Acorda Therapeutics Inc (ACOR) 2006 Q1 法說會逐字稿

Thank you for holding. Welcome to the Acorda Therapeutics first quarter 2006 financial results conference call.

[OPERATOR INSTRUCTIONS]

Now, I would like to introduce your host for today's call, Tierney Saccavino, Vice President of Corporate Communications at Acorda. 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; Dave Lawrence, Chief Financial Officer; and Mary Fisher, Chief Operating Officer. On today's call, Ron will provide a corporate update and Dave will review our first quarter 2006 financial results. 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 fact 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's 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's operations; unfavorable results from its preclinical 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's filings with the Securities and Exchange Commission. Acorda 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 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 CEO, Ron Cohen.

Thanks, Tierney. I'd like to welcome everyone to our call this morning. Today, I'll provide you with an update on our Zanaflex Capsules and Fampridine-SR programs. First, I'd like to review with you our overall strategy. Acorda is maintaining its focus on delivering to market therapies that improve neurological function in people with damage to their nervous systems. We're particularly focused on MS and spinal cord injuries with related conditions such as stroke, brain injuries, and neurodegenerative diseases also within our remit.

We've made encouraging progress in advancing this strategy with the commercialization of the Company around Zanaflex Capsules for spasticity and the achievement of an SPA and completion of Phase 3 enrollment for Fampridine-SR in MS. Our acquisition of the Zanaflex product line from Elan has enabled Acorda to build commercial operations, but we will also need to market Fampridine and the Company's other pipeline products should they gain market approval. Zanaflex allows us to gain experience in our marketplace while awaiting approval of our pipeline products.

This quarter, Acorda expanded its in-house specialist sales force to 32 people. This sales force calls on neurologists, anesthesiologists, and physical medicine and rehabilitation specialists who treat patients with spasticity as part of a variety of neurological conditions. In addition, as I reported on our yearend earnings call in March, we initiated a pilot program with Innovex, a contract sales organization to provide us access to the primary care market. Under this program, six part-time sales representatives will be making calls exclusively for Zanaflex Capsules. These representatives have all been fully trained and are now actively calling on high-prescribing primary care physicians.

This quarter we also announced the completion of enrollment of our Phase 3 clinical trial of Fampridine-SR in MS. This study, which is based on a Special Protocol Assessment or SPA from the FDA, is evaluating the safety and efficacy of Fampridine-SR in improving walking ability in people with MS. As many you may know, under a SPA, the FDA provides a written response to a Phase 3 clinical trial protocol to assess whether it meets the scientific and regulatory requirements for approval. The FDA's assessment of the Fampridine-SR protocol states that this trial, if successful, could qualify as one of the pivotal efficacy studies required for drug approval.

People with MS are extremely concerned about the impairment of their walking ability, and physicians rank walking impairment along with weakness and spasticity as areas in greatest need for treatment in MS. None of the currently available MS therapies improves walking ability or other neurological function. Fampridine-SR is the first drug in clinical trials shown to improve function in people with MS. Based on enrollment, the trial is powered at greater than 90% for the demonstration of efficacy, and we expect to report data for this trial in the third quarter of this year.

In April Acorda disclosed a new evaluation of leg strength from the 2004 MS-F202 Phase 2 clinical study of Fampridine-SR. The key secondary outcome of our current Phase 3 clinical trial is improvement of leg strength as measured by the Lower Extremity Manual Muscle Test, or LEMMT. The Fampridine-SR Timed-Walk responder group and the non-responder group both showed significant improvement in leg strength compared to the placebo group with a 'p' value of less than 0.001. These data suggest that Fampridine-SR may also have benefits even for those patients who do not experience a consistent improvement in walking speed with treatment.

I will now turn the call over to Dave Lawrence, our CFO, who will provide a financial update. Dave?

Thank you Ron. In our press release issued this morning, we outlined our first quarter results for 2006. Let me take a few minutes to review these results.

Gross sales for the first quarter were 3.9 million. Zanaflex Capsule sales were 2.3 million, and Zanaflex tablet sales were 1.6 million. We recognized gross sales using a deferred revenue recognition model. This method means that Zanaflex product shipments to the wholesalers are recorded as deferred revenue when shipped and recognized as revenue or gross sales when end-user prescription of Zanaflex Capsules and tablets are reported. Total Zanaflex product shipments were 3.8 million for the first quarter. Capsule shipments totaled 2.5 million and tablet shipments were 1.3 million.

Cost of goods sold were 1 million for the first quarter of 2006 compared to 481,000 for the first quarter of 2005. Cost of sales include our cost of inventory based on gross sales reported, royalty expenses due to Evan and Novartis, based on net product shipments to the wholesalers, shipping costs, packaging costs and stability testing expenses. Also including the costs of sales is the amortization of milestone payments made to Evan for the Zanaflex acquisition. Payments due to Paul Royalty Fund as a result of Zanaflex product sales to the wholesalers are not included in costs of sales, but instead reduce the accrued interest liability and the principal amount of the revenue interest liability.

Net loss in the first quarter of 2006 was $44.1 million, compared to a net loss of $13.4 million for the same period in 2005. The net loss in the first quarter of 2006 is primarily due to $37.2 million in non-cash charges associated with the accretion of the remaining unamortized portion of beneficial conversion charges and issuance costs and reversal of accrued preferred dividends. These adjustments were recorded as a result of our initial public offering in February 2006.

Research and development expenses of 3.3 million for the first quarter of 2006 were 1.2 million higher than the same quarter in 2005. This increase in research and development expense was primarily attributable to the ongoing Phase 3 clinical trial of Fampridine-SR in MS. Other contract expenses decreased to 155,000 in the 3-month period ended March 31, 2006 from 448,000 in the 3-month period ended March 31, 2005, a decrease of 293,000 primarily due to a reduction in clinical supply manufacturing expenses.

Sales and marketing expenses for the 3-month period ended March 31, 2006 were 4.6 million compared to 2.3 million for the same quarter in 2005, an increase of 2.3 million. This increase was primarily attributable to an increase of 931,000 for marketing, distribution and sales administration expenses related to Zanaflex Capsules and the distribution of Zanaflex tablets. Salaries and benefits increased 779,000 and other selling-related expenses increased 550,000 as a result of the expansion of our Zanaflex Capsules specialist sales force.

General and administrative expenses for the 3-month period ended March 31, 2006 were 2.3 million compared to 2.1 million for the 3-month period ended March 31, 2005, an increase of approximately 200,000 primarily due to an increase in insurance expense. We closed the first quarter of 2006 with $30 million in cash, cash equivalents and short-term investments compared to 13.8 million for the same quarter in 2005. Ron?

Thank you, Dave. That concludes our overview of our first quarter financials program overview and progress. We will now open up the call for your questions. Operator?

[OPERATOR INSTRUCTIONS]

Your first question comes from Joel Sendek of Lazard Capital Markets. Please go ahead.

Hi, Ron and Dave. This is actually [Terrence Quinn] in for Joel Sendek today.

Hi, Terrence.

Hi. How are you guys doing?

Good.

Fine.

I have three quick questions. The first, it looks like in terms of Zanaflex shipments to wholesalers, those were up about 19% year-over-year. Can we expect that same kind of growth rate to continue for the rest of the year?

We are not giving guidance on sales projections, and we can however say, this state we had $18.1 million in product shipment last year, and we've expanded our sales force in early 2006.

Okay. Great. Second question regarding the Phase 3 trial that's ongoing for Fampridine-SR. Are you still on track for a third quarter data release and I know you had mentioned that, but just can you give us any more details as to, kind of, within the quarter, is it going to be early quarter, late in the quarter?

We're still on track for third quarter and we're not giving any more detailed guidance than that.

Okay. Thanks. And last question just regarding your run rate on the expenses for sales and marketing and G&A, the current quarter, can we use that as kind of a good run rate for the rest of the year?

Again, we're not giving specific guidance. But the quarter is a representation of -- a fair representation of where we should be headed for the year.

Okay. Great. Thanks for taking the questions.

Thanks Terrence.

And your next question comes from Elemer Piros from Rodman & Renshaw. Please go ahead.

Yes. Hi, good morning. I'm sorry about the background noise. I am calling you from the road. Ron, what I'd like to ask you is at the time of the IPO or after the completion of the IPO, how much cash did the company have?

I'm going to let Dave give -- take that.

Yes. Right after the IPO, we had approximately 40 million in cash.

40 million of cash. Now, was there a some -- sort of, a balloon payment due to Elan during the quarter?

In the first quarter, we had a milestone payment that was due to Elan, yes. It's about 3.7 million.

3.7, so I remembered that correctly. Okay. Now, I know that you don't give out specific guidance. But your cash position is at $30 million, and last year I believe if I remember correctly, you burned about 35 million. How would that burn rate this year be different from last year, if it would be different?

Again, we have from the beginning of 2006 about 18 months of cash available to -- for operations.

Okay. Okay. And the last question would be, there appears to be less of a discrepancy between NDC and IMS data this quarter. Could you explain the difference between the methodologies and at what point do you think it might make sense to directionally choose IMS versus NDC, explain?

Hi Elemer. It's Mary. We are evaluating our data sources on an ongoing basis. We think the difference between the two data sources at the moment is primarily seen in a dollar view because they use different pricing values, the dollarized prescriptions. On prescription count, it's rather industry standard understanding, as you know, that they can differ, but the trends tend to be similar, trend line is similar, but the precise data points are different from each other.

Okay. And because we have seen, I think, 4.9 million reported in IMS sales that's still somewhat of a difference from the 3.9 of NDC sales. Okay. I'll get in the queue.

There will continue to be differences and we will continue to evaluate the, sort of, which data source to we are using. I know it's inconvenient for you. I have to try to reconcile to our numbers.

Okay. We can take that.

Thanks, Elemer.

Thank you.

[OPERATOR INSTRUCTIONS]

And your next question comes from [Joe Alligera of Bolavachian Capital]. Please go ahead.

Hi, Ron. How are you?

Hi, Joe. Good.

You will get it right. Don't worry. If the Phase 3 data assuming its way, we are all keeping our fingers crossed, and let's say, the stock doesn't move for the markets et cetera, what will we look to do first, either do a small tranche, because I am assuming the burn rate will ramp up, correct, or will we look to do an ex-US outside deal which should you weigh in? Obviously if the stocks weighted up, you could do both. But what if we get in that position?

Yes. Joe, we don't comment or we can't comment on financing issues. What we've said is that based on the IPO, we have enough capital to go up to 18 months from the beginning of this year. And we will constantly be evaluating, as we always do, strategic alternatives. If we believe the time is right and we can get the best value for our shareholders, we certainly would consider additional financing as part of that overall process. But we don't comment on specific plans.

Now, the Phase 3 is really good. How much will it ramp up? Do you think will that burn rate change or you still don't know that or I mean...?

Yes. Again, if once the Phase 3 results are in, our plan is to meet with the FDA as quickly as possible and to review with them any remaining requirements for an NDA filing and then proceed on that basis. So until we've done that, we really won't be able to comment on specifics.

Okay. Good. Thank you, Ron.

And your next question comes from [Ram Salavajul] of Rodman & Renshaw. Please go ahead.

Thank you. I just had a couple of questions concerning the Zanaflex franchise first of all. Regarding the cost of sales, how do you see that progressing in the near-term, do you see that rising significantly or continuing to trend along the same general lines as you have been seeing so far? And also, I'd just like to know a little bit more about where the Zanaflex Capsules stand in terms of prescription behavior by the physicians who are being detailed by your sales force? And what -- whether or not the 6 milligram capsules are seeing significant use at this point in time?

I'll start, Ram, the cost of sales question. Obviously the cost of sales are driven off of sales levels, both shipments and prescription data or the gross sales we report. So I can just run through quickly if you would like. The cost of sales in the first quarter of $1 million is made up of 345,000 in royalty fees due to Elan and Novartis. That's calculated on net shipments of product.

Okay.

We've got 185,000 in milestone amortization that's pretty -- is not driven off of sales. Inventory costs are calculated off of gross sales. In the first quarter, they were approximately 420,000. And then, we've got Paul Royalty fees that are due. Basically, that's laid out 15% on the first 30 million of product shipments. So, again, the cost of sales will track exactly as the levels of sales progress.

Okay.

And the second question...

Yes. And just to finish it up with Paul Royalty, -- it is about 70, people should look for that on the P&L.

That's right, that's right. Paul Royalty is on the balance sheet.

And the -- Ram this is Mary. We update on Zanaflex, is that we do see on continued growth trends across all strengths, but in particular the 6 milligram dose grows well. We are seeing good access in the physician's offices. We are very pleased with our performance of the initial team and now we've deployed the expanded team and are hearing similar trends.

Okay. Thank you very much. I have just one question with respect to Fampridine-SR. Could you just provide some more color on what the niche for Fampridine-SR might be in relation to the already marketed products for MS?

Sure, Ram. Our view is, this is a complementary product to what is out in the -- out and available now, this is really a novel first-in-class therapy that is designed to improve functionality of neurological function such as walking ability and strength in people with MS. There is nothing out there now that does that. The available drugs that are most commonly sighted between the so-called ABCR drugs like Avonex, Betaseron, Copaxone, Rebif, and even Tysabri assuming it returns to the market. Now, all of those drugs work to slow down the number of new lesions overtime in certain people with MS and to slow down the progress or the degeneration of the disease over time. This is quite different; this is a drug designed to improve the actual ability to do things in real-time such as walking. So we see it as completely complementary to what is out there now.

Okay. Thank you very much.

Sure.

[OPERATOR INSTRUCTIONS]

And at this time, there are no further questions. I would like to turn the presentation back to Ron for any closing remarks.

Thank you very much everyone for joining us. And this concludes our call. We appreciate your interest and thank you all for participating.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a great day.