Executives
Clive Meanwell - Chairman & Chief Executive Officer
Glenn Sblendorio - President & Chief Financial Officer
Cees Heiman - Head of Europe & Middle East
Michael Mitchell - Head of Global Communications
Analysts
Louise Chen - Guggenheim
Jason Kantor - Credit Suisse
Umer Raffat - ISI Group
David Amsellem - Piper Jaffray
Adnan Butt - RBC Capital Markets
Steve Byrne - Bank of America/Merrill Lynch
Jonathan Eckard - Citi
Biren Amin - Jefferies
Matt Lowe - JP Morgan
The Medicines Company (MDCO) Q2 2013 Earnings Conference Call July 24, 2013 8:30 AM ET
Operator
Good day ladies and gentlemen and welcome to the quarter two 2013, The Medicines Company earnings conference call. My name is Caroline and I’m your operator for today.
At this time all participants are on listen-only mode. (Operator Instructions). As a reminder, the call is being recorded for replay purposes.
And now, I’d like to turn the call over to Michael Mitchell. Please proceed sir.
Michael Mitchell
Thank you Caroline and thank you everyone for joining us this morning for The Medicines Company’s, second quarter 2013 financial and operating results call.
I would like to remind you that this call will contain forward-looking statements about The Medicines Company that are not purely historical and all of the statements that are not purely historical may be deemed to be forward-looking statements that involve a number of risks and uncertainties. Without limiting the foregoing, the words believes,
anticipates, plans, expects, estimates, aims and similar expressions are intended to identify forward-looking statements.
Important factors that could cause actual results to differ materially from those indicated by such forward-looking statements are identified in the company’s SEC filings, including the Form 10-Q filed with the SEC on May 9, 2013. Copies of our SEC filings can be obtained from the SEC or by visiting the Investor Relations section of our website.
I would also note that during the call we may refer to adjusted net income measures, which exclude intangible asset impairments, upfront collaboration payments, amortization of acquired intangible assets, acquisition-related charges and restructuring, stock-based compensation expense and interest and income tax.
Please refer to the reconciliation of GAAP to adjusted net income statements in our press release for explanations of the amounts excluded and included to arrive at our adjusted net income and adjusted earnings per share.
This morning Clive Meanwell, Chairman and CEO will provide his perspectives; and Glenn Sblendorio, President and Chief Financial Officer will present operating and financial results, and we also have Cees Heiman, our Head of Europe and Middle East on the line as well available during Q&A.
And with that introduction, I give you Clive Meanwell.
Clive Meanwell
Well, thank you very much Mike and good morning to everybody. The Medicines Company is focused on acute and intensive care medicine, where our purpose is to save lives, alleviate suffering and improve the economic efficiency of approximately 2,500 leading hospitals in the world.
Our strategy is to create value for customers and shareholders from four main ideas; focusing on acute and intensive care medicine, concentrating on leading hospitals, leveraging our resources with multiple products down the same channel and demonstrating real value to customers.
The strategy is working well. During the second quarter and first half 2013 on a worldwide basis, our products were used in a record number of patients. Significant volume growth was reported for all of our products in all of the regions we’re operating in.
Because of the value, our products reached another record quarterly sales number, up 27% on last year and up more than 60% in the last three years. Because of our focus, concentration and operating leverage, adjusted net income is up more than 60% year-on-year.
Our portfolio includes more compounds with successful Phase 3 clinical data readouts than any hospital, Biopharmaceutical Company in the world. We now have a string of new drug applications under review, filed or under construction for the FDA, for the EMA and for Asian Regulatory Agencies.
Over the coming few years we expect to launch five highly innovative new products into the same hospital channel, Cangrelor, Oritavancin and IONSYS worldwide, Cleviprex and Recothrom in Europe and Asia.
We also anticipate a decision on our option to acquire ProFibrix in the next few weeks, as our colleagues there complete the analysis of Phase 3 studies for Fibrocaps. If we go forward, and we are optimistic, we will, and that’s add yet another successful post Phase 3 asset to our portfolio and again, from the same hospital channel where we are already growing Recothrom and having increasing success in our turnaround of Cleviprex.
We also have two important potentially high-value assets in ApoA-I Milano and PCSK9 RNA interference compounds with our close colleagues at Alnylam. These early and late pipeline assets represent significant value in our pipeline on top of our marketed products, which grew 27% in sales.
We are understandably excited by our current and future business and we will present an in-depth review of our commercial activities and of our pipeline to investors in an event on the morning of October 10 in New York City. Details of the exact time, venue and webcast links will be provided shortly, but for now please save the date; the morning of October 10 in New York City.
And so now over to Glenn for highlights of the second quarter and then we’ll take questions.
Glenn Sblendorio
Thank you Clive and good morning everyone. As Clive said, the second quarter was another record period for earnings. We also made significant progress on both our late stage development programs and our early stage programs, which I’ll talk about today.
Let me briefly review some of the financial highlights, starting with net revenues for the second quarter 2013. As Clive said, up 27% over the same period 2012 and aligning well with our expectations.
Each of our major market advancements showed growth year-over-year. For Angiomax sales in the U.S. reflected continued growth in both price and volume, with gains in high-risk patients undergoing PCI. As we have reported previously, patient level is third part audited and the U.S. showed the majority, about 60% of all Percutaneous Coronary Interventions or PCI are now performed with Angiomax to protect against thrombotic complications.
Consistent with our growth strategy, use in high-risk patients, those are the patients having heart attacks continues to grow. The latest data show that more that 46% of all U.S. heart attack patients undergoing primary PCI are given Angiomax, which is an approximate doubling of the market share net segment in the last four years.
Internationally, Angiomax and Angiox sales are up 11% in the second quarter. We did see continued volume growth exceeding 20% in Europe as Angiox adoption continues to increase in high-risk PCI patients there.
The second quarter was the first full quarter of Recothrom revenues for the Medicines Company and it came in at $17.9 million. The team supporting Recothrom is fully onboard and performing well. We saw a 7.6% volume increase in the second quarter compared to the second quarter of 2012 and again that’s for Recothrom. The balance of the revenue came from Cleviprex and Argatroban. These products could together increased 44% quarter-over-quarter.
Overall, second quarter revenue performance puts us on a strong footing at midyear. We are keeping our annual revenue guidance at 20% to 22%, the expected growth for 2013. Keep in mind that the third quarter tends to be flat compared to the second quarter, as procedure volumes in the CATH lab and surgical suites historically slow down during the summer.
The cost of revenues number came in at 37% consistent with our guidance of 37%. As a reminder, given the maximum Biogen royalty on Angiomax and the structure of the Recothrom deal, royalty payments on both of these products stop at the end of 2014. So the gross margin is expected to improve dramatically from 2015 forward.
Now an update on our late-stage for R&D. As Clive mentioned, we have several near-term hospital solutions that we expect to drive revenue growth starting in 2014.
First Oritavancin. On top of positive SOLO-1 results reported in December 2012, we announced positive results of SOLO- 2 and a combined SOLO program finding from July 2.
SOLO clinical data demonstrate that a single dose of Oritavancin, given on presentation of a patient with ABSSSI to a hospital can cure rare and positive infections, including Mercer infections and (b) at least as efficacious as multiple days of a twice daily regiment of vancomycin infusions.
In parallel, to completing the clinical trail for the team, the Oritavancin team, has continued preparing for our global regulatory submissions. We anticipate submitting an NDA in the U.S. in the fourth quarter of 2013 and an MAA in Europe in the first half of 2014. We are now focused on acute bacterial skin infection.
We also continue to assess additional opportunities for Oritavancin development in other Gram-Positive Infections. These include prosthetic joint infections, bacteremia, anthrax and potentially (inaudible). If approved we anticipate Oritavancin to be at least $400 million of global revenue at peak.
Of the Cangrelor we announced on July 1, the FDA acceptance of our NDA filing for Cangrelor and its intended use in patients undergoing PCI and those that require bridging from oral anti-platelet therapy to surgery. We anticipate action on the U.S. filing in the second quarter of 2014. In Europe we planned a fourth quarter 2013 submission. For Cangrelor we believe it can be a $450 million product globally at peak.
IONSYS; our second quarter activities keep us on track for the anticipated U.S. regulatory submission in the first quarter of 2014. The European MAA submission is anticipated in the second quarter of 2014. The U.S. and regulatory agencies are seeking data to support comparability, reliability and stability of the two-part system that was originally the approved version; both made significant progress on that.
Specifically with compatibility, we’ve now established that all three clinical studies have met their objective. Those studies showed bioequivalence device adhesion and usability and the area of reliability tests have essentially been completed with results supporting high levels of reliability as we expected.
Stability studies are ongoing and are designed to demonstrate a shelf life of 24 to 36 months. They are planned to be completed in the first quarter of 2014. As Clive mentioned, and asked you to keep on hold, we have our R&D day on October 10 and we look forward to talking a lot more about IONSYS’s at that meeting. Again to reiterate our long-term deal on IONSYS, we believe that it is a product that can generate at least $800 million of sale at peak.
A couple of words about our early stage R&D pipeline. Again, another focus of our R&D day on October 10. First we believe we potentially have a world-class lipid franchise by the end of this decade, specifically with MDCO-216 or ApoA-I Milano.
In the second quarter we continued our Phase 1 study. We have completed the healthy volunteer stage of the trial and we are moving forward with the ACS patient part of the clinical trial. Additionally, important manufacturing development work with our partner Lonza has continued to its increasing the yield of MDCO-216 protein manufacturing. We expect to report progress on both fronts later this year.
We plan to begin our Phase 2 trial in 2014. Manufacturing improvements necessary for ongoing clinical material continue on plan. As many of you that have followed this program closely recall, manufacturing yield improvements are a key determination in the success of this product.
For ALN-PCS, our global alliance with Alnylam for the development commercialization of Alnylam’s RNAi therapeutic program for the treatment of hypercholesterolemia is on plan. Under the agreement Alnylam continues its pre-clinical and Phase 1 development and The Medicines Company will pick up the work from Phase 2 forward.
Alnylam’s work towards optimizing a subcutaneously formulation for delivering this RNAi targeted PCSK9 therapeutic was reported at their recent Analyst Day. If we continue with progress, we plan to compete in a landscape of antibodies that are being developed targeting PCSK9. This is an important target in cardiology and we have much more to share on this front in the coming months.
Finally, a program that we’ve not talked much about is our partnership with Annovation Biopharma Inc. Together we are pursuing a rapidly titratable anesthetic that we believe can provide improved control of procedural sedation and general anesthesia. This is a promising program approaching clinical trials in the coming months and we look forward to providing you a further update later in the year.
So to wrap up, there are five key anticipated events that we want to point out for the second half of 2013. As Clive said, we are on track for a third-quarter decision on exercising our option to purchase ProFibrix BV. Second, we are planning to see a wealth of re-advance in data at leading medical conferences in anti-infectives, ICAAC, IDSA in September and October.
Third, the European Society of Cardiology Conference is coming up in early September and we anticipate investigators presenting new Cangrelore data. Fourth, we plan to report manufacturing pre-clinical and clinical development findings for MDCO-216, as well as ongoing progress with our program ALN-PCS; that’s the Alnylam collaboration.
Finally, we will have an opportunity to review all of this and more on October 10, the R&D day that Clive spoke about and we hope that you all can join us.
And now I’d like to turn it back to Clive.
Clive Meanwell
Thanks very much Glenn, and I think Caroline if we could, it would be lovely to open it up for questions.
Question-and-Answer Session
Operator
Okay, thank you (Operator Instructions). Please stand by for your first question; it comes from the line of Louise Chen from Guggenheim. Please go ahead Louise.
Louise Chen - Guggenheim
Hi, good morning. I had a few questions. The first question is on the financial guidance for 2013. I know you said that third-quarter…
Clive Meanwell
Louise, we lost you.
Operator
Sorry about that. We’ve lost Louise, I’ve now got Jason. Sorry, if Louise you want to come back into the queue, I’ll put you back in again. But we got Jason Kantor from Credit Suisse in now. Sorry about that.
Jason Kantor - Credit Suisse
Great. I unplugged her phone, sorry about that.
Clive Meanwell
Jason, be careful what you ask, because the operator will just cut you off.
Jason Kantor - Credit Suisse
I appreciate it. So you mentioned both price and volume growth for U.S. Angiomax. I’m wondering if you could break that out and discuss any trends in either. And then also in terms of Angiox, how big do you see that getting to before, the ex-U.S. portion before you run out of patent life there and what is the patent life outside the U.S.?
Clive Meanwell
Jason, thanks. Glenn is just looking at the numbers on the split there.
Glenn Sblendorio
Jason, the split is 50/50. I think the quarter was around 14%; it’s 50/50. And then as for the areas of growth, overall in excess of 60%, which we just spoke about. But really the key driver continues to be the high-risk conditions, which is now at 46%. The number you're looking for is a 50/50 split, price and volume.
Clive Meanwell
And looking beyond Jason for the other part of your question (inaudible) is looking at the numbers, in the U.S. as long as the product has exclusivity it’s going to grow not only because of high risk coronary patients, but also the work we're doing in peripherals which is a huge area of use and opinion leaders are very keen on Angiomax in that area, but we are undertaking a significant study to prove reduced bleeding with Angiomax in peripherals.
There's about 500,000 plus peripheral procedures in the U.S. So that’s a very fertile ground for further growth driving and a completely fresh set of audience, meaning including interventional radiologist, as well as cardiologists.
In the U.S. where you mentioned – we are designed to the fact that we will lose exclusivity in Europe in mid 2015. We have Cees Heiman on the phone and I think up until that point we are going to continue driving in acute MI, primary PCI. There's plenty of business left on the table there.
Also in high risk non-STEMI ACS and then occasionally we have centers that are efficient enough to use Angiox and we’ll call them elective procedures, but in Europe it’s rather tight Cees I’d say for those purposes. Could you give us some comments on where you think the main growth will come in the next two plus years?
Cees Heiman
Yes Clive, absolutely supportive of the statement you just made. I would add one major item to that and that is our geographical growth even within Europe. On top of western Europe we really got going last year in Russia and we expect to continue to see significant growth numbers coming from there.
And the good news also is that we recently received information that the product will be launched in Poland, which is the fourth largest PCI market in Europe in January 1, 2014. So continued growth in Western Europe and significant opportunities in the two major markets in Eastern Europe.
Clive Meanwell
Thanks Cees. Jason, I hope that got to what you needed.
Jason Kantor - Credit Suisse
Thank you.
Glenn Sblendorio
Yes Jason, the specific month is August 2015, so there’s a couple of more months in Europe on the project back.
Jason Kantor - Credit Suisse
Thank you.
Clive Meanwell
Thanks.
Operator
Thank you. I’ll just join Louise Chen back into the call again.
Louise Chen - Guggenheim
Hi, thanks. You guys can hear me okay.
Clive Meanwell
Yes, Louise, thank you. Sorry about that.
Louise Chen - Guggenheim
No, no problem. So I have a few questions. My first question was on your guidance for 2013. I know you mentioned the flat quarter and third quarter versus second quarter, but also I was wondering were there are any other factors making it a tougher year-over-year comp in the second half of ‘13 or are you just being conservative for now, doing it only halfway through the year? And then my second question was on – do you want me to…
Clive Meanwell
No, give us all your questions.
Louise Chen - Guggenheim
Okay. The second question was on Oritavancin. We've gotten quite a few questions regarding how the hospital will basically maximize the profitability on using this drug, because the ER and the actual in-patient are separated and just wondering how they will decide between the two of them that this drug is most profitable for the hospitals and institution as a whole.
And then maybe the last question is on IONSYS. Just wondering if you have comparable PK to IV opioids and if so, what evidence do you have of this? Thanks.
Clive Meanwell
Yes, great. I'll do the last two, but let's get Glenn to answer the question on guidance.
Glenn Sblendorio
Yes, thanks Louise. So we've not changed our top line guidance for the year of 20% to 22%. That being conservative, we do have historically and we always mentioned really for modeling purposes that the third-quarter tends to be, when you look at Angiomax along flat to the second quarter, and a strong quarter than in the fourth.
So right now we don't see anything on the horizon to change guidance. At this point, yes, about other things. If you’ve noticed, we haven’t changed our expense guidance. Clearly if ProFibrix moves forward, which would be a very good thing, we’ll take a look at our expenses as it relates to that and would adjust expenses accordingly, but steady as we go at this point mid year.
Clive Meanwell
Thanks Glenn. Louise, on the Oritavancin, the matter of hospital profitability, I think that of course there are a series of pathways of patients with acute skin infections. Some patients come to the ER and are discharged immediately, perhaps even on oral medication; there’s a large number of patients in that group. Obviously that’s not a target group for any IV drug.
Then there’s two groups of patients in the middle ground who are thought who need intravenous drugs, one group, which does not have comorbidities, and one group, which perhaps does. The ones that don’t have comorbidities are really candidates for having a rapid turnaround therapy, perhaps an ideal group of patients for Oritavancin.
The third group, which may or may not be admitted, but need IV again could well be an attractive valid proposition for oritavancin. And the fourth group are those that are very, very sick and absolutely need admission because of they are toxic.
We think group two, which comprises of several hundred thousand patients a year would be the ideal place to demonstrate improved profitability for hospitals with a drug like oritavancin, also possibly group three, and we know for a fact that half of the hospitals that we are currently dealing with in pre-launch discussions are losing money on this DIG and we believe they are very, very interested in moving patients out of the hospital within a day or less than 24 hours, so that they can get reimbursed differently.
So I think that with a large number of patients presenting to hospitals in this setting, we estimate somewhat between one million and two million people. There are plenty of patients in whom rather substantial improvements in hospital efficiency could be achieved and those are the ones you want to go after. And the value proposition is going to be, I think very, very high, depending of course on how we price this.
Now on the IONSYS, the comparison of pharmacokinetics versus IV opioids, all those studies have been done and there’s almost perfect equivalents with IV opioids and also remember, there are seven randomized clinical trials in Phase 3 that were performed, which also clearly show as that from a clinical point of view, its at least as good with improved ease of use, the safety relative to IV opioids. So I think we have a plethora of data to demonstrate the important issues you’ve raised their.
Louise Chen - Guggenheim
Thank you.
Clive Meanwell
Lets say it is summarized in the press release as well, right Michael.
Michael Mitchell
No, but its I think quite a summary I think.
Clive Meanwell
And Louise, if you if you want to get a hold of that information, we can absolutely give you that. The team can put that together, because its in the public domain.
Glenn Sblendorio
Yes, there is an 8-K that we filed in December of last year after we did the deal, but never used the data.
Clive Meanwell
Yes, it’s all there.
Glenn Sblendorio
We’ll follow up with you Louis to make sure you get that.
Louise Chen - Guggenheim
All right. Thank you.
Clive Meanwell
You’re welcome.
Operator
And so the next question we have comes from the line of Umer Raffat from ISI Group.
Clive Meanwell
Umer, go ahead. We seem to be having trouble with Umer’s line.
Operator
Sorry, I think we are having a lot of problem with the system. Just give me a second, I’ll override again. Umer you are now live.
Umer Raffat – ISI Group
Can you hear me now?
Clive Meanwell
Yes Umer.
Umer Raffat – ISI Group
Okay, great, thank you. I had two questions, number one on IONSYS, I remember last time we talked about minor adjustments that were being made to IONSYS. I just wanted to check up on the status on that and if that IONSYS post adjustment has been shared with the FDA and I had a follow-up.
Clive Meanwell
We’ve completed all the adjustments, we have all the data, we are very happy with the data. We a compiling a variety of supplements to the FDA; I think everything’s done. The comparability, the bio-equivalence of this system as Glenn mention, and of course the usability as well, that’s all been completed. So we are good to go there.
Umer Raffat – ISI Group
Okay, great. And then a quick follow-up, the second question is actually off topic on Angiomax. So have you guys received any notification from FTC on the ATP settlement?
Clive Meanwell
No.
Umer Raffat – ISI Group
Okay, great. Thank you very much.
Clive Meanwell
Okay, those are easy questions Umer; you’ll come back. Okay, so lets keep going.
Operator
The next question is from David Amsellem from Piper Jaffray. Please go ahead.
David Amsellem - Piper Jaffray
Thanks. Just a couple. First I wanted to get – this is for you Clive; to get your latest thoughts on the Hospira case and specifically what you think is the potential that this can be settled as of the case with Teva and APP and I guess how you are thinking about Hospira’s willingness to either settle or take this all the way through to trial and court decision?
Clive Meanwell
Almost all conversations of this nature are under confidentiality agreements David and were they to be happening, it would be inappropriate to comment on them. So I’m not going to comment on whether or not we have discussions or settlement with Hospira.
It is well known that our general approach to this issue is to look for settlements that make sense and that are completely within the boundaries and the guidances that came out of SCOTUS and by the way, I think because of the prior adherence for that, that’s why I could Umer very clearly just a moment ago.
We have a high respect for Hospira. We’ve worked with them on many projects over the years. We know their leadership. We think they have a great leadership group and I’ll leave it at that. I think that it would be inappropriate to try and reveal things that may or may not be happening in the background.
David Amsellem - Piper Jaffray
Okay. Question on IONSYS; one of your competitors, Excelerex (ph) has been – well potential competitors has been talking about the potential that your product has a relatively high cost to goods and therefore you won’t be able to compete aggressively on price. So you’ll have relatively higher price point for the product relative to their product. So I just wanted to get your thoughts on that commentary.
Clive Meanwell
Well, I know Excelerex (ph) has been loosening around the road raising money, and I congratulate then on that secondary offering, its terrific to see them moving forward. As to whether or not they are in a position to comment on our business, I’d be a little guarded on that one and certainly their ability to predict what price we are going to sell IONSYS for, its good to know that they believe we are going to be selling IONSYS, because we certainly are; at what price, it might be a bit premature to talk about.
So I think price, utilization, value, making a difference in hospitals, that’s a complicated equation, but as you know, because we’ve demonstrated it with Angiomax and we’ll continue to demonstrate it with everything we do, that we do value based pricing and we are not going to be tethered unlike their product, we are going to be tethered to any sort of comparative pricing games. We believe that our customers deserve to get value from us, and that’s what we’ll do. A little premature for me. I’m glad that Excelerex (ph) has figured it out.
Glenn Sblendorio
David the other thing I would say is that this is an established channel for us in surgery, so we’ll get tremendous leverage and cost efficiencies from a field force, a commercial presence that’s already there for us, so just something else to think about.
Clive Meanwell
David, our position independent of friends and colleagues of Excelerex is this; IONSYS is a breakthrough product. It is going to transform how patient controlled allergies is delivered, period. Now that’s our view and we think it’s a very valuable innovation. So we’ll be going for it big time.
David Amsellem - Piper Jaffray
Okay, and then one quick one if I may just on Recothrom. I know you talked about your efforts to drive volumes. Do you think that there is also pricing power in that market?
Clive Meanwell
I think it’s very tight. I think hospitals, they have various choices. The pricing opportunities in this space are very tight. I think you have to drive growth through volume and that’s what we are doing. So I don’t see an awful lot of opportunity on the pricing side, no.
David Amsellem - Piper Jaffray
All right. You were very helpful. Thank you.
Clive Meanwell
David, thanks for the questions.
Operator
Thank you. The next question we have comes from Adnan Butt from RBC Capital Markets. Please go ahead.
Adnan Butt - RBC Capital Markets
Good morning everyone. I hope you can hear me. I have two questions; first on Fibrocaps. Does the product just need to show efficacy or is there a specific efficacy threshold that needs to be crossed for the acquisition decision to be made?
Secondly, on oritavancin, has the company sought or will it be seeking QIDP designation from the FDA? And then lastly on the Paragraph IV litigation, there is one trial coming up. Any other trials that are coming up or expected over the next 12 months or so? Thanks.
Clive Meanwell
Okay, thanks so much. On Fibrocaps, we haven’t revealed details of the option agreement in terms of what the thresholds are, but it is over our option. There are no prearranged thresholds of performance. I think it’s within our purview to decide. We are though very excited about what our colleagues at ProFibrix are doing and we are confident that they are going to have great results.
On the oritavancin, yes, we absolutely intend to apply for QIDP GAIN act provisions, and then on the Paragraph IV, the only trial dates that are set at the moment are the Hospira trial dates, which are in late September 2013. No other trial dates have yet been set.
Adnan, I hope that answers your three questions hopefully. We may have lost Adnan.
Operator
He is still there. Okay, the next question comes from…
Clive Meanwell
Okay lets move on. Sorry, Adnan if you want to loop back Adnan, don’t hesitate to get back in the queue. Sorry.
Operator
Okay, the next question comes from the line of Steve Byrne from Bank of America. Please go ahead.
Steve Byrne - Bank of America/Merrill Lynch
Hey Clive, it seems like the CMS is particularly focused on cardiovascular related procedures and treatments, at least with respect to DRG cuts for readmission. Is that in your opinion due to that group of costs that are represented in a particularly high percentage of hospital costs or is it more of a high cost per patient indication?
Clive Meanwell
It’s a good question Steve. The last 10 or 15 years has seen raging debates about what’s the appropriate volume and what are the appropriate patients to be treated with cardiac surgery or specifically in our case, Coronary Angioplasty and Stenting.
There has been huge pressure, both from academic circles and CMS to avoid putting stents in people who merely have stable angina. But the data showed quite honestly are a little mixed and our view is that quality of life matters and I think it is clear that putting a stent into a stable angina patient does improve at least quality of life, even though it may not improve nitrile reinfarction or deaths, but that’s a controversial area, which is why we as a company have focused on the acute MI end of the spectrum and the non STEMI ACS end of the spectrum, where we think there is a lot of value in the healthcare system to be created and we’ve been doing that.
So the short answer is, DRG is timing out because, both the cost of the procedures are high and I think there may be a sense that there’s been some overuse of these procedures over the last 10 or 15 years and they want to keep that well-managed and actually I think we have to agree with that. I think we only want the right patients to undergo stenting and that occasionally means we lose volume opportunity, but I think we’ve been able to work our way through that.
Steve Byrne - Bank of America/Merrill Lynch
And on oritavancin, other than filing what are the next studies that you are queuing up for other indications other than skin?
Clive Meanwell
Well, now that we know the drug is so active and with this really quite appealing safety profile with a single intravenous dose, there’s a variety of things that we could prioritize. The one that captures my fancy, but this isn’t yet the filing and is the area that Glenn mentioned already, which is prosthetic joint infections. More and more people of course are walking around with false knees, and false hips and because we are living longer and getting osteoarthritis and so on, and many of these joint infections unfortunately don’t go in perfectly and some of those develop difficult to treat infections.
We think that it requires a long period of treatment and at the moment they are being treated on long-term intravenous drugs. So we believe that that might be a good target for oritavancin now that we understand its clinical performance better.
Other areas, obviously bacteremia is always a challenge, because bacteremia in which patient group, but I think that clearly we will understand ourselves better in bacteremia. We also have some interesting data in anthrax and although I think its becoming a credit area and I think it’s a very special situation, clostridium difficile might be important.
Now there’s one other area that Glenn didn’t mentioned, but I think we are not sure about, which is endocarditis. Very difficult studies, but again chronic therapy where much longer period is the dosing, it maybe of interest. Remembering especially that this drug has shown astonishingly good microbiology now, and I think now we can back that off with very, very impressive MRSA results in the clinic, so long answer. The short part of it is probably bone and joint prostheses would be a good place to start.
Steve Byrne - Bank of America/Merrill Lynch
Okay, thank you and just one small financial one. The sequential increase in the basic share count, 1.5 million shares is that exercising of options and if so what is the remaining balance of options outstanding?
Glenn Sblendorio
Yes, Steve it is the exercising of options. I don’t have the remaining balance. I know its on our regulatory documents, but clearly as we reached new highs in the last year or so there has been a lot of option exercise. So sort of had that number I think. Do we have thought or an estimate on that?
Clive Meanwell
I do not have that, but in addition to the option exercise we also have the impact of the, when we cross the threshold.
Glenn Sblendorio
So Steve, if you’re really analyzing the fully diluted number it also includes the convert where you basically put the shares as if they were converted.
Most of which is in the public. I’d be happy to follow-up with a call. I know this whole area shares outstanding has been a little confusing because of all of the exercises in the convert. We’ll look to work with you in the third quarter to make sure that we provide more clarity.
The key document that is coming out in terms of locking in of the number of shares outstanding is obviously the Q, which will be filed in early August and this is something that we’ve been talking a lot about internally to be sure that all of you as you build your models got clarity not only on what could, but also the impact of the convert.
Clive Meanwell
Let me be a bit unsound. If you had to pick a number today, of shares outstanding, what number would you pick?
Glenn Sblendorio
I think we will follow-up Clive.
Clive Meanwell
You want to follow up. Mike is more cautions than me Steve, you can see.
Steve Byrne - Bank of America/Merrill Lynch
Thank you.
Glenn Sblendorio
Okay. Thanks Steve.
Operator
Thank you. The next question we have comes from the line of Jonathan Eckard from Citi. Please go ahead.
Jonathan Eckard - Citi
Thank you very much for taking my questions. So the first question is, if you could just give us an idea of when we might be able to get an update on your plans or efforts on expanding the IP around Cangrelor and then the second question was on IONSYS.
Could you give us the ideas of the types of controlled substance programs the hospital would need to adopt in the distribution of IONSYS and would this be able to offset the need or needs around having a similar program for a more free distribution?
Clive Meanwell
John, good questions. We have a very focused and aggressive life cycle program for cangrelor as you would imagine and I think we’ll leave it at that for now. As to when we might talk about that, I think that’s a little hard to say.
I think we know we have longevity in Europe, at least 10 years. We are little tighter in the US, that’s something that’s under debate and its there where we want to make sure that the lifecycle is aggressively pursued, but the time being we are just working on it. I hope you forgive me for that.
On the controlled substance program, I think we see IONSYS as an opioid product. It’s going to – now you require all the bells and whistles of an opioid distribution system for hospitals. Obviously we will not be developing initially at least for outpatient use; that could be something down the road.
And so all of the controls which are in place already in preparation for launch and were all in place when J&J first had the product launched in Europe and then about to launch in U.S. I think that’s familiar territory for our team, but there are no, what shall we say, there are no easy ways to do it, there are no shortcuts. Opioids are opioids and although the drug has tremendous safety built into intrinsically, we would expect to comply with all of the rolls of opioid distribution for hospitals.
I hope that’s a helpful answer, please follow up if there is anything else.
Jonathan Eckard - Citi
Sure. May be if could just ask one quick question. Regarding oritavancin, when you foresee your own internal projections for the launch of this drug and we look back at Cubist who has presented charts about U.S. GRAM-positive and eight MRSA drug launches over historic ones, you know that obviously these ones do take time to build.
Do you see, based on your vision, that oritavancin has a potential to buck some of these trends a little bit with regards on the upside, based on some of the economics and needs that you see within the hospital system?
Clive Meanwell
Well, first of all I think if we can go to school anywhere, we can go to school with Cubist experience. I think they have done a fabulous job over the years building Cubicin and we are very admiring of what they’ve achieved.
Times change. I’m sure Mike, Bony would agree to me that the hospital environment has become more and more challenging and I certainly hope we’d be a very bold person to say that we could outdo Cubist in the launch of a product, in the anti-infective space. So I wouldn’t claim any possible upside relative to their fantastic program.
On the other hand, I think that the issues are increasingly focused on the economics of care and the efficiency of hospital throughput of patients. The American Healthcare System has challenges, but we are extremely optimistic about the way the American Healthcare System is adapting and will adapt to its challenges. I mean of all the Healthcare Systems and particularly hospital systems we’ve worked with around the world, this is the one that can rapidly take on new processes of care, turn on a dime and improve economics, and that’s the game we are in, is to help them to do that.
So without really answering your question, vis-à-vis to this achievement, which we think are definitely the benchmark, we think the world has become even more challenging and it’s all about the economics of care, as well as of course patient satisfaction and safety and effectiveness, but I think time will tell.
Jonathan Eckard - Citi
Great. Well, thank you very much.
Clive Meanwell
You’re welcome.
Operator
Thank you. The next question we have comes from the line of Biren Amin from Jefferies. Please go ahead.
Biren Amin – Jefferies
Thanks Clive for taking my questions. I guess an accounting question. For the next quarter, should we account for the $5 million that was awarded to Eagle through arbitration?
Clive Meanwell
Good question. Glenn?
Glenn Sblendorio
We didn’t revise our guidance at this point, but let me just – on the accounting, it’s in this quarter. In the second quarter we just reported, so its in the numbers that we did report. We had nothing accrued. It was $5 million, so net of tax it was probably about $3 million, so that’s over.
Does it impact our longer term outlook on expenses, it’s something that we’ll look at in the third quarter and the reason we’re being a little cautious there is we are waiting for ProFibrix, and I think ProFibrix will be the event that we would talk about expenses. But right now we have not changed guidance.
Clive Meanwell
Yes, but just to be clear Biran, we included the settlement fee of $5 million in the second quarter numbers.
Biren Amin – Jefferies
It is in there.
Clive Meanwell
Its in what we reported this morning, and for the record it cost us $0.05 on earnings after tax.
Biren Amin – Jefferies
Got it, and then I guess moving on, I had heard Glenn mentioned Cleviprex U.S. or European filing. I’m just trying to understand why you would want to spend resources on this product given the lackluster U.S. launch to date?
Glenn Sblendorio
Well Biren, we agreed that it was lack less to U.S. points, but we are seeing, I think quite encouraging signs of turnaround in the U.S. That product is up more than 80% year on year now off a very small base.
We have an opportunity in Europe, which is very different. First of all, in many of the key markets that we are looking at, including Germany, Intravenous Cardene is not even available and they are using, if I can put my medical had on a moment with you, they are using dinosaur like products in this space, very old drugs, which I think don’t have the precision, safety and effectiveness of a very, very advanced calcium channel blocker; of course Cardene is pretty good, we think Cleviprex is slightly better. So in the European context it is a very different mix.
The second thing, and I may get Cees to talk about this, is we believe the value of the products is much better established now to our research and development programs and we believe that the pricing of Cleviprex has been one of its biggest, the biggest missteps was to under-price Cleviprex relative to the value it creates.
At the time, that it was launched in the US, we hadn’t adequately explored and demonstrate that value. We now have, both in cardiac surgery and in other places, including as you know in acute heart failure where we’re very excited about the future.
So in the European context case, I think our assumption is we would go out with a very focused program against a very different competitive group and with a considerably higher a better value proposition; is that a fair case.
Cees Heiman
Yes Clive, absolutely. It will be a very, I would call it a balanced introduction. It’s not something where we will run in every country after every target, but we’ll be selective, both in terms of the number of countries and especially as Clive mentioned, the countries with the old-style therapies, if I may say it like that, where we see great opportunities.
And then also within each of these countries we are currently working very hard to identify the key accounts where we see the largest opportunity. So it will be a very targeted, very efficient launch in I would say a selected number of countries initially and based on that we will decide how we potentially rollout the products further in Europe.
Glenn Sblendorio
And Biren, I concur with your view that this is the lackluster historically. I think as a company we are not particularly happy about where we were, but we are quite pleased with the general direction this is taking. So I don’t expect you to be convinced today at all, but maybe over the next year or two we might be able to get you to a different place.
Biren Amin – Jefferies
Okay, and then maybe if I may Clive on IONSYS, I’ve got a couple of questions. I think there’s some criticism on IONSYS as far as its onset of action and whether that may potentially limit its adoption. And then my second question is, on today’s call you mentioned peak sales of around $800 million to $1 billion. I believe previously the company has centered around $800 million as peak potential. What kind of change and why provide this new range today? Thanks.
Clive Meanwell
Well, I don’t think we did say anything different. Maybe Glenn mentioned $1 billion while I wasn’t listening, but no. If that is what you heard we apologize. We are staying where we were, which is we think it can do more than $800 million at peak and hopefully we won’t misguide on that.
As far as the onset of actions, I’m puzzled, I don’t know where those data come from, because all the data I’ve seen is it’s almost a perfect replica of intravenous fentanyl or intravenous morphines. I mean you can’t get quicker than that, even if you do absorb it through the tunnel, which is maybe where that story is coming from. I’m battled by that.
We’ll follow up with you and if we feel there is some significant data that showed differently, we’ll come back to you. But I don’t think there’s any evidence that it doesn’t work on to the action very rapidly.
Glenn Sblendorio
Biren, just for the record, I went back and checked, what we had said. I think the exact words were $800 million or more, nothing more than that and I think that’s consistent with everything we’ve said in the past, so sorry if there’s any confusion on that.
Biren Amin – Jefferies
Sounds great. I may have misheard. Thanks.
Clive Meanwell
Thanks Biren.
Operator
On queue the next question we have comes from the line of Cory Kasimov from JP Morgan. Please go ahead.
Matt Lowe - JP Morgan
It’s actually Matt Lowe in for Cory today. Most of my questions have already been answered, but I guess one remaining one is how much patent life do you assume for oritavancin, cangrelor and IONSYS when you’re providing these peak sales expectations? Thank you.
Clive Meanwell
As a general statement we take the most conservative, what have we got in the back today? We don’t generally model out, at least in our guidance for lifecycle activities other than the obvious things like Hatch-Waxman extensions and pediatric extensions, which is somewhat easier to predict.
So I think, well these are fairly conservative Matt and as we go forward and develop more data we can perhaps amend then, but right now you can take these as being what’s in the public domain for excessivity periods, is what we are assuming for our peak sales.
Matt Lowe - JP Morgan
Okay. That’s helpful, thank you.
Clive Meanwell
You’re welcome. I think -- any more questions Caroline?
Operator
There’s no further questions coming through, so now I’d like to turn the call back over to Clive Meanwell for closing remarks.
Clive Meanwell
Well, thanks very much. Really we are standing on the threshold of really substantial growth we believe; five, possibly six sequence of launches down the same channel, with the kind of leverage that I think a unique hospital position product can achieve.
We believe that the growth cannot only be brisk, but very sustained in this company and that our focus and concentration on acute care medicine in leading hospitals is a very, very attractive area. It’s a large market where we have some emerging expertise and certainly some track record, which we believe can be converted into significant value for shareholders going forward and that’s exactly what we intend to do.
So, thank you so much everybody for attending the meeting. We look forward to seeing as many of you as possible on October 10 in New York City in the morning for our R&D program and pipeline update and thank you very much indeed for your attention today. Bye-bye.
Operator
Thank you for your participation in today’s conference ladies and gentlemen. That concludes the presentation. You may now disconnect. Have a good day.
Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.
THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.
If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!
No comments:
Post a Comment