Marks - Bankers & Investors
I don’t know who wants to answer this question, but since some company has said our patents are not valid - I think that’s the strength of your company, in your patents - has any company to date infringed on your patents, both for the immediate or extended opioids or any of the other [nonopioids] that you have under patent protection?
And I have a few questions. That’s one of them. The other is what is the exact size of the oxycodone market for both oxy with or without acetaminophen? And are yours and King’s marketing studies still valid? King at one time said they took your studies and their studies and an independent study and said that they halved it twice and said it was gigantic. Are those still valid?
And this hydrocodone, how widespread for intranasal and extraction is it? Is it a major problem? And do you think you can still find a partner for the drug’s return by Pfizer with a company that’s dedicated towards [paying] and being more cooperative? So I wonder if you can answer any of those.
We’ll see if we can’t tackle them all. So relative to our specific patents, there are no products on the market that we’re aware of that infringe our patents. Under the Hatch-Waxman act, as soon as a generic files one of these paragraph four certification applications, that is considered to be an active infringement, even though the product is not on the market. And that is what allows us to sue them for infringing our patents.
If the courts, obviously, find in our favor, then those applications will effectively be barred from being approved by the FDA until our patents expire. If the courts do not find in our favor, the generics are then somehow using ingredients or technologies that are different than ours. The question then arises as to whether they could be considered therapeutically equivalent. Unlike a lot of products out there that simply have to rely on their patents, we have kind of a second layer of protection here, and that is what’s the FDA going to require the generics to demonstrate.
And the idea here is obviously if they use a completely different set of technologies, we believe that they should have to run a battery of tests to prove that the technology they’re using is just as good as what we’ve built into OXECTA and our other Aversion technology products. So there’s a long way, I think, left to go on the whole generic storyline for OXECTA and the Aversion products.
The market size for oxycodone was your second question. Oxycodone without acetaminophen is approximately 14 million prescriptions. The market for oxycodone with acetaminophen is, I believe, about 40 million prescriptions. So the acetaminophen product is much larger, mostly from the standpoint that it was more heavily promoted back in the day when it was a sole-source brand. And obviously the acetaminophen component, I think in the view of some doctors, is that it’s adding some analgesic value to the formulation as well.
Relative to the marketing study still being valid, our market research studies are highly predicated upon what’s called the product profile. The product profile is our description of what the product’s performance is going to be when you ask the questions of the physicians. Certainly at this point, we did market research.
The original market research, I think, that we cited was our triple-deterrent product. It was the one that had niacin in there. So I would say those profiles aren’t applicable. The next set of studies that we and King both did were the double-deterrent, removing the niacin from the product, and the results were very comparable, actually, to the triple-deterrent product.
And then even more recently than that, the proof’s in the pudding when you get your label. Now, we had a label for OXECTA when it was approved back in 2011. We know what that label says. We took those label elements and took them out to some physicians in a market research study. So they were looking exactly at what they can read with the product. And once again, the results we got were consistent with what we’d been seeing in the past. So market studies do go stale, but we’ve refreshed them as early as - I think that last study was done in December of 2011.
The hydrocodone, is snorting and injection a major component? That is a study that is still ongoing. I can tell you that it’s very, very difficult to get accurate data, I believe. It’s hard to measure illegal activity. It’s hard to find people are doing this activity.
But we are using the major data sources, and those data sources vary quite a bit. And they range from people believe that there is very little snorting of hydrocodone, up to one study that I’ve read where - this was a lifetime assessment in people in a rural community. Over 70% of them had snorted hydrocodone/APAP products at some point in their life.
So there’s a great variance in terms of whether this is a major problem or not, but I think the more important thing that I look at, there’s been some anecdotal studies and information released here within the last few months that former abusers of oxycontin, the sustained release of oxycodone product, are now moving to other products. So all of our historic data is probably getting somewhat skewed at this point, because the patterns of abuse actually may be changing as these technologies have some success.
Last question was can we find a partner for the Aversion opioids. We believe we can. We can’t comment too much on our business development activities, but these are good, differentiated products. We have a differentiated label. And it’s just a matter of finding someone, like we did with King back in 2007, that really believes that these are products and technologies that need to be in the marketplace and are promotionally sensitive.
Thomas Marks - Bankers & Investors
Do you know how many independent pharmacies there are in the U.S. and what percentage of the pseudoephedrine market they have?
I don’t know specifically the answer to either of those questions at this point. We look at the independent pharmacies as being the early adopters. It’s not that the chains are not going to be targeted. They’re just not the first wave that we’ll be going after. We think if we establish the product with independent pharmacists, that will demonstrate to the chains and eventually the chains will come on board as well.
Thomas Marks - Bankers & Investors
Do you think that Pfizer is looking at the oxycodone as just one product, and without the Percocet just tell the doctors if you want to take Tylenol just go ahead and take two, but take this product? They’re looking at it as one product?
It’s possible. What we know, Pfizer has come out and said that their primary focus is for the extended release opioid market as opposed to the immediate release opioid market. We do see at the present time a much faster growth rate in prescriptions for products without acetaminophen. Now, that’s growing off a fairly small base. But there might be some shifting patterns going on there. I think we need to be patient and wait and see how Pfizer’s marketing strategy for OXECTA rolls out.
Thomas Marks - Bankers & Investors
Do you know anything about pricing of OXECTA? Will they bring it down from 262?
I think what you’ll see is they will enter into some managed care contracts that, if they get the positioning that they would like within their formularies, I think you’ll see price concessions.
Gentlemen, there are no further questions at this time.
Thanks, operator. Thank you everyone for joining us on the call today. We look forward to updating you on our continued progress as we move to execute on our commercial strategy for NEXAFED and the development strategy for our Aversion opioid products.
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