Mallinckrodt plc (MNK) Presents at Raymond James Life Sciences and Medtech Conference (Transcript)

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About: Mallinckrodt plc (MNK)
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Mallinckrodt plc (NYSE:MNK) Raymond James Life Sciences and Medtech Conference Call June 19, 2019 8:00 AM ET

Company Participants

Bryan Reasons - Chief Financial Officer

Steve Romano - Chief Scientific Officer

Hugh O'Neill - Chief Commercial Officer

Dan Speciale - Vice President, Investor Relations

Conference Call Participants

Unidentified Company Representative

Thank you and good morning. Welcome to the Mallinckrodt Presentation of Raymond James Inaugural Life Sciences and Medtech Conference. We’ve got strong representation here from the team. Appreciate the company being here. Could open it up with some introductory comments from Bryan Reasons, Mallinckrodt’s Chief Financial Officer; and we’re also going to engage on an expensive Q&A with Steve Romano, the company’s Chief Scientific Officer; Hugh O'Neill, the company’s Chief Commercial Officer; and Dan Speciale, the company’s VP of Investor Relations. Bryan?

Bryan Reasons

Thanks [Elliot] and thanks for having us. I thought I’d spend a couple of minutes covering off some of the corporate things that have been discussed lately and then try to kind of pivot and focus on some of the exciting commercial things we have going on, as well as some of the pipeline data and some of the projects that Steve is working on. So, I thought I’d cover the whistleblower case that was in the news, the CMS lawsuit, spin and maybe a little bit on the cap structure.

So, on the whistleblower, that’s a case that goes back to the Questcor days, and couple of months ago, as we got close there are two pieces to it. Sales and marketing and the foundation. As we got close to settling with the government on the sales and marketing piece of it, it was, the government undersealed these cases. It generated some news. A bit sensationalized, I think some of the quotes were exposures in the billions. We try to show people that it was fully accrued and it was going to be a pretty de minimis amount.

Since then, we announced that we’re settling for $15.4 million. So, and that was one where we settled where I guess in my, I’ll use non-legal jargon. There is probably a little bit of smoke no fire. On the foundation, we decided not to settle because that’s a case where we felt there is no smoke or fire. And so, we’re not willing to settle that at this point. So, we’re going to carry that through. At some point, if we have an opportunity to sell for de minimis amount, less than our legal fees, we would obviously consider it.

So, those are the kind of what I’ll call, put in the category the whistleblower legacy Questcor. On CMS, obviously we had had a back-and-forth with the CMS around [base year amp] related to Acthar. Going back to 2012, we caught Questcor got approval for IS indication, infantile spasms. We got in writing that was appropriate to rest our base year amp. In 2013, we’d reset our base year amp. Several years later they started questioning whether we should reset our base share AMP.

We had dialogue back and forth with them, and then it got to the point where they sent us a letter and said reset the base share AMP or you will be non-compliant. At that point it sort of gave us this binary decision to either reset and that’s kind of the worst-case scenario. We feel we have a good case and we’re correct. So, we filed a lawsuit with the government. So, the timing of that is, we’re presenting facts. The other side we’ll be able to respond to those facts. That probably will carry through to the end of July and we probably won't have really a ruling on something like that until closer to the end of the year.

Okay. So, that’s CMS and we’ll have follow-up questions on that, so I’m covering it fast. SpinCo, we’re proceeding through. We'll spend of our genetics in the second half of the year. Really, we’re working through the SEC regulatory part of it. We’ve now filed the Form 10 twice. We’ve got two ramp up comments. Since then we’ve made the strategic decision to pull out Amitiza. So, we’ll refile the Form 10 and it will exclude Amitiza, which will probably trigger another round of comments.

So, we're sort of, none of the comments are [indiscernible] it just takes time to work through this with the SEC. At the same time, we’re deep in working through the capital structure for SpinCo, and we plan to, and we’ve announced this publicly where we plan to put about 300 million of leverage on SpinCo and then that cash will come back to remainco to focus on delivering. And then capital structure, we’ve announced by Spin. From the time we announced Spin until we Spin, we're going to, our goal is to deliver by billion dollars and we’re trending well ahead of schedule on that.

So, we feel comfortable with that. And as far as the capital structure, our focus is on delivering. We do have a $700 million tranche of debt due in April 2020. So, we’re currently deep and working through kind of how to refinance and take care of that. We’re very aware of that tranche inside 12 months.

And then I guess follow-up questions or we can go right to R&D and the commercial stuff.

Unidentified Company Representative

Thanks Bryan.

Question-and-Answer Session

Q - Unidentified Analyst

First question from the room. Let me now and I’ll bring the mic to you. Maybe we can talk a little bit more about sort of the latest developments in the company's suit against HHS on the EPA, just talking about what the next steps or I'd say milestones, but kind of data points…?

Bryan Reasons

So, I think in – and Dan can jump in. In July, early July we will present our facts.

Dan Speciale

Financial respond or complaints. So, on July 5 they actually respond to our complaint, and there is a bit of an integral process than what we will respond to them, they will respond to us. All with the intention of having a court date at the end of July or July 30. That’s obviously subject to change. We don't know if it will not, but that’s where it’s currently scheduled.

Bryan Reasons

But we don't expect it to conclude until late in this year.

Dan Speciale

That’s correct.

Unidentified Analyst

Okay. The government has not – there has been some delays in the response, if I’m…

Dan Speciale

That’s correct. They have a timeline by which they have to respond to us and we’ve obviously have had some dialogue from a scheduling perspective with the – on the matter with the judge with the court and their timeline primarily is to respond [indiscernible].

Bryan Reasons

I think the one relevant news though is that the judge and both sides have agreed that there will be no change to [base share AMP] in the system until the judge hears the case and essentially rules on it. So, it’s sort of, I’d say business as usual as far as Acthar Medicaid business probably through the end of the year?

Steve Romano

That’s really important. So, this does not change the reimbursement of the product in the Medicaid system until after the case is resolved. And it is Medicaid only. I mean, there were some reports where people were concerned about it was Medicare or Medicaid. This is specific to Medicaid, which is roughly 10% of our overall business. We have the overall Acthar business. So, it’s clear we know where we are. We have a pretty strong set of facts and we will see where it ends up.

Unidentified Analyst

Okay. And if in fact HHS’ position is upheld, does the change in base going to affect immediately or is there…?

Bryan Reasons

I think it depends on, as they say, it is just perspective or it is retroactive. Usually the way it works is you, if it’s retroactive as well you put the new AMP into the system and it sort of automatically recalculates and then we’d start getting retroactive bills from the state. So, it would probably come in usually over a six-month period the larger states are usually pretty quick at doing.

Unidentified Analyst

Okay. And can you quantify the amount of potential, I mean the [retroactive brochure]?

Bryan Reasons

Retroactive would be about $600 million.

Steve Romano

And that’s it for the extended all the way back to 2013. I think there is obviously a number of key dates along that timeline or spectrum that could dramatically change an answer. So, what we try to do is quantify what we think that maximum exposure can be clearly hoping that it’s certainly going to come in low from that?

Unidentified Analyst

And I guess sort of the key question from clients that kind of rose in the immediate aftermath of this is there potential for spillover and [indiscernible] and other books of business. Maybe just get your...

Steve Romano

So, we don't think there is. And the reason for that is, Medicaid is a very specific calculation and the best price exposure in the AMP and all of that is very unique to the Medicaid channel. So, it has no influence over Medicare or commercial at all. As a matter of fact, as you guys know Medicaid is handled between the Fed and the States and it’s handled through their own agencies, whereas Medicare as an example is handled through third-party prescription drug plans. It’s not even subject to the same calculation.

So, we actually don't think there is any risk at all, the spilling into our other channels and it’s important to know that there is other examples of products in the market where they have a very low best price in Medicaid that does not spill into their other channel. So, this is not unique to act on. If we end up in that situation it’s a Medicaid issue only and we don't see any risk of it flowing as any other channel.

Unidentified Analyst

Okay. Just going back to the issue of liabilities, once again because they have so dominated the narrative as of late, could you just talk a little bit about opioid exposure and confidence in terms of complete separation of the risk from SpinCo?

Bryan Reasons

Yes. So, when we spend and we spend tons of time with outside can’t find this. We’re very comfortable that that exposure legally separates from remainco. One of the things people try to compare to some others spin examples and this is a little unique and that the generic business that’s being spun has always sat in the separate legal entity.

Lots of times you look at the spins and the spins that I’ve worked on businesses have a whole bunch of different non-strategic assets that are sitting all over the place and they move them all into separate legal and spend them. That’s where you start to have liabilities that could creep back legally. So, we’re comfortable that Mallinckrodt has a very clean legal structure to spin these things off legally.

Unidentified Analyst

Okay. Since we have Steve here, let’s take advantage of that and talk about some recent pipeline news. I guess specifically, last week the Acthar data that was brought in RA, I mean certainly looks like a big win in terms of data generation, maybe just kind of walk us through that, what’s important? And since we have Hugh here as well, I think the hard thing for investors is always figuring out how to translate this incremental data into what it may mean in terms of Acthar positioning.

Steve Romano

So, several years ago we took the path of generating data evidence for Acthar. Remember when we acquired Acthar, this is a product that’s been on the market for many years. There was not a lot of contemporary data sets and HCPs and payers are obviously interested in looking at randomized control, data release control, trial data to make their decisions. So, one of the things we did was to start down the path of initiating six, half a dozen, now seven clinical trials. They take several years obviously to complete.

At the same time, we initiated a lot of work and help economics and outcomes research to get a better understanding of the value of the product, even though we didn’t have any larger contemporary data sets. And also, so let the disease burden, the cost associated with Acthar and any cost to offset et cetera, so we had a nice generation for the first couple of years in health, economics, and outcomes research data. We also generated a lot of preclinical data to distinguish the product from steroids and other immunosuppressive agents because our product is more of an immunomodulator.

So, some scientists had caught up with the product after years of really low investment from previous owners. The interesting thing is, we finally had a first and large study that has read out and it was rheumatoid arthritis. So, this is a very challenging population that we studied not the whole basket of patients with rheumatoid arthritis, but those patients who have persistently active disease. These are patients that have been on multiple other products, DMARDs, Methotrexate, or DMARSs biologics et cetera. They still have a persistent and steroids and still have persistent levels of disease activity, which obviously correlates with continuation of joint destruction.

So, we did a randomized withdrawal trial. So, we put in 259 patients, created open label with the product over 12 weeks. At the end of 12 weeks, we randomized responders for another 12 weeks of either continuation therapy or blinded withdrawal. And the data we saw was very, very compelling. We’ve got a very robust response in the open label portion in these tough to treat patients of nearly two-thirds of those patients got 62%. And then in the randomized withdrawal phase, you saw persistence of that adorable effect in those patients who continued on the drug. That was better than those who withdrew.

Both groups actually did fairly well, which is a great story regardless. In other words, you treat these patients well after 12 weeks. Both groups actually have persistence of that effect, although you see a greater persistence of patients who continued on the drug for the additional 12 weeks and that was true of every primary and secondary outcome measure that we had. So, this is a very robust contemporary data set that actually will be very helpful with payers.

One of the things payers will look for as they want to understand for whom the drug is best utilized, and what is the expectation of response? How long do I need to treat them, how durable is the effect, what is the dosage range et cetera, but most importantly who are the patients that should be on the drug? So, I think with this data we’ve already begun to have discussions with payers and certainly with healthcare providers. We’re beginning to have some much more robust discussions and maybe if Hugh…

Hugh O'Neill

Yes. So, I think of couple of things to take away from this. From the impact in the market. One, as we've said all along, the Acthar patient is to refractory, difficult to treat patient has failed multiple therapeutic other options, and as Steve said that’s the heart of the study design. So, this is not for broad first-line use in RA, you're not going to be going against the [indiscernible] A - Hugh O'Neill that’s not our space. Our space is a very small subset of patients who have still a high disease activity after multiple failures on different therapeutic options.

So, this helps to answer that question, which is really who is the Acthar patient and what we're seeing so far is early, especially from physicians is that it helps answer that question. Because that, when they see the multiple patients, they want to know who really is the patient that’s more likely to respond. We refer to these patients as smoldering patients, patients who still have active disease after therapeutic – other therapeutic entry. So, it answers that question.

The second thing it answers, which is really vital to the brand is how long should I keep the patients on drug and at what dose? Right. Because that’s, remember this is a drug that has been around for a significant amount of time as Steve said, and physicians have been finding their way on both of those, right. So, now we’re beginning to answer those questions because now you can say what we expect that the majority of patients will have some sort of response who have high disease activity after 12 weeks, and there is a subset of those patients, and if you continue the therapy for another 12 weeks you will continue to see benefit for that.

Some of that will maybe be fine with the 12-week, it’s really up to the physician to figure that out. So, on the physician side, what we’ve seen on the drug is every time we introduce new data into the marketplace, we do have an impact on physician’s confidence in the willingness to write it. On the payer side, I think it’s going to take a little bit more, the data is very exciting. I think we’ve had really good interactions, but I want to point you this idea of the ponderance of evidence, right, because they are, they are hesitant not just with Acthar, but specialty drugs in general about opening up access.

So, it’s going to take – this study is great, we have good interactions with them. We’re beginning to identify who those patients are, but as Steve said, we have 6, almost 7 studies going on. So, as more of those studies read out then we begin to answer the question or remove the doubt, you know the position now, if you read the media or if you read the procession on the product it does not work, right. That’s not true. We clearly have strong data in IS, we have strong data rheumatoid arthritis and we have a wealth of data that’s coming out and other indications and we have good data and MS.

Then the next question is, okay if it works it’s too expensive. Well, if you think about the subset of patients we’re dealing with, we use other health care utilization, the product actually is priced for that subset, it’s not priced for first or second-line therapy. So, the stories coming together and it’s going to take a little bit more evidence to actually build that out and it’s really about the modernization of the brand and that’s the way I’m going to think about it.

Unidentified Analyst

And did patients remain on underlying baseline therapy?

Steve Romano

Sure. On these trials whenever you are really targeting a refractory population, typically clinical trials will allow standard of care and then the experimental condition is the addition of the product and or placebo. So, that’s exactly how we’ve modelled these and most of the other studies as well.

Hugh O'Neill

The other thing I’d want to add there is that there is this thought process I think there is this misinformation that the product is just a steroid and what you're seeing in the studies and even some of the preclinical work we’re doing is we began to understand more about the product now than any other time and remember the product works on refractory patients. Steroid refractory patients. These are patients who have failed on steroids. So, our goal is never to kind of move up and replace steroids. Our goal is to identify who those patients are who are more likely to respond and most of those cases, those are patients who have been on steroids unless you have other indications.

Bryan Reasons

I mean, in most or the new inflammatory conditions, particularly chronic ones, you want to limit the amount of steroids because steroids obviously are associated with the substantial number of side effects. They are a wonder drug for many, certainly acutely, but long-term there’s always an attempt to minimize that. And what we’ve seen in many of our programs is a diminishing use of steroids. We do not program that into the trial, but we capture that information and you see a, less of a dependence on steroid as they respond to the addition of Acthar.

Unidentified Analyst

So, with this current Acthar position in RA would you say that this incremental data opens up a potentially different patient population and where the products currently be [indiscernible] or is it more about retention in duration?

Bryan Reasons

I think it’s more about retention. It’s more of a clarification of dosing and duration.

Steve Romano

And strengthening the value proposition of that particular refractory.

Bryan Reasons

So, we’ve always positioned this product in all indications with the exception of infantile spasms, as a drug of second, third line depending on the indication. So, this further clarifies that. It paints the picture of who that patient is that high disease activity patient and it does answer the question of how I should dose them for what duration. So, I think it helps us. It helps clarify where we already are spending our time. And the other thing is, when you think about it.

When RA has been in the market because of the nature of the drug, this is, what we’re excited about, this is a purely modern data set. This is a large scale [260%] study, somewhere in that range, where we see significant impact and what you would expect out of a drug being marketed at this point in time, right. So, that’s helpful for us because there is this idea that there is not modern data on the product and the more we communicate this is the more we publish it, the better it will help the brand.

Unidentified Analyst

Okay. And we’ll get to see the full data set relatively, I believe…

Bryan Reasons

So, we actually submitted a fair amount of data, represented a fair amount of data, you either represent a full data set probably later this year at ACR.

Steve Romano

That’s right.

Unidentified Analyst

Okay.

Bryan Reasons

We’ll have the opportunity by the way in discussions with individual payers to share more information, but the public presentation of that will come at the next major meeting.

Dan Speciale

That you are if you've not, I mean, you would have probably seen it, it was in our release I believe as well. We did talk about the p-value and the [indiscernible]. So, we did talk about the second half.

Bryan Reasons

Absolutely. The substantial amount of information I think the poster is on our website.

Unidentified Analyst

Okay. Thanks. And then maybe we can talk about a couple of the other expected pipeline events over the next [indiscernible]?

Bryan Reasons

Sure. So, if we look at 2019 for us, it’s really an important year. Over the last two or three years we have been actually expanding our development portfolio. We’ve gone really from zero to about a dozen programs, about half a dozen of those [indiscernible] development stage.

So, two of the Phase 3 programs that we’re looking for to completing this year are, one in StrataGraft. So, StrataGraft is our regenerative medicine product for the treatment of deep partial thickness burns, we’re initiating a full thickness trial as well, but for the deep partial thickness which is a lead indication we have actually completed enrolment of that trial, which should have the results of that study late summer, early fall.

So, we're very excited about that. That is a regenerative medicine product that actually has an RMAT designation, which allows us to essentially have much more lean way with regards to the interactions with the agency and the progression to file and hopefully approval. Then the other large say, with a complete the Terlipressin, Terlipressin analogue.

It’s standard of care for treatment of hepatorenal syndrome type 1, which is rapidly progressive kidney failure [indiscernible] of advance liver disease or sclerosis. So, we’ve just completed enrolment of that trial. That’s the largest study done in this population to date, 300 patients. So, we will also have that data by the end of the summer early fall.

So, those are two key Phase 3 programs that we have initiated several years ago and will complete this year. In addition to that, we're going to be able to start another large Phase 3 program with MNK-6105, which is an ammonia scavenger that is used to manage hepatic encephalopathy, which is another complication sclerosis that complements our efforts with total [indiscernible] in the kidney challenges in that population. And as treatment neuropsychiatric complications are there. And we will initiate that program by year-end. So, we are excited about that.

We're just actually initiating phase II work with [indiscernible] IV formulation, which would be used in hospitals for in the acute setting. These are patients’ whose neuropsychiatric conditions can run from subtle behavioral changes to [indiscernible] and coma and death. So, very serious condition. But we also have the oral formulation.

So, we would like to be able to have the opportunity to manage patients acutely and then when the transitions are to home or another facility, they can continue on oral for suppression of future exacerbations. We’re excited about that. And then just one other comment is the Acthar portfolio is continuing to progress.

So, later this year we would have completed a large registry in MS patients the acute management of MS patients, but more importantly we have a couple of randomized control trials that will also be completing enrollment or even getting close to readouts, one is in lupus. So, lupus is a very complicated condition as you can imagine. Similarly, to RA patients, we’re looking at the refractory patients, we’re on steroids other immunosuppressive or immunomodulating agents added to that is Acthar placebo, that program is going to end by year-end.

We have some very exciting data and a pilot study that was done several years ago that informed the power assumptions and the design of this particular program. We’re also likely to complete enrolment near the end of the year, early into next year, in both sarcoidosis and even our ALS trial with Acthar. So, a lot of progression of our activities both in the pipeline, as well as in support of Acthar.

Dan Speciale

Yes. I think the one comment I made was just to clarify Steve said, the ALS study however is a label expansion study. Everything else is a Phase 4 on label study to modernize the dataset.

Unidentified Analyst

Okay. And, what type of data has been generated to date with Acthar in ALS? Investigator initiated study; I would imagine…

Bryan Reasons

Yes. It was a small pilot study that the previous sponsor had done. Really looking at the safety of a number of different dosage regimens, but they had the opportunity to follow those patients after 36 weeks. We did some very interesting analyses of those patients who went out the 36 weeks, compared them to a dataset that’s curated in Boston at Mass General.

Has all the data, our controlled trials that we’ve done in ALS, and we did some post talk analysis looking at the anticipated effect of these patients due to these trajectory versus on drug and we saw some very compelling suggestion that the product might be effective in attenuating the progression.

So, we utilized that data actually to have conversations with the agency and informed the design of a very large 200 plus patient study, which is essentially proof-of-concept, but if positive could very well be a potential registration trial. So, we're very excited about that.

Unidentified Analyst

Okay. Any questions from the audience? Maybe just spent the last couple of minutes here just talking about the pipeline in general. The last couple of years the company has gone through pretty extensive effort in terms of building out late stage pipeline, not everything has gone particularly according to plan, priority in the next couple of years of course is the use of discretionary cash flow to delever, but a lot of these assets that you brought in were brought in with – we’re able to reach small upfronts and fairly large backends that might give you some runway in terms of cash flow utilizations. So, I’m just kind of wondering, we heard you guys really talk about sort of re-prioritizing pipeline opportunities or kind of refilling, backfilling…?

Steve Romano

Maybe I'll start with our desire to be active and then Bryan can actually comment on capital required to achieve that.

Unidentified Analyst

That’s the guy that owns the key for your design.

Steve Romano

So, one of the things we have been doing is actually we have been very wise with our dollars. We’ve been opportunistic. We got certain products like acquisition of Ocera had really very modest prices. So, we did miss on one item, which was stannsoporfin. We got that at a relatively low upfront. We also took on some really calculated risk because they had already moved forward with the agency on Phase II data. So, there was an opportunity there as well. So, bottom-line is, we need to continue to expand the pipeline, right.

Now, we're doing that larger through acquisition because we don’t have discovery platforms per se. I’m not going to fully in place in the discovery phase, but what we can do is establish more collaborations with the researchers whether they be academicians or whether they be small biotech and continue to potentially acquire or at least collaborate in the development of certain technology platforms.

We are in the process of assessing those. So, besides individually picking our potential products as we have been doing in mid-to-late stage, probably earlier mid-stage, we’re also looking to acquire or at least collaborate with the companies or entities that have technology platforms that would allow us organic, sustained organic growth. And that’s what we’ve been doing a lot of assessment. I’ll let Brian talk about it.

Dan Speciale

Just one thing I'd add before Bryan talks about that, because I think the technology platform is an important point. We're looking at external opportunities, but we do have some of those internally as well that we are further developing. This idea of nitric oxide, which is the Inomax platform, we're looking at multiple other potential therapeutic indications for that and how we can actually expand that use of the product outside of the [queue] and even with our partnership with Transimmune we’re very close to looking at other potential how we could use photopheresis. So, Steve is right. We’re looking at platforms plus individual targets to actually broaden our pipeline.

Bryan Reasons

And if you look at kind of over the next three years, what we have in-house in R&D, it’s within the budget and allows it to continue to delever. A lot of the opportunities we’re looking for externally there is opportunities to really structure that. So that it’s much more modest upfront milestone based out in the future, risk-based milestones in the future as well of royalty kind of royalties and we’re seeing in the spaces we're looking, we're seeing lots of opportunity to structure it so that it’s near term cash flow upfront.

Steve Romano

And I’ll just say, we are confident that we can continue to sort of invest and grow our pipeline at the reinvestment of probably low to mid-teens on the revenue side. So, percent of revenue invested in R&D. That will allow us to not only [indiscernible] or we have in-house, but also continue to add on an annual basis new assets that will still allow us to…

Bryan Reasons

It’s kind of a 12% and 13% of top line, we have learned to do that.

Unidentified Analyst

Okay. Alright. Thank you, listeners. Any questions from the audience. I think we're going to wrap things up. Thank you, gentleman.

Bryan Reasons

Thank you. Appreciate.

Steve Romano

Thanks.