Cadence Pharmaceuticals, Inc., Q4 2008 Earnings Call Transcript

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Cadence Pharmaceuticals, Inc. (CADX) Q4 2008 Earnings Call March 12, 2009 4:30 PM ET


Bill LaRue - SVP and CFO

Ted Schroeder - President and CEO

Jim Breitmeyer - EVP, Development and Chief Medical Officer


Rachel McMinn - Cowen and Company

Charles Duncan - JMP Securities

Adam Cutler - Canaccord Adams

Juan Sanchez - Ladenburg Thalmann


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

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

Bill LaRue

Good afternoon everyone and thank you for joining us today. On the call with me today are Ted Schroeder, our President and CEO and Dr. Jim Breitmeyer, the company's Executive Vice President and Chief Medical Officer.

Before we get started, I would like to remind everyone that statements included in this press release that are not a description of historical facts are forward-looking statements. Words such as "believes," "expects," "anticipates," "plans," "will," and "assuming," and similar expressions, are intended to identify forward-looking statements, and are based on Cadence's current beliefs and expectations. Forward-looking statements include statements regarding: Cadence's belief that it has completed the adult clinical development program for Acetavance, the timeframe in which it expects to file an NDA for Acetavance, Cadence's anticipated cost savings from the discontinuation of the Omigard development program and the company's other financial projections for 2009, and the adequacy of Cadence's existing financial resources to enable it to successfully launch Acetavance.

The inclusion of forward-looking statements should not be regarded as a representation by Cadence that any of its plans will be achieved. Actual results may differ materially from those set forth in this press release due to the risks and uncertainties inherent in the company's business, including, without limitation: Cadence is largely dependent on the success of its own product candidate Acetavance and cannot be certain that this product candidate will receive regulatory approval or be successfully commercialized.

Clinical trial data Cadence attempts to submit in it's NDA for Acetavance may fail to adequately support this product candidate's safety and efficacy or prevalence severity of adverse side effects may be greater than anticipated, which could prevail for significant delay its regulatory approval.

If change is made in scaling up or transferring the manufacturing process for Acetavance result in a lack of comparability between the commercial product and the material used in clinical trials. Will be required to perform additional non-clinical or clinical studies, which would delay the approval of the NDA for Acetavance increased cost and adversely affect the company's business.

Heightened scrutiny by the FDA in the process of approving new drugs could delay or limit its ability to obtain regulatory approval for Acetavance. The outcomes of final analysis of data Cadence's clinical trials may vary from the initial analysis. And the FDA may not agree with the company's interpretation of such results.

Cadence may require substantial additional financing in order to obtain regulatory approval of Acetavance, and if approved to successful launch this product candidate and the company may not be able to raise sufficient capital when needed or at all particularly in light of the recent unprecedented volatility in the capital markets. And other risks detailed in Cadence's prior press releases as well as in Cadence's periodic public filings with the Securities and Exchange Commission.

You are cautioned not to place undue reliance on these forward looking statements which speak only of the date hereof. All forward looking statements are qualified in their entirety by this cautionary statement, and Cadence undertakes no obligation to revise or update this press release to reflect events or circumstance after the date hereof. This caution is made under the Safe Harbor provisions of Section 21E of the Private Securities Litigation Reform Act of 1995.

If anyone has not seen our press release issued earlier today, you can access it on our website at Additionally, this conference call is being webcast through company's website and will be archived there for future reference.

I will now turn the call over to Ted.

Ted Schroeder

Thank you, Bill. Good afternoon, everyone, and thanks for joining us this afternoon. On the call today, we will provide an overview of our recent clinical and corporate activities, review the results from the Omigard trial, we announced earlier today, walk you through our financial results for the fourth quarter and full year 2008 and provide our financial guidance for 2009. After that, we will open the call to your questions.

Based on the outcome of our Central Line Infection Reduction Study, or CLIRS, announced this afternoon, we have made the strategic decision to discontinue further development of Omigard.

We plan to implement cost reduction measures and restructure our operations to make additional resources available for our Acetavance program, and other operating activities. As a result of this restructuring, we expect to reduce our full year 2009 operating expenses by approximately $13 million to $15 million.

We are disappointed with the outcome of the CLIRS trial. And while we are confident that the trial was conducted in a high-quality manner, we do not believe that the data support pursuing an NDA submission for Omigard. We also believe that we can best drive both near and long-term value by focusing our resources on our lead product candidate, Acetavance.

As you saw from our announcement on February, 17th, we have achieved an important corporate objective of strengthening our balance sheet by raising approximately $86.6 million through a private placement of our common stock. We believe that assuming the FDA's approval of Acetavance, this additional capital will enable us to prepare for the launch of this product candidate.

I'll now turn the call over to Jim for an overview of our Acetavance clinical program and a more detailed discussion of the CLIRS trial results. Jim?

Jim Breitmeyer

Thank you, Ted. To First briefly recap our clinical development highlights for Acetavance. In December of 2008 we announced that with the successful completion of our final trial in adult, the adult portion of our clinical development program for Acetavance was complete. At the same time, we announced that we successfully completed our PK Study of Acetavance in children and that we complete the patient enrollment in Study 352. But latter is an open label study evaluating safety in children after one to five days of repeated doses of Acetavance. We remain highly focused on preparing the NDA for Acetavance and remain on schedule to submit the NDA in the second quarter of 2009 as we have guided.

Turning to the Omigard and CLIRS trial results, I would first like to take a moment to acknowledge the dedication and commitment of the studies clinical investigators and their staff at our clinical trial sites, as well as our external evaluation committee members and our internal project team all of whose efforts made the completion of this trial possible. We plan to work closely with the investigators who participated in the study to present the data from CLIRS at appropriate scientific meetings and to publish the results.

The CLIRS study was a multinational, randomized, double blind, active comparator control Phase III trial design to evaluate the safety and efficacy of Omigard compared to 10% povidone-iodine in patients undergoing central venous catheterization. A total of 1859 patients were enrolled at 58 clinical trial sites in the United States and Europe.

The primary efficacy endpoint of CLIRS was the incidents of local catheter-site infections or LCSI among survivors in a modified intent to treat population comparing Omigard to 10% povidone-iodine. A determination of LCSI was made by blinded evaluation committee adjudication. The incidence of LCSI in the study was 6.3% for patients treated with Omigard and that was compared to 8.6% for patients treated with povidone-iodine. The p-value for this difference was 0.08 which did not meet the prospectively defined primary objective which was a p-value of 0.05.

There was evidence of antimicrobial efficacy observed in two of the secondary endpoints. Microbiologically-confirmed LCSI or mcLCSI, which is the subset of patients with an LCSI plus a positive culture from the skin site or catheter was observed at 3.9% for patients treated with Omigard compared to 7.6% for patients treated with povidone-iodine with a p-value less than 0.01.

For the endpoint of catheter colonization, which was a positive culture from the catheter, the incidence was 43.7% for patients treated with Omigard compared to 55.1% for patients treated with povidone-iodine with a p-value also less than 0.01.

For the secondary endpoint of catheter-related bloodstream infections or CRBSI, which was defined as matched cultures from both the catheter and the blood, the incidence was 19.5% for patients treated with Omigard compared to 23% for patients treated with povidone-iodine with a p-value of 0.08.

Safety data from CLIRS demonstrated that Omigard was safe and well tolerated. There were no statistically significant differences between Omigard and povidone-iodine across all key safety end points.

Based on our detailed review of this data, we concluded that the totality of the evidence of efficacy for Omigard was not sufficiently robust to support an NDA filing for the prevention of catheter-related infections.

With that I will turn the call back to Bill for a review of the financial results.

Bill LaRue

Thanks Jim. I will now review our financial results for the fourth quarter and full-year 2008 as well as our financial outlook for 2009. For the fourth quarter ended December 31, 2008 we reported a net loss of $14 million or $0.37 per share compared to a net loss of $14.2 million or $0.50 per share for the same period in 2007.

For the year ended December 31, 2008 we reported a net loss of $57.1 million or $1.55 per share compared to a net loss of $51.7 million or $1.81 per share for the same period in 2007. The results for the year ended December 31, 2008 include approximately $5.9 million in stock-based compensation expense as compared to $4.3 million for 2007.

In addition, due to our discontinuation of the Omigard development program the results for the fourth quarter and full-year 2008 include impairment charges of approximately $2.4 million related to our manufacturing and equipment for Omigard. No similar impairment charges were recorded in 2007.

As of December 31, 2008, we held cash and cash equivalence of $47.6 million. Our cash and cash equivalence balance as of February 28, 2009, was $124 million including the proceeds from the private placement of our common stock and warrants completed in February 2009.

Total operating expenses for the fourth quarter of 2008 decreased $1.1 million to $13.5 million compared to $14.6 million for the fourth quarter of 2007. This decrease is primarily due to a reduction in spending under our Omigard development program following the completion of patient enrollment in the CLIRS trial in the second quarter of 2008 combined with the reduction in facility improvement charges related to our contract manufacturers facility for the production of Acetavance which occurred primarily in 2007.

Partially offsetting these decreases were impairment charges on our Omigard manufacturing equipment combined with increases in personnel related costs from additional headcount to support our clinical development programs and other costs incurred in preparation of the submission of the NDAs.

For the year ended December 31, 2008 operating expenses were $56.5 million which was an increase of $2.3 million from $54.2 million in 2007.

Research and development expenses for 2008 decreased $1.8 million to $40 million compared to $41.8 million in 2007. This decline was primarily due to decreases in spending under our Omigard program and a reduction in facility improvement charges related to our contract manufacturers facility for the production of Acetavance.

Partially offsetting these decreases were increases in research and development supporting costs including $700,000 in stock-based compensation and spending related to our Acetavance clinical trial program and the submission of NDAs.

This decrease was offset by an impairment charges on our Omigard manufacturing equipment and an increase in general and administrative and marketing expenses during 2008 as we increased headcount in preparation for the potential commercialization of our product candidates.

As a result of discontinuing our Omigard development program we expect our planned 2009 operating expenses to be reduced by approximately $13 million to $15 million.

We currently anticipate the total operating expenses for 2009 will be between $43 million and $48 million including an estimated $6 million to $7 million in non-cash stock-based compensation expenses. We also expect that our cash and cash equivalents at December 31, 2009 will be between $81 million and $86 million.

With that I will turn the call back over to Ted.

Ted Schroeder

Thank you, Bill. In closing I would like to reiterate that while we are disappointed with the outcome of our CLIRS trial. We believe that we can best drive the near and long term value by focusing our resources on our lead product candidate Acetavance.

With the clinical development program for Acetavance now complete, we continue to be highly focused on preparing our Acetavance NDA submission and remain on schedule to submit the NDA to the FDA in the second quarter of 2009.

With that I would like to open the line up for questions. Allan?

Question-and-Answer Session


Thank you, Mr. Schroeder. (Operator Instructions) And first we hear from Rachel McMinn from Cowen and Company.

Rachel McMinn - Cowen & Company

Yeah thanks very much. I have couple of questions on Acetavance. I am wondering if you can talk about the kind of activities that you plan to be doing as you file the NDA, what type of commercial activities you have in store and then also if you can give us an update on how many units were sold in Europe in 2008, if you have those numbers?

Ted Schroeder

Well I will answer the second question first; we have not received those data from BMS yet, we expect to get them in anytime now, but still waiting for them. So we do not have an answer. Although, last number we have show 80 million doses sold in 2007. So, we will update that throughout the year as we get those from BMS.

Regarding commercialization activities post submission we will be building up the commercial team, we are actually in the late stages of recruiting a Chief Commercial Officer. We expect that individual to start soon and then as we get later in the year we will begin adding support in the sales management area late in the year to begin identifying sales reps in the early part of 2010.

The other activities will largely revolve around, preparing the market place; we have a number of abstracts and posters that have been submitted to various meetings. We are still awaiting acceptance but we anticipate we will have a number of those publications and then activities around just raising the awareness of Acetavance will also being engaged in a good deal of market research, so that we can hone the positioning and the message as we prepare for product introduction next year.

Rachel McMinn - Cowen & Company

Okay. And then in terms of your comment on manufacturing for Acetavance, can you just elaborate you mentioned in the risk section that you are going to be transferring, can you just kind of walk through the details of where you are there. And what the real risks are for manufacturing and any potential delays for your approval?

Ted Schroeder

Sure. We have transferred the manufacturing from Bristol-Myers Squibb to Baxter in the US. If you remember Baxter is actually one of the third-party manufacturers for Bristol-Myers Squibb in Europe. But it is a new plant in the US, so it requires us to submit new stability data.

The process there is exactly the same in the US as it is in Europe, right down to the glass for the bottles and the stoppers, the formulation, all that's identical. So, we don't foresee any risk today that we have to-date show a very nice stability profile.

We do know that the label product or the commercial product in Europe has 24 months of shelf life on the marketed product. But Bristol-Myers Squibb actually has data supporting 36 months of shelf life.

We anticipate that we will have a similar profile. So, while we do describe it as a risk because it's not final and so you have the real time data. From all the data that we have, we see a clear pathway forward.

Rachel McMinn - Cowen & Company

Okay. That's helpful. And then one last question from me, and this might be difficult to answer, but we have heard rumors that you have received acquisition offers at a significant premium to your current stock price, but the board rejected such an offer or offers, wondering if you can comment on whether or not there is any twist to this?

Ted Schroeder

I think that's a malicious rumor. You are right. It is difficult to comment on, but I don't believe that we have received any offers that are of significant premium to our current stock price.

Rachel McMinn - Cowen & Company

Okay. Thank you very much.


And next, we will hear from Charles Duncan from JMP Securities.

Charles Duncan - JMP Securities

Hi, guys. First of all, thank for the very clear definitive answer on Omigard. And secondly, I wanted to follow up on Acetavance as Omigard is not an important component of our model.

Acetavance though, it occurred to me that there has been some rumors about some of our clinicians generating routine data that is being called in the question, could you tell us specifically; if you have ever used Baystate med center in your clinical trials?

Jim Breitmeyer

Charles, this is Jim Breitmeyer, Dr. Rubin of Baystate in Massachusetts has not been in Baystate, have not been a part of our program at any time. Dr. Rubin has not functioned as an investigator or an advisor and has not had any role whatsoever in the Acetavance program.

In fact, although it's unfortunate that someone in an academic position would appear to a falsified data, we don't think that it's bad for the Acetavance program, because for example, one thing that, that Rubin recommended apparently not based on solid data was that Celebrex and Lyrica should be used together for the management of certain post-operative pain.

With that recommendation under a cloud, we think that our own solid data that shows that the Acetavance is an effective component of multimodal pain management will act as an advantage for physicians to utilize highly reliable information.

Charles Duncan - JMP Securities

Thanks Jim, and than one quick question with regard to the scale of the manufacturing for Acetavance. Can you give us a little bit of additional color on the process there in the qualification methodologies that you are using?

Ted Schroeder

Well, I don't know that I can comment on all the qualification methodologies, but I can comment on the process. So the registration batches are up on stability. The development batches have gone through all that has run smoothly, the registration batches will remain on stability for a long period time, and we will periodic checks along the way.

The equipment has been run through several runs, we will begin moving toward qualification and our validation as we move in to 2009. And preparation for ramping up the commercial production as we move in to 2010, are the capacity of that line, we have single line at the Baxter facility in Cleveland, Mississippi. That the capacity of that line is about $20 million doses per year.

So it does get a several years into the forecast, but our plan is to begin the qualification of the second line and we will begin that later this year. So it's online to well in advance [vaccinating] the capacity as sales ramp up.

Charles Duncan - JMP Securities

Okay, good deal. Thanks for added color, Ted.

Ted Schroeder

Thanks, Charles.


(Operator Instructions). Next we will here from Adam Cutler from Canaccord Adams.

Adam Cutler - Canaccord Adams

Hi, thanks. I was wondering if you could just give us an update on your business development efforts, especially in light of the failure of the Omigard study and your desire to have another product presumably long side Acetavance in your marketing efforts.

Ted Schroeder

Sure Adam, we are continuing to be active on the business development front as we have been, we remain opportunistic looking for those opportunities that would fit easily into both our development infrastructure as well as our future sales capability.

We have a number of ongoing business development activities I probably can't comment more specifically, but our dance card is pretty full right now with exciting opportunities that are of later stage in development. So, we will see where they go, the proof is always in the details with these things and as you move into diligence we will get a better sense of how viable the opportunities maybe.

I think it's fair to say that we will remain highly selective and with relatively low appetite for risk that appetite will probably grow as we get to a commercialized product.

Adam Cutler - Canaccord Adams

Okay. Thanks.


And next we will hear from Juan Sanchez from Ladenburg.

Juan Sanchez - Ladenburg Thalmann

Good afternoon guys.

Ted Schroeder

Hi, Juan.

Juan Sanchez - Ladenburg Thalmann

Just a quick question, are you going to you used to guide before you raise money that the cash requirement to make it a profit, I really be assuming that there was going to be a proven time it was $61 million-$70 million? You raised 86 and then you are saving 13 from Omigard. So should we conclude that additional cash needs you already have our $70 million, $75 million or is that’s the right calculation?

Bill LaRue

We haven't been particularly specific in terms of those requirements, obviously in light of the developments with Omigard we are looking at those overall capital requirements, but it's safe to say Juan that it would be less than that.

Juan Sanchez - Ladenburg Thalmann

Okay, great. Thank you very much.

Ted Schroeder

Thank you.


(Operator Instructions). At this time there are no further questions. I will turn the conference back to Mr. Schroeder for closing remarks.

Ted Schroeder

Well thank you everyone. I appreciate your questions and your attention today. And look forward to our interactions as we progress through the year. Have a good afternoon.


Ladies and gentlemen this does conclude our conference call. We thank you for your participation. All parties may now disconnect.

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