Acorda Therapeutics Inc (ACOR) 2005 Q4 法說會逐字稿

Welcome to the Acorda Therapeutics Fourth Quarter and Full Year 2005 Financial Results Conference Call.

[OPERATOR INSTRUCTIONS]

Please be advised, this call is being taped at the company's request. Now, I would like to introduce your host for today's call, Tierney Saccavino, Vice President, Corporate Communications at Acorda Therapeutics. Please go ahead.

Good morning, everyone, and welcome to Acorda's conference call. With me today are Dr. Ron Cohen, our President and Chief Executive Officer, David Lawrence, Chief Financial Officer, and Mary Fisher, Chief Operating Officer. On today's call, David will review our fourth quarter and full year 2005 financial results, and Ron and Mary will then provide a corporate overview. As the operator mentioned, we will then open the call for Q&A.

Before we begin, let me remind you that this discussion includes forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical facts, regarding management's expectations, beliefs, goals, plans or prospects should be considered forward looking. These statements are subject to risks and uncertainties that could cause actual results to differ materially, including Acorda Therapeutics' ability to successfully market and sell Zanaflex Capsules, the risk of unfavorable results from the Phase 3 clinical trial of Fampridine-SR, delays in obtaining or failure to obtain FDA approval of Fampridine-SR, competition, the ability to obtain additional financing to support Acorda Therapeutics' operations, unfavorable results from its clinical programs, and failure to protect its intellectual property or to defend against the intellectual property claims of others.

These and other risks are described in greater detail in Acorda Therapeutics' filings with the Securities and Exchange Commission. Acorda Therapeutics may not actually achieve the goals or plans described in its forward-looking statements and investors should not place undue reliance on these statements. Acorda Therapeutics disclaims any intent or obligation to update any forward-looking statements as a result of developments occurring after the date of this presentation.

I will now turn the call over to our CFO, David Lawrence.

Thank you, Tierney. In our press release issued this morning, we outlined our fourth quarter and full-year financial results for 2005. Let me take a few minutes to review these results, and provide you with our perspective on this past year.

Gross sales for the fourth quarter were 2.7 million, and year-end gross sales were 5.9 million. Products shipped totaled 4 million for the fourth quarter, and 18.1 million for the full year 2005. We recognize gross sales using a deferred revenue recognition model. This method means that Zanaflex product sales are recorded as deferred revenue when we ship to the wholesalers and recognizes revenue when end-user prescriptions of Zanaflex Capsules and Tablets are reported. Net loss for the fourth quarter and year ended December 31, 2005 were 15.8 million and 60.4 million respectively, compared to a net loss of 18.5 million and 69.5 million for the same periods in 2004.

Research and development expenses of 3.2 million for the fourth quarter of 2005, were slightly less than in the same quarter for 2004. Full-year 2005 research and development expenses of 12.9 million, were down by 9.1 million from 2004. This decrease was primarily attributable to the completion of two Phase 3 clinical trials of Fampridine-SR in spinal cord injury, and one Phase 2 clinical trial of Fampridine-SR in multiple sclerosis during the first quarter of 2004. Spinal cord clinical development program expense, which was not material in 2005, decreased 5.9 million for the year as that program was put on hold.

MS clinical development program expense increased 1.1 million because of the initiation of the Phase 3 clinical trial of Fampridine-SR. Sales and marketing expenses increased 8.4 million for the year to $13.1 million, and were 3.4 million for the fourth quarter 2005. This increase is primarily attributable to 3.3 million for marketing, distribution and sales administration expenses related to the launch of Zanaflex Capsules and the distribution of Zanaflex tablets, and 3.3 million of salaries and benefits related to our Zanaflex Capsules specialty sales force.

General and administrative expenses for the fourth quarter of 2005 decreased $200,000 to 2.1 million, and decreased approximately 4.9 million to 8.4 million for the year. This decrease is primarily due to non-cash share based compensation expenses decrease or approximately 4.1 million, due to the repricing in the first quarter of 2004 of options granted prior to 2004. General and administrative expenses also include a decrease of approximately 2.1 million in outside new drug applications preparation services, related to Fampridine-SR in spinal cord injury.

We closed 2005 with 13.8 million in cash, cash equivalents and short-term investments. As a result of our initial public offering in February, our cash balance increased to approximately $42.2 million. At the end of December 2005, we had a net balance of 5.6 million in finished goods inventory. Our inventory plan was based on our product launch plan, but took into consideration our single manufacturing source and the addition of a primary care contract sales force.

Primary care sales have been lower than anticipated. Also, the initial launch inventory had only 24-month dating at the time of purchase. As a result, we have recorded a provision for excess inventory of 1.8 million as of December 2005. Our remaining Zanaflex Capsule inventory had 36-month dating. Careful monitoring and control of our inventory levels will be a high priority for management.

I will now turn the call over to Ron, who will provide you with a corporate overview.

Thanks, Dave, and welcome to all of you. 2005 was an important year for us at Acorda. In April 2005, we launched our first marketed product, Zanaflex Capsules for the management of spasticity, and built the commercialization capacity to support it. This transformed Acorda into a fully integrated biotechnology company. We now have a sales and marketing operation complementing our pipeline and clinical and preclinical capabilities.

During 2005, we also initiated a Phase 3 trial of Fampridine-SR, based on an SPA or Special Protocol Assessment that we received from the FDA to evaluate its safety and efficacy in improving walking ability in people with multiple sclerosis. These accomplishments provided the foundation for our initial public offering in February of '06. Before I update you on Fampridine-SR, Mary will give you a brief overview on the status of the Zanaflex Capsules program. Mary?

Thank you, Ron. As Ron just mentioned, one of our major accomplishments in 2005 was the launch of Zanaflex Capsules, the formation of tizanidine, one of the two leading drugs approved for the management of spasticity. Spasticity is a symptom of many CNS disorders including multiple sclerosis, spinal cord injury, smoke -- stroke, sorry, and traumatic brain injury. It is marked by frequent and also very painful spasms and stiffness of the body's major muscle groups and it can impair the quality of life of people who are afflicted with it.

We believe that Zanaflex Capsules offer important benefits over Zanaflex tablets or its generic equivalent. Specifically, when taken with food, the capsules show a lower peak level in the blood and a more gradual rise to that peak than existing tablet formulation. During 2005, we built a commercial organization to market Zanaflex Capsules. The product was launched with a 14-person internal specialist sales team. This sale force called on neurologists and other prescribers to treat patients with conditions that involve spasticity.

These specialists account for approximately 40% of all tizanidine prescriptions. It's also important to note, that specialists who also high volume prescribers write two to three and a half times more prescriptions than high volume primary care prescribers. We were pleased with our sales to specialists for the product in 2005, and based on that first year performance, we recently announced the expansion of the internal sales force to 32 people. These are experienced pharmaceutical sales professionals, with an average of 15 years industry experience.

In August 2005, we partnered with Cardinal Health for 160 representatives from their syndicated sales force, to promote Zanaflex Capsules to primary care physicians. Sales under that agreement have been lower than anticipated, and we have this week given notice of termination. We are continuing to explore the opportunity for this product in primary care, and we've taken the following steps to address the primary care market in light of the Cardinal termination.

We've transferred approximately 2,900 contacts for high volume primary care prescribers to our telesales team and they have begun reaching out to those doctors. We've also initiated a primary care pilot program with Innovex, using six part-time representatives making exclusive calls for Zanaflex Capsules. As part of that agreement, we have provided contacts for approximately 450 high volume primary care prescribers to Innovex.

Unlike the Cardinal health sales force, the Innovex sales representatives will be assigned to specific territories that we can design, based on the concentration of high volume prescribing physicians. We will continue to assess promotional response in the primary care segment. We believe our experience marketing Zanaflex Capsules will set the stage for the marketing of Fampridine-SR if it is approved. We believe that our current 32-person sales force will provide approximately half the sales force needed to launch Fampridine-SR, again if it is approved.

I'll now turn the call back to Ron for Fampridine SR update.

Thanks, Mary. Now, moving onto Fampridine-SR, as I mentioned earlier in the call, in 2005 we initiated a Phase 3 clinical trial to evaluate the safety and efficacy of Fampridine SR in improving walking ability in people with MS. We reported a few weeks ago that we had completed enrollment in this trial. The study was designed, based on an SPA issued by the FDA. Under an SPA, FDA provides a written response to a Phase 3 clinical protocol, to assess whether it meets the scientific and regulatory requirements for approval. FDA's assessment of the Fampridine-SR protocol stated that this trial, if successful, could qualify as one of the pivotal efficacy studies required for drug approval.

The Phase 3 trail is based on our Phase 2 program, which showed evidence of increased walking ability in three double blind studies, and increased leg strength in the larger two of these studies. The primary outcome measure for the Phase 3 trial is an improvement in walking ability as measured by consistently improved walking speed over time, on the timed 25-foot walk and as validated by the 12-item MS walking scale. The MSWS12, as it's called, is a global measure of walking ability and its impact on activities of daily living. In addition, a key secondary outcome is improvement in leg strength, as measured by the lower extremities manual muscle test.

Walking disability is an important aspect of MS. The severity of this disease is typically measured according to the gradually increasing impairment of mobility that occurs between its milder initial stages, and the ultimate wheelchair dependence that frequently occurs in late stage disease. More than 80% of people with MS have some kind of walking impairment, often interfering with their ability to work to even do simple errands or other activities of daily life. Physicians rank impairment of walking, along with weakness and spasticity, as the areas in greatest need of new treatment.

There is no currently available therapy that directly improves walking or indeed any other neurological function in MS patients. A therapy that does so, would therefore offer a unique treatment option for patients with MS. We also believe that Fampridine-SR would complement, not compete with, the currently approved drugs for MS, such as Avonex, Betaseron, Copaxone, Rebif and Tysabri, if it reenters the market. All of these drugs work by slowing the progress of the disease. However, none of these drugs actually improves walking function. We expect to report data from the Phase 3 Fampridine-SR trail in MS in the third quarter of 2006.

That's our overview on where we are, and what we accomplished in 2005. We'll now open up the call for your questions. Operator?

Thank you, sir.

[OPERATOR INSTRUCTIONS]

And your first question will come from the line of Joel Sendek of Lazard Capital Markets. Please proceed.

Thanks. I have a question on the cost of goods, and then a question on Fampridine. So, first, is the cost of goods that you guys report tied to the recognized revenue that appears on the income statement?

Dave?

Yes, hi, Joel. Yes, it's based off of the revenue report and prescription -- as prescriptions are reported, we reported cost of sales based on that information.

Okay. And then, the next question having to do with that is you took that reserve for the fourth quarter. And I'm just looking -- as I look at the income statement, either in the full year or the quarter, it looks like you're spending more on cost of sales than you're getting on the top line. And I'm wondering if that's due to the reserve, due to the 24-month issue with the expiration or if we can -- as we model it forward, will you have a positive gross margin?

The reserve is in there. There's some other factors included in cost of sales. Obviously, inventory costs, royalties that we pay to Elan and Novartis. The other thing that's in there is the amortization of the intangible assets, the actual purchase of the Zanaflex asset.

Okay. And can you give us some help on whether you'll have a positive gross margin or are you going to give any kind of financial guidance or should we just take our best guess when we model it out?

Yes, we will not be giving any financial guidance.

Okay. And then, on the Fampridine, I have a question there with regard to have you given any thought since, obviously, we don't know what the data is from the first study, but have you given any thought to when you'll start the second study or what the design will look like?

Yes, this is Ron. We're not commenting on a second study at this time, but we will say that, obviously, we'll look at the data and use that to guide what we do next, both in discussion with FDA and then the actual design of any study that would follow.

Okay. So, the data will come out, you'll review it and then before a second study would start, you would have that meeting with the FDA. And so, that could be a certain amount of timing. Could the meeting with the FDA potentially, if the bid were good enough, lead you to file on that, prior to the -- getting the results from a second trial?

Yes, we can't speculate as to what the FDA's position will be in that case. But we certainly do intend to meet with FDA as soon as possible after data to discuss the program.

All right. Thanks a lot.

And your next question will come from the line of Phil Nadeau with Cowen. Please proceed, sir.

Good morning. Thanks for taking my questions. My first is on Zanaflex. You referenced a couple times that sales to the GP market were slower than you originally anticipated. Do you have any reasons for that? Have you done any kind of post-mortem to see why that may have been the case?

Phil, it's Mary. Hi, Phil.

Hi.

We're still continuing to evaluate the primary care market. Our approach with Innovex is one where we actually take, while part-time, dedicated sales representatives. And they'll call on physicians in territories that we design.

Okay.

That's probably the biggest difference between Innovex and the Cardinal Health agreement. And we hope this will give us a better test of the primary care market opportunity.

And why is that important? Why is the territory of your design maybe better able to adjust market than the one that Cardinal Health has designed?

Not just specific to our program, but just a fact about syndicated non-exclusive versus exclusive is -- we really need to get to those high volume prescriber targets that we define. So, being able to define that directly gives us a lot more control over exactly who we're calling on and when.

Oh, I see. Okay. That makes sense. Second question is on reported sales versus shipments to wholesalers. If I remember in the past, you said that eventually the Zanaflex reported sales will very closely resemble shipments to wholesalers. Could you give us an idea of timing on that? When do you think that catch-up will occur? Will it be sometime this year or next year or the year after?

Yes, again, that's a forward-looking financial projection that we're not going to make at this time. I can just tell you that the other part of it is we'll -- the accounting is -- the accounting treatment, we will eventually get to the straight, traditional method of reporting revenues once we have better analysis or more information on our returns, specifically on Zanaflex Capsules. But I can't give you a specific time, we're trying to get that done as quickly as we can.

Okay. And how much information on returns do you need before you can get to that traditional accounting treatment? Is it just a general idea of what proportion of shipments get returned or do you need something more specific?

Yes, again, it's -- there's not a specific answer. It's -- when we have good information that we can rely on, then we'll be able to move to that type of revenue, I [think], mentioned.

Okay. And then, lastly, on Fampridine-SR and the Phase 3 trial, Ron could you just remind us what has to happen between now and when you can really stay there and in what format will that data come to us, initially?

Phil, I just want to clarify, what happens -- what needs to happen between now and when data is released, is that what you're asking?

Yes, presumably, you need to get the data in-house, but then anything after that, how long do you think it will take you to clean the data or verify the data?

Yes, we're not commenting on the specific mechanics. We are saying that we will report data in the third quarter. But that's as far as I can tell you.

Okay. Fair enough. Thanks a lot.

[OPERATOR INSTRUCTIONS]

And your next question will come from the line of [Joe Aguila] with [Bio Revolution] Capital. Please proceed, sir.

Guys, first, congratulations on your IPO. And what about a partner for -- will you wait to partner MS program until you get the data Ron or what's the plan on that?

Yes, I'm going to -- and I welcome and I'm going to let Mary respond.

Right. We do intend to commercialize Fampridine-SR in the U.S. on our own and partner it for access to market outside of the U.S.

And will you do that after the second study or if the data is good on -- in the third quarter?

I don't think we have an estimate of timing for completion of a partnership. As you know, there are many factors that go into not just exploring, but closing partnerships. And so, I think we'll just leave it at the plan at this point.

Okay. And what is the exact share count number?

Dave?

Yes, it's 19 million shares outstanding -- exactly 19,000,622.

19 million. Okay. And, I mean, we expect to burn through this year going into the next -- your next 12 months. Do we have an approximate --?

No, we're not giving guidance on that, other than the fact that we expect our cash to last up to 18 months.

18 months. Okay. And Ron, on the second study, assuming that, based on the third quarter, which you could report, how big will the second study be or you can't comment on that?

Yes, I can't comment on that. Again, we will -- our plan is to see the data, meet with the FDA as soon as possible after data, and discuss with them any remaining needs for the program.

And how many patients on this data that's going to be coming out in the third quarter, how many patients in that trial are enrolled?

The study was powered to require at least 240 evaluable subjects.

And what's the major endpoint in that trial?

The major endpoint is a responder analysis. It is a measure of the percentage of people in each group, who consistently walk faster during the three months on drug than at any other time off drug. So, it's a measure of consistent walking response as measured by the classic timed 25-foot walk, which is the standard measure in the field.

Okay. Let's say the data is good and we're getting to a tough environment. Obviously, the window is open right now, as you guys know. And [market] is tough. What are the other aspects of raising money? Obviously, with a partner -- are there any other aspects by increasing the cash position, obviously, for the next 18 months -- that you can get there very quickly, as [inaudible].

Yes, that's something that we really can't speculate on at this point, other than noting that we have cash sufficient up to last up to 18 months, and obviously, we'll be monitoring cash as -- along with everything else that we do in a responsible way.

Okay. Good. Thank you, guys.

Thank you.

And at this time, there are no further questions in the queue and I'd like to turn the call back over to management.

Well, thank you. This concludes our conference call, and we appreciate your interest and participation.

Thanks.

Thank you.

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the presentation. You may now all disconnect, and enjoy the rest of your day.