MDCO
#Good day ladies and gentlemen and welcome to The Medicines Company first-quarter 2016 earnings conference call.
(Operator Instructions) As a reminder this conference is being recorded.
I would now like to hand the meeting over to <UNK> <UNK>, Vice President of Investor Relations.
Please go ahead.
Thank you, Karen.
Good morning everyone and thank you for joining us today for The Medicines Company first-quarter 2016 financial and operating results conference 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 may be deemed to be forward-looking statements that involve a number of risks and uncertainties.
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 and releases which can be obtained from the SEC or by visiting the investor relations section of our website.
During our call we may refer to certain non-GAAP performance measures included in today's earnings press release.
Please refer to the reconciliation of GAAP to adjusted net income and adjusted EPS in our press release for explanations of the amounts excluded and included to arrive at the adjusted net income and adjusted earnings per share.
The press release can be obtained by visiting the news and the events section of our website.
On today's call our Chief Executive Officer <UNK> <UNK>, our Chief Financial Officer Bill O'Connor will summarize our recent progress and financial results for the first quarter of 2016 and they will also be joined by Chief Corporate Development Officer <UNK> <UNK> who will be participating in the Q&A session.
Now I will turn the call over to <UNK>.
<UNK>, thanks very much and good morning to everybody.
Thank you for joining the call.
This morning we announced that we entered into a definitive agreement to sell our non-core cardiovascular products, Cleviprex, Kengreal and our rights to Argatroban for Injection to the Italian healthcare company Chiesi S.
p.
A.
The total potential consideration for the transaction is up to $792 million.
The structure of the transaction includes $260 million in cash upfront at closing, an estimated payment of $2 million for product inventory, up to $480 million in potential sales-based milestone payments and the assumption of up to $50 million in future milestone obligations due to third parties.
Through this transaction, we are significantly strengthening our financial position to drive further development of our next-generation products without diluting our shareholders.
We are also simplifying our operating structure and substantially reducing our annual SG&A and related R&D expenses by an estimated $65 million to $80 million recurring, also simplifying our operations and focusing on our R&D pipeline.
We're also continuing to deliver on our strategic objectives while establishing a strong foundation for long-term, sustainable growth and value creation.
Today's transaction is the second major deal we've announced since we outlined our strategic plan about 190 days ago on November 3 of last year.
These complex deals have involved the disposition of six of our marketed products, three from the hemostasis portfolio and three from the cardiovascular marketed portfolio, and on the closing of today's transaction will provide total potential consideration of up to $1.2 billion including potential milestone payments and the elimination of milestone obligations.
Today's announcement is strong evidence of our commitment to delivering on our strategic goals and the transaction itself is a major step in execution of that strategic plan.
We see this transaction as a springboard for further progress and growth and as we increasingly focus on our highest value R&D assets, we anticipate delivering exciting news throughout the remainder of 2016.
So let me turn to some of that anticipated news now.
First, our PCSK9 synthesis inhibitor continues on track with enrollment in the ORION-1 study and we continue to expect that we will complete the trial with release of data by the end of the year as planned.
In addition, during 2016 we expect to initiate a randomized study of this compound in patients with homozygous familial hypercholesterolemia, the so-called ORION-2 trial.
The MDCO-216 or APO-1 MILANO-PILOT trial consisting of 120 patients is also on track, particularly for recruitment of the first 40 patients by midyear as planned.
Further, also as planned the ABP-700 program for our anesthetic sedative compound has begun Phase 2 clinical studies in procedural sedation with results anticipated later this year.
And finally, perhaps the most near-term event is the Carbavance Phase 3 TANGO I study which is close to completion with data expected during the second half of the year and a potential NDA filing by the first quarter of 2017 as planned.
In April 2016, Carbavance was granted fast-track designation by the FDA which could potentially result in an expedited FDA review process.
Our launch products including our non-core cardiovascular products which we've agreed to divest to Chiesi today are making steady commercial progress with revenues for that group of compounds plus others growing by 161% year over year.
Our action plan looking ahead to the remainder of 2016 includes that we expect to complete and report data for the Phase 3 registration trials of Carbavance.
We expect to have a first look at clinical proof-of-concept data for 216 from the MILANO-PILOT study.
We expect to initiate the ORION-2 study in familial hypercholesterolemia patients.
We expect to complete and report data for the ORION-1 clinical trial of our PCSK9 synthesis inhibitor.
We expect to complete and report data for the Phase 2 trial of ABP-700.
All these R&D projects are on track as planned.
And finally, we expect to continue to grow our hospital launch products now focusing of course on Orbactiv and Minocin and Ionsys.
With that brief update I will hand it over to Bill for a financial review.
Thank you, <UNK>, and good morning everyone.
Today I will focus on a few financial highlights from Q1.
Detailed reports of our financial data are included in our press release which went out this morning and in our Form 10-Q.
Our first-quarter results reflect the sale of our hemostasis business to Mallinckrodt which was accounted for as a discontinued operation.
This sale was completed during Q1.
Net revenue for the quarter totaled $50.3 million which includes $18.9 million of royalty revenue from the authorized generic sales of Angiomax by Sandoz.
Revenues are down 54% year on year driven mainly by the loss of exclusivity in 2015 for Angiomax.
Net sales from our launch products as <UNK> mentioned increased 161% from Q1 2015 to $10.9 million.
We continue to be focused on tight expenditure management for essential investment programs.
Our increase in R&D expenses versus Q1 of 2015 is driven by higher spending in support of our pipeline products.
Our SG&A expenses are down slightly compared to Q1 2015.
We ended the first quarter with $430 million in cash which does not include any amounts expected to be received in connection with the sale of our non-core cardiovascular products.
We expect that transaction to close early in the third quarter.
Finally, we continuously monitor our capital structure and are considering ways to extend the maturity of our convertible notes due in 2017.
I'd like to also discuss updated financial guidance for 2016.
This morning we will upload to our website a revised 2016 guidance worksheet to give some additional color around the divestiture of our non-core cardiovascular products, Kengreal, Cleviprex and Argatroban.
The worksheet provides both GAAP and adjusted data.
The adjusted amounts remove the impact of intangible amortization, milestones, changes in contingent consideration, severance and stock-based compensation.
We have sufficient cash to deliver on our expected plans for the next 12 months including R&D initiatives.
During 2016 we now anticipate net revenue to be $160 million to $170 million.
Because our several hospital launches are at an early stage with unpredictable growth patterns and because the Angiomax situation remains uncertain from a patent litigation perspective, we are not able to provide individual product guidance.
For cost of revenue we are guiding to 36% to 46% on a GAAP basis and 20% to 30% on an adjusted basis.
The GAAP estimate includes intangible amortization of approximately $26 million mainly for product rights.
R&D expenditures are anticipated to be $138 million to $148 million on a GAAP basis and $128 million to $138 million on an adjusted basis.
The GAAP number includes $10 million of stock-based compensation, severance and milestones.
If results from our trials are positive we may add further R&D expenditures in 2016.
SG&A expenditures will support the continued launch of our remaining products namely Orbactiv, Minocin and Ionsys assuming no further divestitures in addition to our corporate overhead.
For these activities we guide to $308 million to $318 million on a GAAP basis and $247 million to $257 million on an adjusted basis.
The GAAP number includes approximately $61 million of changes in contingent consideration, severance and stock-based compensation.
Should we divest further assets these guidance data will change and at which point we will revise guidance.
For 2016 given our expected losses we do not expect to be able to recognize any tax benefit for either GAAP or on an adjusted basis and our cash tax expense will be minimal.
With that I will turn the call back to <UNK>.
Well, thanks a lot, Bill.
Well, we're really excited about the future of The Medicines Company and we're aggressively executing on our strategic priorities.
We've been optimizing our balance sheet and cash position and making very good progress in advancing our four potential blockbuster R&D programs towards key data disclosures this year as planned.
We're introducing novel hospital products.
We're managing expenses carefully to preserve cash and we're continuing to focus on creative ways to unlock shareholder value, generate non-dilutive capital and deploy capital against our most valuable asset.
With that we'll open up for questions.
(Operator Instructions) Umer Raffat, Evercore ISI.
He may have stepped away from the phone.
We can move on.
Louise Chen, Guggenheim.
Hi, Anna, thanks.
This is <UNK> here.
I think our best opportunities are within our own pipeline and portfolio.
We are extremely focused on PCSK9 synthesis inhibitor which we think has the potential to be a game-changing blockbuster in the dyslipidemia space.
We're very excited about the progress of APO-1 MILANO or MDCO-216.
The beginning of the work in Phase 2 for ABP-700 is really going quickly and aggressively.
And then finally, of course the Carbavance data reveal for Phase 3 will be coming up quite soon and that program is also on rapid track.
So I think those four blockbuster R&D projects give us some very exciting shots on goal and that is where we should be putting our money right now.
As to longer-term views of business development and in-licensing, I think that's something we'll review through the year but right now very focused on capital deployment against these existing assets.
Adnan Butt, RBC Capital Markets.
Hey, good morning this is [<UNK> <UNK>] on for Adnan.
For the 216 trial, is the trial going to be blinded and what does the 40 patient update represent.
<UNK> again.
So the trial is blinded.
It's enrolling quite well I might add and the data monitoring review committee will see the data and then depending on exactly what they show there are a number of procedures to discuss how the trial should proceed.
So as is typical with interim analyses, the actions to be taken are contingent on how strong the data are pushing you in one direction or another.
I know you [just say] about guidance.
Would it be possible to just give it quickly again.
I just want to make sure I got everything.
Yes, of course, Bill do you want to do a reprise.
Sure, sure.
The revenue we expect to be $160 million to $170 million.
Cost of revenue on a GAAP basis we're expecting 36% to 46% and on an adjusted basis 20% to 30%.
The GAAP number includes intangible amortization of about $26 million for product rights.
R&D expenditures we're expecting $138 million to $148 million on a GAAP basis and $128 million to $138 million on an adjusted basis.
And the GAAP number includes $10 million of stock-based compensation, severance and milestones.
SG&A we expect to be $308 million to $318 million on a GAAP basis and $247 million to $257 million on an adjusted basis.
And the GAAP number includes approximately $61 million of changes in contingent consideration, severance and stock-based compensation.
Great, thank you so much.
<UNK> <UNK>, JPMorgan.
Hey there, good morning.
Thanks for taking my questions.
I guess first, can you talk about the breakdown of the expected savings within that $65 million to $80 million and how much of that is SG&A relative to R&D and also just the timeframe around when those cuts will fully kick in.
Beyond the partial year is that $15 million cut to SG&A just an indication that they will sort of scale in over time.
Also I think you had 268 reps as of year-end.
Can you tell us what your target salesforce size will be once that transaction and those restructuring activities are completed.
Next question is can you just remind us of the study design for HoFH.
And finally, can you elaborate a little bit on what we can expect to learn from the Phase 2 study of ABP-700, a little bit about study design and how many patients that will be.
Anything else, <UNK>, while we're at it.
I think that's it for now but ---+
All right, well everybody settle down and we'll see if we can answer <UNK>'s questions.
Good questions, <UNK>.
First of all, let's deal with the breakdown and the timing.
Obviously a lot of the restructuring charges will be incurred as a direct consequence almost immediately of divesting this core business or ---+ excuse me ---+ non-core cardiovascular business in which we have a salesforce.
Against that we won't be using that salesforce going forward, that will largely be reduced and many of those people will go to Chiesi which is exciting for them and an important part of this transaction.
That's a core of it.
I think we're going to take the opportunity to make sure that we have adjusted all of our administrative and other support services and of course also considerable amount of R&D, ongoing R&D which is related to Phase 4 studies will also be assumed by others.
So that's going to start happening pretty much right away.
However, of course in 2016 terms it is probably half a year's worth and of course we'll have to do the restructuring charges during the third quarter, Bill, possibly ---+
Yes, we'll probably record some in Q2 but there will be some ---+
Well I think first of all I think Chiesi's view of these products is as positive as ours is.
The structure of the deal I think reflects their enthusiasm for these products, particularly obviously for the growth potential for Kengreal and the growth potential for Cleviprex.
I think that's an exciting point of the deal which hasn't been mentioned yet.
But we believe Chiesi is a very capable organization who's very committed to this space.
And we really do feel that the milestones we've agreed, I mean they essentially lift it straight out of our business plan and more or less fit with their business plan perfectly.
So a real sense on both sides we can really make something of these products.
And we're going to continue to support Chiesi in every way we can as we transfer these products to make sure that they are successful.
A lot of our very best professionals are likely to be offered roles at Chiesi and I think that's really important as we blend our organizations and put everybody's shoulder behind the wheel of growing these brands.
So I think, Joe, basically we're very ambitious about the milestones.
<UNK>, do you want to talk about the structure of the milestones.
I'm not sure disclosures are necessary or appropriate at this stage so I'll shut up.
Yes, <UNK>, the milestones they are individual for each of the products for Cleviprex and cangrelor and they run out over a number of years.
They are yearly milestones rather than paid on an as-you-go basis.
So they have milestones that are annual that must be met in order for the milestone payments to be made.
Okay.
Yes, there are time periods, so there are multiple milestones for each product and there are time periods in which those yearly milestones must be achieved in order to receive the milestone payment.
Well we're all hoping to go home and get some sleep before we move on to the next deals, Joe.
But since you bring it up, look, I think our infectious disease business is a very exciting business.
It has two novel marketed products.
We're looking forward to some exciting data on Carbavance.
And I think as those data emerge we can decide how to best drive that business.
I mean there are very few people in the industry that have anything like that kind of a setup, one or two companies at most working with multiple assets in this very important brave new world of multidrug resistance.
So that's the exciting business.
How that business should be invested in, how it should be structured, we've indicated in our strategic reviews that we're interested in almost every strategic option for funding and growing these businesses aggressively and unlocking shareholder value and that's what we'll do.
But today's a bit premature to say exactly what steps should or will be taken.
And I think the same with Ionsys.
We have two programs here in perioperative care including ABP-700.
They fit together extremely nicely.
And at this stage let's get some data and let's continue working hard on the Ionsys launch and see what the right way forward is.
So not ruling anything out as President Obama once said but I am equally not ruling anything in either.
Hey, <UNK>, thank you.
<UNK> again.
Well, look, the natural thing obviously in a perfect world would be to see Angiomax in the same bag as Kengreal.
There is one slight wrinkle is that no one including us is in a position to value Angiomax with any reliability or precision based on the litigation process that we're currently going through.
We had what we believe was an excellent hearing at the en banc review last week.
It is not for me to comment on what I think the outcome of that will be because there are 12 very experienced judges who will decide.
But I think anybody who had attended the hearing or read about it would conclude that our arguments are sound and our assertions that we have intellectual property out to 2029, well, we're going to continue making those assertions and defending our intellectual property as aggressively as we possibly can.
What the outcome will be, <UNK>, is not really for me to try and judge.
It's not what I'm paid to do.
As that emerges with greater clarity we may be able to appropriately value on behalf of shareholders what that asset is worth and then consider the different options for it.
But from a strategic or operational point of view, of course, it's the cath lab products are the leading, still the leading volume of novel cath lab product used.
And it's doing very, very well by the way.
And it deserves a lot of attention once we clear the legal situation.
Yes, there is a 90-day review of data which will allow us, as you will recall from the Phase 1 data once you get out to 90 days you've got as much effect of the drug as you might expect to see, in fact probably happens earlier than that but at 90 days you've got a good view of the depth of PCSK9 knockdown and of LDL reduction.
Those data we should be able to talk about those data in the third or early in the fourth quarter because those data will tell us all what the right dose might be.
As you know we're hovering around 300 milligrams.
It could be 200, it could be 500 and that will tell us whether we're on track.
It won't of course at that stage give results ultimately the duration data that we'll have at the end of the trial but it will give us a lot of insights.
And of course at the time of review of the six-month data ---+ excuse me, the three-month data, quite a few patients will be out at six months already.
So we may start to get some indicative view of duration as well.
That's what we anticipate.
I hope that's a helpful answer.
There is an ongoing safety review by DSMB.
And we are recruiting patients quite rapidly, which means we probably now have a multiple of patient experience compared with the Phase 1.
If you think the Phase 1 was 50 or 60 people we're recruiting 480, we're well, well, well through the trial.
So we've already injected a whole lot of other people.
And I'd say that with the speed of recruitment and with the enthusiasm we're receiving the safety appears to be very reasonable at this stage and nothing popping up at all that is of any concern whatsoever.
So I think that's good news.
As to when and how we can reveal the Phase 3, obviously we know this is very important to investors.
And we are very committed to get the information into the hands of investors as soon as we possibly can, subject to the usual countermanding principles of academic data review and safety review and revealing data at major meetings.
So if there was an opportunity to talk about the three-month data in the fall, at an academic meeting, or late fall we may be able to take that.
But it's a little premature to know for sure yet.
But we are very committed to get the information into investors' hands as soon as possible and of course we're very, very excited about the likely data coming out of Amgen 2 on outcomes with the antibodies.
Thanks very much.
Look, during Phase 2 a lot of clinical trials look the same.
And so I think as we're in Phase 2 for most of this stuff at the moment, we'll spend roughly proportionate amounts of money on all four products, perhaps with the, well, I'll forget Carbavance because it's finishing Phase 3 but there are line extensions to consider.
The one product that I think has the most chunky on-off switch is of course MDCO-216 where the manufacturing step up has to be considered, assuming the Phase 2 proof-of-concept study that we're currently doing is positive.
So once you get into Phase 3 of course we would need to describe to you exactly what the Phase 3 clinical studies are, their size, their scope, their duration, in order to give you better guidance on the R&D mix and what we're spending more money on and less money on as we go for it.
So it may be a little premature to give any helpful guidance on allocating capital to four different assets until and unless we have clear evidence that we're going up through the Phase 3 programs.
I hope that doesn't sound evasive.
It's literally that I don't know at this stage what the R&D mix will be until I see the Phase 2 data.
Now you ask a wonderful question about cardiovascular.
It's interesting when we bring together our advisory boards and clinical design groups and we look around the room we have many existing friends from the thrombosis area who are key opinion leaders who also stretch across to the dyslipidemia area.
And we also have found a lot of new acquaintances in the dyslipidemia area who had worked for example with our colleague David Callan in the past on pure dyslipidemia programs.
There's clearly a confluence of expertise from KOLs who work on both sides of that spectrum of atherosclerotic disease, the acute thrombosis players and the chronic dyslipidemia players.
However, I think when we look at where we can make the most difference, and I don't mean to get too philosophic here, the opportunity to make a difference in the prevention of primary and secondary prevention of heart attacks is 10 to 20 times greater than anything we would hope to do in the cath lab both in terms of impact on life, on morbidity and of course on economic outcomes and therefore also from a financial point of view.
And the reason we're rotating our capital off the acute phase cardiovascular work is that first of all I think we can be very proud of what we've done so far.
Further progress is going to be essentially asymptomatic.
When we began in the cath lab people are bleeding at a rate of 10%.
It's now ---+ and I'm talking about severe bleeding ---+ and it's now 1% or less.
Heart attacks were happening at around 10% after a PCI and now it's more like 2% or 1.5%.
So I think the opportunities for further improvement in care and therefore further improvement in economics and therefore further creation of value for shareholders is stepwise whereas there are massive opportunities in the prevention of heart attack space with this new technology.
And we think we need to deploy our capital against the massive opportunities more than against the incremental opportunities.
It's just where we want to go and I hope ---+ we've been encouraged to do that by shareholders and we really mean to.
So that's really why we chose to do this.
It's where we can make the biggest difference in healthcare and where we can make the biggest difference in terms of value creation for shareholders.
Yes, we are.
Yes, <UNK>, thanks very much.
Very important question and obviously as we look back on the last five major cardiovascular launches by frankly outstanding companies, meaning the two P2Y12 launches Effient and Brilinta, we were involved ourselves with Brilinta.
We look at Entresto from Novartis and then we looked at the two PCSK9 antibody launches from our colleagues at Sanofi, Regeneron and at Amgen.
There is no doubt at all in my mind that these are great companies with great commercial organizations that really know what they're doing and they really have put significant resources behind it.
I think it would be fair to say the market is challenging, that demand by payers for explicit evidence of outcomes improvement, demand by payers for significant discounts particularly at the beginning of product life cycles is there for all to see.
That shouldn't be confused with the ultimate advancement of clinical health which I think is going to be massive with the PCSK9 story.
It would be very difficult for us here to imagine not having positive outcomes trials from the antibody trials.
And so we remain very, very excited about the market opportunity.
Moving to how we might come into that market obviously we need to get some data.
But clearly the idea of a six monthly or twice yearly dosing of a very effective PCSK9 synthesis inhibitor would I think be a game changer.
And on top of the significant market development work and educational work that's being done by our colleagues we'd be very comfortable to build on that platform.
So I know that the expectations were perhaps great in terms of takeoff for those products but when you look at the complexity of their introduction and you look at the recent history of cardiovascular launches and then of course the gun shyness that we created among payers with the hepatitis C story it is perhaps not surprising at all that there's a lot of pushback from payers and most of which is I believe the refusal to reimburse when physicians want to prescribe.
I think the demand is there among patients, certainly the need is there.
The enthusiasm is there among doctors.
But the payers haven't quite got their arms around it and they are going to have to.
I think they will as they see the outcomes data.
And this is going to be one of the largest classes of medicine in the history of the pharmaceutical industry.
Well, we thank you for attending our call today and for the many excellent questions.
We will continue to aggressively pursue this strategy of deploying our capital against our most valuable assets.
We will continue to pursue strategies and deals that can help us do that.
But most of all we will continue to focus on moving those R&D programs forward in the most expedition fashion possible with high quality.
Thanks very much for coming today.
Bye-bye.
