NPS Pharmaceuticals' CEO Discusses Q3 2012 Results - Earnings Call Transcript

| About: NPS Pharmaceuticals, (NPSP)

NPS Pharmaceuticals, Inc. (NASDAQ:NPSP)

Q3 2012 Earnings Call

November 9, 2012, 8:30 a.m. ET


Susan Mesco – Senior Director, IR and Corporate Communications

Dr. Francois Nader – President and CEO

Eric Pauwels – CCO

Luke Beshar – CFO


David Friedman – Morgan Stanley

David Friedman – Morgan Stanley

Salveen Richter – Canaccord Genuity

Eun Yang – Jefferies


Good day ladies and gentlemen and welcome to the NPS third quarter conference call. My name is Doracella, and I will be your operator for today. (Operator Instructions)

I would now like to turn the conference over to your host for today, Miss Susan Mesco. Please proceed.

Susan Mesco

Thank you, Dorcacella, and good morning. Welcome to our third quarter conference call.

Before we start, let me remind you that today's call will include forward-looking statements based on current expectations. Such statements represent our judgment as of today. And may involve risks and uncertainties. Please refer to our filings with the SEC, which are available from the SEC RR website for information concerning the risks factors that could affect the company.

Joining me on today's call are members of our executive management team including Dr. Francois Nader, our President and CEO, Luke Beshar, our CFO, and Eric Pauwels, our Chief Commercial Officer.

I will now turn the call over to Dr. Francois Nader.

Francois Nader

Thank you, and good morning. Thank you for joining us today.

We are reporting our third quarter results a few days later than we originally anticipated due to complications from severe weather that impacted the Northeast last week and left our business office without power for many days. We know that many listeners on today's call have been directly affected by the hurricane. Our thoughts are with you as we all try to get back to some normalcy.

Aside from the weather related challenges, this has been a very exciting time for NPS. I would like to begin our call with some comments on our recent major milestone, the unanimous vote from the FDA's gastrointestinal ad com in support of our education to market Gattex. We are gratified by the gastrointestinal ad com's unanimous vote. Of course, we recognize that the FDA would have the final say regarding approval of Gattex. But we believe that the unanimous vote bodes very well for future approval, adoption, and use of Gattex.

In the meantime, we're very excited to report at the ad com meeting that so far, twelve patients or one out of every seven have achieved independence from parental nutrition with long-term Gattex therapy in our steps to study. When we look at these, twelve patients who have been weaned off from PN, two patients were able to become independent of the PN IDU's within one year on Gattex therapy. Nine patients were able to become independent between one and two years of use. And one patient was able to gain independence more than two years after starting Gattex. These are compelling results, which suggest that long-term use of Gattex is associated with both sustained and possibly increased effect over time. We expect to report full results from this two year open label study after it concludes early next year.

The overwhelming positive endorsement from the FDA Advisory Committee along with the additional patients who achieve independence from PN affirmed our long standing belief of the positive benefits with profile of Gattex.

Since the ad com meeting, we're had a number of productive discussions with the agency. And we are working on reaching agreement with them on our label, the proposed registry, and the [inaudible] in advance of our December 30 [inaudible] action date.

Meanwhile, our medical affairs team has been very proactive in preparing for the launch of Gattex. As with any ulta-ulcer disorder, scientific communication and medical education will play a key role in driving the success of Gattex.

Our MSL continued to profile centers of experience and are making great progress generating awareness of short bowel syndrome as a highly debilitating disorder with life threatening complications. Our team has established a relationship with key stakeholders and is well positioned to educate them on the profile and the clinical value of Gattex once approved.

In addition, the Gattex launch is supported by several key peer review publications. The critical step study was accepted for publication in gastroenterology and is expected to be published soon. The peer review paper on GLP-2's mechanism of action was also published online this week. And is demonstrated how Gattex addresses the underlying (male) adsorption issue in short bowel syndrome. We are expecting additional peer review pieces that highlight the burden of ailments associated with SBS as well as PN reduction guidelines, and other nutritional management strategies for healthcare providers.

Beyond the exciting winning of updates and the unanimous outcome committee endorsement, the Gattex value proposition was further enhanced by recent market access and pricing research. That clearly supports our approach of pricing and marketing Gattex using an ultra-often strategy.

At this time, I would like to invite Eric Pauwels, our Chief Commercial Officer to update you on these new data as well our commercial readiness as we prepare to bring to market the first significant long-term medical advance to patients with short bowel syndrome in nearly 40 years. Eric.

Eric Pauwels

Thank you, Francois and good morning everyone.

Over the past few months, we have accelerated our preparations for the commercial launch of Gattex in early 2013.

I will focus my discussion today on four areas. First, our target prescribers, second, the field force planning, third, our market access strategy, and last, the promising results from our recent market access and pricing research that Francois mentioned.

Let's start first with our target subscribers. As you know, SBS is a very rare condition with no standardized databases such as IMS as a reliable for targeting the limited number of specialists who prescribe Gattex. Therefore, we developed our target list via verified physician databases, NPS market research, home infusion data, MSL center of experienced profiling, and clinical trials like information. Our current target consists of approximately 6,000 physicians who are practicing in approximately 1,000 institutions or offices [inaudible]. These locations are [inaudible] comprised of both centers of experience and large GI practices.


Your conference will begin momentarily. You may proceed.

Francois Nader

We're sorry for the technical interruption. And not sure what happened, but I would like to ask Eric maybe to take it from the top because we are sure when the interruption started. Sorry for that. Eric.

Eric Pauwels

Sure, Francois. Again, good morning everyone and I mentioned, over the past few months, we have accelerated our preparations for the commercial launch of Gattex into early 2013.

I will focus my discussion today on four areas. First, our target prescribers, second, the field force planning, third, our market access strategy, and last, the promising results from our recent market access and pricing research that Francois mentioned.

Let's start first with our target subscribers. As you know, SBS is a very rare condition with no standardized databases such as IMS as a reliable for targeting the limited number of specialists who prescribe Gattex. Therefore, we developed our target list via verified physician databases, NPS market research, home infusion data, MSL center of experienced profiling, and clinical trial side information. Our current target consists of approximately 6,000 physicians who are practicing in approximately 1,000 institutions or offices with a likely or known specialist who treats SBS patients. These locations are comprised of both centers of experience and large GI practices. This detailed mapping will be ready for our field force to target once Gattex promotion begins after approval and provide them with high quality leads to ensure they will be armed with launch playbooks once they are deployed.

As many of these potential prescribers reside in large GI practices, we expect the number of physicians to be refined once we begin calling on each of these accounts and identifying the lead SBS specialist within each of these practices.

In regard to the field force size and deployment, our physician mapping, field force sizing, and territory alignment suggests we can successfully commercialize Gattex for the sales team of approximately 30 individuals organized in 3 regions. Having successfully met the trigger of the positive ad com, we have now hired our field based leadership team and have begun actively recruiting our reps with hiring contingent on FDA approval of Gattex.

I'd now like to cover our market access strategy. Specifically regarding our specialty distribution model, home infusion partnering, patient identification, and personalized patient services.

We will utilize a limited network a specialty pharmacies to distribute Gattex directly to SBS patients. And this network is now largely in place. We have also begun working with key national and regional players in the home infusion space as they are important key touch points for SBS patients who are chronically depended on PN.

Our home infusion partners will also be part of our limited specialty distribution network for Gattex. They are eager to add Gattex your product and service offerings as they compete to provide patients, physicians, and payers with high quality innovative treatments for SBS.

Through these strategic partnerships, we will be able to first, better understand the PN prescriber base, second, enhance our knowledge with the insurance and reimbursement pathways, and third, more readily identify patients and learn about PN usage.

We will leverage the field-based presence of our home infusion partners to enhance our clinical and education services to help ensure patients initiations on Gattex are successful and sustained.

Patient identification is important for any orphan disorder. And it has been a top priority at NPS. For many rare diseases, it is very difficult to define the exact size of the addressable population.

While prevalent calculations of 10,000 to 15,000 patients provide the highest possible patient population, there is a high degree of inherent variability of these calculations because of the small numbers. And they are not a substitute for a bottoms up approach that relies on finding and counting addressable patients.

To ensure that we identify as many patients as possible ahead of the Gattex launch, we are using multiple approaches including home infusion partnerships, clinical trial experience, center of experience profiling, patient advocacy, and online forums like Over time, we will build the single most in-depth database PN dependence SBS patients with multi-channel bottoms up approach.

Turning now to patient services, this is an essential piece of our commercialization strategy. NPS advantage, a personalized SBS patient support service will be operational well in advance of our December 30 [inaudible] date. We have started hiring our NPS care coordinators who are based at our New Jersey offices. These professionals have considerable experience with patient care and reimbursement support as well as in-depth knowledge and insights into the SBS patient population they will support, SBS as a disease state, along with its complications and comorbidities, Gattex's clinical profile, and importantly, our reimbursement and assistance programs. The NPS Advantage team will be prepared to field calls before the end of the year and ready to provide patients and healthcare providers with customized and personalized support.

In addition, NPS Advantage will offer fleet of flexible programs, support, broad access to Gattex. These programs will be easy to navigate with minimal burden to patients and their physicians. We will also be launching a comprehensive NPS Advantage website the carefully explains the full level of services we will provide. To ensure that all SBS patients who can benefit from Gattex will have access to it, we are putting a comprehensive patient assistance program in place to ensure treatment decisions are clinically based and not cost based.

And last thing I would like to cover is the encouraging results from our recent market access and pricing research. We conducted a robust market access and pricing study with private and public payers covering 134 million lives. In this study, researchers presented information on SBS as an ultra-orphan disorder, a disease burden, and the current treatment options. They also reviewed the most recent Gattex clinical data. The results were quite positive with payers clearly recognizing the high unmet medical need associated with SBS. As well as the therapeutic improvement that Gattex represents over current treatment options. The value proposition was also notably strengthened by the number of patients who achieved complete independence from PN with long-term Gattex therapy. All payers indicated they will cover Gattex with a pure placement and restriction fairly typical of ultra-orphan products.

The findings were consistent with our predictions. And our NPS Advantage team will be prepared at launch to help to take hold of especially patients successfully navigate the reimbursement challenges.

We will guide on final Gattex pricing subsequent to approval as the price will depend on final labeling and our ongoing market research. However, we are very encouraged by the results of the pricing study, which confirmed a highly flexible ultra-orphan pricing positioning given payers appreciation of the Gattex value proposition. Payers positive perception that the Gattex price value propositions were in elastic at annualized prices that were in line with other ultra-orphan analogs.

So to summarize, our team continues to make excellent progress on the commercial front. We are on track with our key strategic imperatives to support the successful launch of Gattex. And we look forward to bringing this first in class treatment for SBS patients as quickly as possible.

With that, I will now turn the call back to Francois.

Francois Nader

Thank you, Eric. With the unanimous outcome of vote, exciting new clinical data, and favorable market access and pricing research, we are confident in the commercial outlook of Gattex. As with all ultra-orphan disorders, the addressable patients will be lower than the estimated problem.

However, we believe the pricing unfortunately that we project to be in the ultra-orphan range will drive peak revenues beyond our previous expectations of $350 million for the year. We also know that even very successful orphan drugs launches have a long ramp-up and we have similar expectations for Gattex.

I would like to update you on our second product candidate, Natpara. We are actively working on the different components of the Natpara PLA. Meanwhile, we have made good progress advancing our usability testing for the Natpara injection pad instruction as well as recent production runs. Consequently, our submission remains on track for mid-2013. At the recent ASD [inaudible] conference, investigators presented findings from the clinical phase III, the replaced study that showed significant increases in bone turnover markers indicating that Natapara may initiate bone remodeling.

Investigators also reported results from eight week, the delayed study, that demonstrated as expected that the lower 25 microgram bills of Natpara may be sufficient for some hypoparathyroidism patients. These patients need individualized dosing. And we are pleased with the results presented.

In addition, researchers from Columbia University presented data from an investigator initiated study [inaudible] quality-of-life after one year of treatment with Natpara in high profile hypoparathyroidism patients. The study was open label. And enrolled 54 high profile hypoparathyroidism patients who received 100 microgram Natpara as the other day for one year. The baseline, these patients were below normal in seven of the eight domains. Of the SF, 36 quality-of-life instrument. An intend to treat analysis showed the total core increased significantly with Natpara therapy.

The massive component summary score improved along with three mental health domains, vitality, social functioning, and mental health. The physical components summary score also increased with improved functioning. Investigators concluded that treatment with Natpara may lead to important improvements in quality of life for hypoparathyroidism patients.

Meanwhile, our pre-launch activities are going as planned. Recent market access and pricing research with multiple stakeholders including payers representing 125 million lives provided very encouraging insights with respect to pricing outlook for Natpara. And reinforced the significant commerical opportunity that Natpara could represent to NPS. We'll continue to validate this data as we get closer to launch.

So in summary, we're very excited to be on the verge of transitioning into a commercial stage company. We believe that we have put the right team and the right strategies in place to ensure the successful commercialization of both Gattex and Natpara.

In the months ahead, we will be reporting a number of key milestones such as the expected U.S. approval of Gattex by year end and its commercial launch early next year. For Natpara, submitting our BLA by mid-2013. And while we do not have time to cover on today's call, we are moving forward with our plans to investigate Gattex in the projected short bowel syndrome population and the [inaudible] in ADHH and ultra-orphan indications.

That concludes my remarks. And I will now turn the call over to Luke to cover the financials. Luke.

Luke Beshar

Thanks, Francois and I'd also like to wish everyone on today's call good morning.

From a financial perspective, we continue to be in excellent shape as we move closer to the launch of our first products. I'll start this morning with our third quarter financial review with revenue.

We reported $27 million in total revenue versus $25 million last year. Our current revenues are largely driven by the royalties we were [inaudible] sale of Sensipar, which increased 16% to $23 million versus $20 million at our third quarter, 2011.

We continue to be very encouraged by the growth we're seeing from Sensipar. And this is the sixth consecutive quarter of double-digit Sensipar sales growth.

As a reminder, as a reminder of the revised retainment terms of last year's royalty advance from [inaudible], we will receive a cash payment of approximately $15 million on November 15th and AM General will retain the remaining $8 million of the third quarter Sensipar royalties to pay interest and reduce the outstanding principal. This will leave the advanced balance at $86 million, which we expect to be fully repaid in mid-2015. After which, we will receive our full Sensipar royalty, which we estimate to be in excess of $100 million a year at that time and continue through U.S. patent expiring in March of 2018. And then more than $30 million for the balance at 2018.

We're also very pleased with the growth of our royalties of [inaudible], which increased 13% to approximately $700,000 for the third quarter of 2012. [Inaudible] remains an un-encumbered asset. And as such, all the royalties are being paid to NPS.

Moving onto the expense side of the P&L, third quarter R&D expenses were $18 million versus $20 million last year with a decrease largely related to a reduction of activities related to clinical and pre-launch production.

As we ramp up our commercial readiness for Gattex, general administrative expenses for the quarter increased $8 million versus $6 million in 2011.

Third quarter interest expense declined to $4 million from $11 million last year. The improvement was largely attributable to a significant reduction in our Sensipar secured non-recourse debt. And the reduction in the associated interest rate from 15.5% to 9%.

And finally turning to cash, we ended the quarter with $119 million in cash and investments. We continue to expect to end the year with at least $92 million of cash and investments on hand. And we believe that our cash on hand coupled with cash influence from Sensibar and NUCYNTA are more than enough to fund us through the commercial launch of both Gattex and [inaudible].

That concludes our prepared remarks this morning. I'll now turn the call over to the operator to take your questions.

Question-and-Answer Session


(Operator instructions). Your first question comes from the line of David Friedman with Morgan Stanley. Please proceed.

David Friedman – Morgan Stanley

Hi. Thanks for taking the questions. Just two quick ones. The first is in terms of the manufacturing for Natpara, is there any update you can provide on whether you – or your manufacturing partner has up and running runs again or whether there’s still some sort of process issues that you’re working through?

And then the second question is something that we’ve heard from a number of people is concern around a potential conflict of interest where for Gattex infusion companies may have less interest in facilitating the use of their – of your drug as it could limit TPN revenue to the companies over time? Can you just maybe explain the nature of your discussions with the home infusion companies and how you have structured it so that everyone has the right aligned incentives?

Luke Beshar – CFO

Yeah, hi, David. This is Luke. I’ll take the first part of the question and then Eric will handle – or then Francois will handle the second. With respect to the manufacturing of Natpara, we made – we’ve made good progress and we’re continuing to work with the contract manufacturer and we are now comfortable that the manufacturing issue will not be a gaining factor to the BLA filing.

Dr. Francois Nader – President, CEO

I would – David, good morning. I will probably start answering your home infusion and ask Eric to take over. I think your questions is very personal and this is something that we have debated internally. I would venture to say that Gattex is happening. Gattex has demonstrated its clinical benefit is here to stay and they think that home infusion companies realize very quickly is that Gattex could be a win-win. It could be a win because these companies care about their patients and therefore it would be illogical and medically frankly unacceptable if they do not support a product that reduces parental nutrition and potentially complications over the long run.

Now, granted, there could be a reduction in the revenue but I’ve yet to see organizations that would venture into I would say the financial aspects of the equation with this regard to the medical benefit.

The other condition is, I think they need us as much as we need them. They need us because it’s a very competitive market out there and the home infusion companies, the national ones have still very limited market share of the total market. And therefore, it is to their advantage to do two things; one, offer another products and services and second, expand their market share. At the same time, we need them because they have clinical services that are already in place and they are an absolutely critical touch point for the patient.

Now, the art is to strike a deal where there is on paper and in action a win-win equation for them and for us. And frankly, this is what Eric and his team have been feverously working on over the last many months. Eric?

Eric Pouwells – COO

Yeah, clearly I think Francois highlighted the main points. And we’re working with some of the largest national and regional providers who have a fairly broad reach. And as Francois mentioned, they do compete for new patients as well as some of the existing patients. So Gattex, they see it as innovative treatment and for them, they really want to be a part of the treatment options delivering Gattex, not only in terms of the clinical services, but within our limited distribution network, they’ll be able to dispense Gattex to SBS patients.

By doing so, they’re able to differentiate their business model versus others by offering the latest service because they – they actually offer the services, not just the patients but they’re also providing that service to physicians and to payer as well.

David Friedman – Morgan Stanley

Great. Thank you.


Your next question comes from the line of Joseph Schwartz with Leerink Swann. Please proceed.

Joseph Schwartz – Leerink Swann

Hi. Thank you and congratulations on all the progress. It’s really great to see everything coming together so nicely. I was wondering if you could clarify the ultra-orphan pricing upside that you’ve alluded to? Is that like on the order of what we see for enzyme replacement therapies? And whatever price Gattex ultimately is offered based on your research and discussions with the payers, what’s sort of a response do you think they will require in order to provide access to the drug over a longer time period?

Dr. Francois Nader – President, CEO

Good questions, Joe. I’ll ask Eric maybe to address this. Eric?

Eric Pouwels – COO

Sure. I think, you know, when we did the research, Joe, we clearly showed the product profile and showed the burden. We were amazed to actually see how payers reacted to the burden of illness and they ranked it significantly high. And – but more importantly, while we’re not guiding on the price right now, we did test price bands that were somewhere in between the sort of orphan – high-priced orphan biological [inaudible] and some of the highest-priced ultra-orphan drugs commercially available today. The agency – that third-party agency that we worked with has been involved in pricing more than 30 orphan drugs and including four of the top 11 commercialized products right now. So as I mentioned, the data is very encouraging and we saw relative elasticity with those bands.

Joseph Schwartz – Leerink Swann

Okay, great. Thanks. As you look out to 2013 for Gattex’s first commercial year, do you think more patients will be new to therapy or transition to therapy from your extension study?

Dr. Francois Nader – President, CEO

Well, certainly the – two things. One, it’s very important for us to complete the ongoing study, so step two would be completed early next year. As for the patients who are currently in the study, we’ll stay in the study until its completion. And then we’ll certainly work with them and the physician and the payers to transition them to commercial supply.

Joseph Schwartz – Leerink Swann

Do you have a sense in your own internal models, you know, where the biggest source in the first year or two might be?

Dr. Francois Nader – President, CEO

Thank you, and this is something that we’ll address in much broader details on our last call.

Joseph Schwartz – Leerink Swann

Okay, great, thanks again.


Your next question comes from the line of Salveen Richter with Cannaccord. Please proceed.

Salveen Richter – Canaccord Genuity

Thanks for taking my question. I’m just wondering how many home medication centers did you partner with and what proportion of the SVS patients do the currently have access to? And then you also mentioned that you’re hiring several key commercial positions right now, so I’m curious as to how many you’ve hired to – who you’ve hired to date and who you have left to hire at this point.

Dr. Francois Nader – President, CEO

I’ll address the first part of your questions. Good morning, Salveen, and I will ask Eric to address the force buildup. In terms of home infusion, probably something to keep in mind is it is a highly fragmented market. So the way to approach it is probably in a very simplified and simplistic way is to think of it 1/3, 1/3, 1/3. So 1/3 of the home infusion market is managed by a handful of national home infusion companies. 1/3 of the market is managed or served by regional players. And 1/3 is either really small mom-and-pop organizations that are very, very local in nature.

So our strategy is to work with the national first, but we’re not forgetting the regional but they will come next. And this is the approach we’ve taken. So this is a strategy that has been initiated with the national ones and will continue over time.

Eric Pouwels – COO

I’ll highlight a couple of other questions, Salveen and just to build on Francois’s comment, we won’t be revealing any specific numbers or partners until we get a little bit closer to the [inaudible]. But stayed tuned for that because you’ll be seeing some announcements but as we mentioned, these are the key players that are involved both nationally and regionally.

Regarding your question about key commercial hires, so we have – as we said in the past, we have a gated approach to brining on members of our commercial team. Following the positive advisory committee decision, we actually have put in place our field based management team. So we’ve hired our key account directors and our regional business directors and our in house care coordinators. So those are being onboared as we speak. They’re all in place and we’re in the process of getting them on board and the next step is to actually hire the field sales force, that’s the next gated milestone there will be the FDA approval of Gattex.

In addition to that, they’ll be a couple of other hires, which will include some marketing support functions, operations and analytics.

Salveen Richter – Canaccord Genuity

And if I could just squeeze in one more, this questions is actually for Luke. The key R&D expense was much lower than I expected in Q4 and beyond.

Luke Beshar – CFO

I’m sorry. We lost you in the teleconference. Could you repeat that question?

Salveen Richter – Canaccord Genuity

Just a question for Luke. Q3 R&D expense was much lower than expected. I’m just wondering how we should think about that looking at Q4 and beyond?

Luke Beshar – CFO

Well, the R&D expense number is very low principally because of the time of the commercial production. So I think Q3 was probably a little lower than you’ll see in Q4. But – and obviously until Gattex is approved, all of our production expenses related to that product are flowing through as expenses in non-capitalized inventory.

Salveen Richter – Canaccord Genuity

Thank you.


Your next question comes from the line of Eun Yang with Jefferies. Please proceed.

Eun Yang – Jefferies

Thanks very much. On the recent study which should begin over a year ago, when do we expect the data [inaudible]. Okay, so question on Natpara. On [inaudible] study, when do we expect the data? And also, you said getting [inaudible] when you file DLA next year.

Dr. Francois Nader – President, CEO

Yes, so let me address the second part of the question and then I will ask Roger here to address the first question, which I believe is on the [inaudible] study.


Ladies and gentlemen, that concludes today’s conference. Thank you for your participation. You may now disconnect. Have a great day.

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