Acorda Therapeutics Inc (ACOR) 2014 Q4 法說會逐字稿

Thank you for holding. Welcome to the Acorda Therapeutics fourth quarter and full year 2014 financial results conference call. (Operator Instructions). Please be advised that this call is being taped at the Company's request. Now I would like to introduce you to your host for today's call, Felicia Vonella, Senior Director of Investor Relations at Acorda Therapeutics. Please go ahead, ma'am.

Good morning, everyone. With me today are Dr. Ron Cohen, our President and Chief Executive Officer, and Mike Rogers, our Chief Financial Officer. Before we begin let me remind you this presentation 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. For more information on these and other risks please refer to our filings with the Securities and Exchange Commission. I will now turn the call over to Dr. Ron Cohen.

Thanks, Felicia. Good morning everyone. On today's call I'll provide a recap of our 2014 milestones, follow that with updates on AMPYRA and our pipeline. Mike is going to review the financials from the fourth quarter and full year 2014, as well as our 2015 guidance. And then we will open the call for your questions.

First, summarizing our key achievements in 2014, AMPYRA net revenue was $366.2 million, up 21% from the prior year. We also completed the acquisition of Civitas Therapeutics. We initiated two Phase 3 studies, one for CVT-301 in Parkinson's disease and one for dalfampridine in chronic post-stroke walking deficits. We completed our Phase 1 safety study of rHIgM22, under development for remyelination in MS. I'll go into more detail on each of these in the following slides.

Starting with AMPYRA, the sales trajectory you see here since launch highlights our success in growing the brand. In 2014, AMPYRA grew 21% over the prior year, as I mentioned, with net revenue of $ 366.2 million. A fourth quarter net revenue in 2014 was $109.9 million. Our 2015 guidance includes AMPYRA net revenue of between $405 million and $420 million, and Mike will provide further guidance later in the call. A number of factors contributed to the strong 2014 performance. One of those was our First Step program which provides two months of fee drug.

Over the three-years that we've been running that program, we found that those who start on First Step are more persistent than those who don't participate in the program, and by the end of 2014, approximately 65% of all people starting AMPYRA were using First Step. In addition, our commercial and medical education teams have done an outstanding job of providing information to physicians, patients, payers, so that AMPYRA's now viewed as a standard of care in MS for people who have walking difficulties. More than 100,000 people with MS in the U.S. have already tried the drug. With regard to the AMPYRA patent litigation, we filed patent infringement suits against all ANDA filers.

We have five orange book listed patents that go out to 2027, and we are vigorously defending our intellectual property for AMPYRA as we proceed now through the discovery phase. Earlier this week, a hedge fund filed an inter partes review, or IPR petition, with U.S. Patent and Trademark office, challenging one of the five AMPYRA orange book listed patents. IPR filings are challenges that are submitted through the U.S. PTO, and this is separate from the US District Court process.

Our team has been fully aware of both of these processes and is thoroughly prepared for them. The IPR petition has not been accepted, and we will oppose its acceptance. If it is accepted we will vigorously defend the patent in the USPTO review process just as we are doing in the Federal courts with the ANDA filers. It is very important to remember that we have five orange book patents, and these would all have to be invalidated or found not to have been infringed before a generic version could be launched.

Moving to our pipeline, both CVT-301 and dalfampridine post-stroke Phase 3 trials began in rolling participants in December of 2014. We're working with FDA on the next steps for the PLUMIAZ program and will provide an update once we have a path forward. Our second Phase 1 trial of cimaglermin alfa in heart failure is ongoing and we expect to complete that trial in the second half of 2015.

Earlier this month, we reported safety and tolerability findings from our first clinical trial of rHIgM22 which is a remyelinating antibody. The trial found no dose limiting toxicities in any of the five doses studied, and were no serious adverse events reported in the active drug group. Based on those data, we're planning to initiate a second Phase 1 trial by the end of the year, and this second trial will enroll people who are in an active MS relapse.

And finally, we anticipate initiating a Phase 1 trial of CVT-427 this year. This is an inhaled tryptan product for the treatment of migraine. We acquired this as part of the Civitas transaction. I'll now turn the call over to Mike who will discuss the Q4 and full year 2014 financials and will review with you the 2015 guidance we provided in January.

Thanks, Ron and good morning everyone. I want to take a couple minutes to walk you through some of the financial highlights of the quarter and the full year. And I'll start with the P&L and then come back to the balance sheet. AMPYRA net revenue for the 4th quarter of 2014 was $109.9 million, a 30% increase over the $84.6 million we recorded for the same quarter in 2013. For the full year 2014, AMPYRA revenue grew 21% to $366.2 million dollars, from $302.6 million for the full year 2013.

Overall revenue from Zanaflex for the full year 2014 was $15.3 million including our own sales, as well as product sales to Actavis and royalties received from Actavis and their sales of generic Tizanidine. FAMPYRA royalty revenue from sales outside of the United States was $10 million dollars for the full year 2014.

Moving to the expense side, total operating expenses for the quarter ended December 31st, 2014, were $116.7 million, including $8.8 million in share-based compensation expense, and this compares to $79.8 million for the same quarter in 2013, and that included $7.1 million in share-based compensation expense.

Full year operating expenses for 2014 were $365.1 million, including $25.1 million in share-based compensation expense -- sorry $29.4 million in share based compensation expense, compared to $306.1 million, which included $25.1 million in share-based compensation expense for the full year 2013. The increase in operating expenses is related to the overall growth of the organization to support AMPYRA and the dalfampridine franchise, the development expenses for our other pipeline products, and the acquisition and integration of Civitas.

On the tax line, for 2014, our effective tax rate was 37%, which translates to our tax provision of $10.3 million for the full year. However, cash taxes for full year 2014 were $4.4 million. And there are a number of factors that can cause significant differences between the effective tax rate shown in our financials and our actual tax cash position. As of year end, we had federal available NOL carry forwards of approximately $215 million which includes our preliminary assessment of the NOLs acquired from Civitas. For this reason we do not currently pay substantial U.S. federal income taxes, and we adjust for non cash taxes in our non-GAAP presentation.

Turning to the balance sheet, I would like to note a few items. Due to the Civitas acquisition we have a couple of changes to the balance sheet presentation. One is that we have a line item in liabilities called contingent consideration. When Civitas was spun out of Alkermes, part of the consideration to Alkermes was a future royalty to be paid to Alkermes on Civitas products. The accounting here is not intuitive. We have to charge through our P&L today, and over time the value of that future royalty. It builds up on the balance sheet in a liability called contingent consideration. It's a non cash charge, and we will adjust for it in our non-GAAP presentation.

Second, on the face of the balance sheet you will note that our deferred tax asset has come down from $127 million to $18 million, $127 million to $18 million. This again is due to the sometimes counter intuitive nature of the accounting rules. We have to net our deferred tax asset against the deferred tax liability that arises from our acquisition accounting. However, our gross aggregate deferred tax asset actually increased to $140 million, and details on this will be provided in our 10-K. Finally, our financial position remains strong. At the end of the year, our cash, cash equivalents and investments balance was $307.6 million.

Okay, this next slide recaps the 2015 financial guidance that we provided earlier this year at the J.P. Morgan conference. I would like to highlight a few items. The AMPYRA guidance of $405 million to $420 million reflects our continued confidence in the growth of the brand. For R&D, our guidance of $150 million to $160 million is primarily driven by costs related to the Phase 3 CVT-301 and dalfampridine trials. It also accounts for ongoing work on PLUMIAZ and cimaglermin, as well as the expected initiation of Phase 1 trials for rHIgM22 and CVT-427. In light of our R&D investment we are setting a high priority on managing SG&A costs in 2015. And despite the added infrastructure accompanying our acquisition of Civitas, SG&A expense is expected to increase only slightly over 2014. And finally, it's important to note we expect to remain cash flow positive in 2015. With that, Ron, I'll turn the call back over to you.

Thanks, Mike. Moving to our goals for 2015, these include continuing to maximize AMPYRA revenue and drive enrollment in our Phase 3 trials for CVT-301 and dalfampridine. We're also working with external collaborators to develop a once daily formulation of dalfampridine could potentially be used in a second Phase 3 post-stroke study.

In addition, we plan to initiate a second Phase 1 study of rHIgM22 by the end of the year, based on the results of the first Phase 1 study. We anticipate results from our second Phase 1 cimaglermin trial in heart failure in the second half of 2015. And we also expect to reach agreement with the FDA on PLUMIAZ, and we plan to initiate a Phase 1 trial for CVT-427 in migraine. Business development remains an important part of Acorda's strategy and we're continuing to assess high value opportunities. With that we will now take questions. Operator.

Thank you very much, sir. (Operator Instructions). The first question comes from the line of Yaran Werber at Citi. Please go ahead.

Hi this is Kumar in for Yaran. Thank you for taking my question. For rHIgM22 what is the rationale for doing another Phase 1 versus a Phase 2? And how is this Phase 1 going to be differentiated from the already completed Phase 1 in terms of patient numbers and (inaudible)?

You know, we have our Chief Scientific Officer, Andy Blight, here, Kumar, and I'm going to let him respond.

Yes. Good morning, the two main issues that we are addressing with this additional Phase 1, the first is safety. We need to look at safety in patients who are experiencing an active relapse because all the patients in the first study were patients who were clinically stable. And the other thing is that one of the places that a remyelinating therapy might be effective is in the recovery from a relapse. In the first instance we looked at stable patients because remyelination could affect the stable clinical condition, but it also could affect the rate of recovery or the extent of recovery from a relapse. And that would be an important place to look in the long run. So it will provide us more information to plan an effective Phase 2 strategy.

Thank you.

Thank you. Your next question comes from the line of Cory Kasimov at JPMorgan. Please go ahead.

Hey guys, this is actually Brittany on for Cory. Thanks for taking the questions. So with the Civitas acquisition a few months behind, and the 301 Phase 3 study under way do you have any incremental thoughts about the product and market opportunities? And are you still confident in the greater than $500 million peak sales number you initially pegged? Thanks.

Thanks, Brittany. Yes, we are -- we like to be conservative and we believe that the greater than $500 million number is extremely supportable. There have been other independent groups who have done market research into CVT-301's opportunity, and they have actually come up with higher numbers. So we're very comfortable with that. We think it's an exciting product. It's something where when we go out and talk to the prescribers in the neurology and movement disorder community, they are very excited, enthusiastic about the way this product potentially can fill a major need in the market. So that is the long and short of it.

Thanks very much. Your next question comes from the line of Tom Shrader at Stifel. Please go ahead.

Good morning. Can you give us a little bit of a sense of the First Step capture rate? Is that increasing or -- and can you let us know what that number is? Do you disclose that?

Tom, we don't disclose the sort of curve, but what I can tell you is that you know, you just look back and I think, year end over the last couple, three-years, we've actually said what our current rate was. And if I'm not mistaken, I'll double check this, I think a year ago or the end of 2013 we were at about 50% usage. And by the end of 2013, we're now over 65%. And remember, the program just started three years ago, so as you normally would expect, you have a quick ramp if you're doing your job well, and then you continue to increase from there. So we've been extremely pleased with the ramp of the usage of First Step.

And as we pointed out, I think at the JPMorgan conference, we attribute a good amount of the growth that we've been seeing to the effects of that program. And, of course, it took a while to manifest those effects until we had a critical mass of prescriptions that were First Step. And we have achieved that. And we -- it's continuing to grow, but I can't give you a sense of how fast from here. 65 -- anytime you're over 65%, you're in very good territory.

I think maybe I wasn't clear. I mean, of the people that enter the program, how many people convert to paying drug?

Oh, you know what, I don't -- I don't have that number in my head. I can tell you that overall, the persistency rates are higher for the people who are on First Step than the people who start immediately on commercial pay. And that's all I have right now.

Okay. Thanks.

Thank you. The next question is from the line of Phil Nadeau at Cowen & Company. Go ahead, please.

Good morning. Thanks for taking my questions. Just a couple on the IP. I guess first, Ron, on the court case, can you let us know if any of the eight have first-to-file status, or are all the challenges kind of on the same timing? And then second, on the IPR process it seems like the filing is relying on the Goodman presentation as being prior art. What was taught by the Goodman presentation or publication, and how is that different from what is in the 685 patent?

Okay. The first question is the easier to answer. The second one requires me actually to be under oath in a courtroom. So let me -- let me do the first one. We don't know about the first-to-file status yet, the process has not proceeded far enough for us to have that information, and it's not publicly available, as far as we know.

In terms of the patents, I'm sure you will all understand we're very limited at this point about comments that we can make. And in fact, we just can't comment publicly on any of the patents or what our strategy is going to be. What I can tell you is that I think it's very important that everyone remember, we have five patents listed in the orange book on this product. For a generic to get on the market, they will need to overturn and/or show that they don't infringe all five patents. And we're defending those vigorously, and that's really all I can tell you at this point.

Maybe one follow up. From my read of the IPR Seems like you had already submitted the Goodman publication or presentation to USPTO as part of one of your filings for them to examine. Am I accurate in that interpretation?

Yes.

Okay. Great. Thank you.

As far as I know, yes.

Next question comes from the line of David Amsellem at Piper Jaffray. Go ahead, please.

Hi guys, this is Traver Davis on for David. Thanks for taking the questions. Just a couple, just related to the IPR review, if the request for review is granted, can you tell us what you know at this time about a possible time line for this review by the USPTO? Is there any precedent that you can speak to here? I guess (multiple speakers) yes. If you want to answer.

Yes, Traver, it's statutory, right? So this -- you know, came about in the patent reform legislation I think in 2012. So it's statutory. There are prescribed timing milestones and I believe that we have -- for them to decide that they're going to take it or not, they have up to six months. And then they have -- they hear arguments and have another six-months to come up with a decision.

Sure. Okay. So you know, I guess this potential news flow could come well before 30-month stays would expire for the ANDA filers, I guess that's a pretty accurate conclusion?

Yes, we -- we anticipate that the 30-month stay expires in I believe 2017. July of 2017 is what I recall. It -- it's probably worth noting that this particular IPR filing is on one of the five patents.

Okay, great. That's helpful. Just switching gears, with rHIgM22 and GGF2, are these two assets that you're actively pursuing or maybe have pursued in the past a development partner for? Is it little too early for that? And as we approach potential investment of later stage studies, is your thought that this -- these would be assets that you would rather partner or rather keep in house? Thanks.

I think it's a little early to be speculating on that. Obviously we're going to look at all potential ways of leveraging those assets to create the most positive -- the greatest possible shareholder value. Pretty clearly the M22 is right in our wheel house, it's in MS, and we're already very deeply in that space our entire commercial organization is geared for it. So it's difficult to see that we would partner that for major markets in any case.

But never say never, but the intent would be to take that through ourselves. For cimaglermin, it's somewhat different, it's obviously in heart failure. That is not a space that we're in currently. Also, the demands on a Phase 3 program are pretty substantial. So that's something that we certainly could consider whether partnering makes sense and when partnering would make sense. So we're going to get through this trial here that we're going to unblind in the second half, hopefully it continues to look good. And then we'll have optionality on what we can do.

Thanks, guys. Appreciate it.

Next question is from the line of Mark Schoenebaum at Evercore ISI. Please go ahead.

Hey, Ron. Salim's on with me, too, and he -- if you don't mind he'll ask a question after I do. Mike, my first question was this IPR process, has it changed the way that the Company's thinking about -- the way you may be thinking about settling the cases with the generic filers at this point? If at all? I would assume it would be virtually impossible to arrive at a settlement before the IPR case is resolved. I was wondering if you could comment on that, please. And then Salim I think has a question, too.

Before you go, Salim, had let me answer that question, and then you can add yours. Look, I can't discuss strategy. What I can tell you is that we have been well aware of this process. There may be some people out there on the call who may not have been. But we have been well aware of this process and we are fully prepared for both the District Court process and the IPR process. From our perspective, nothing that happened this week changes what we are doing or our preparation one iota. And that's something everyone needs to understand. Nothing has changed. We have five patents. We are defending them vigorously and whether it's the IPR process or the District Court process, we are prepared.

Understood.

Okay, and -- hey Ron, hey Mike. I have two hopefully quick questions. Just on the AMPYRA guidance. You mentioned Ron you know the First Step Program, as well as the educational programs. But it looks like the guidance implies an 11% to 15% slower than your comparable Q4 over Q4 and Q3 over Q3 of 2014, so looks like a slow down in growth. What hesitations do you have that this growth can continue? And the second question, did I hear you correctly, Ron, on the QD formulation? It would go into a second Phase 3? I know you had an adaptive design, and so just wondering if that was a shift in language or --

Right. So look, on AMPYRA, we're very happy with the growth that we're seeing and that we saw last year. You know, we try to put out numbers that we are extremely comfortable that we can hit for you out there. Last year, we beat our numbers by a good bit. All I can tell you is our team does a lot of work to look at what they think we can support over the next year, and the projections are what they are. So I can't really go into it more than that.

In terms of the QD, yes. So there are actually a number of regulatory strategies that could be pursued and not something that this is the right forum to discuss, but fundamentally we have an adaptive design on this first Phase 3 trial. And for those who are less familiar with it, what it means is that after we get the first 50% enrolled and dosed through the trial, we will do an independent analysis. We will not, but there will be a group that will do an independent analysis, unblinding. We will not be unblinded. But they will use that to help us right size the recruitment. So they can come back fundamentally with three types of answer.

One would be keep enrolling, because they're going to be -- what they're going to analyze is whether the powering of the study is adequate to hit the primary outcome of the study. They could come back and say keep going where you are, which would be great news because it means that they've seen enough to believe that we're powered right to hit that. They could come back and recommend that we increase the numbers in the groups. Which means that they want to -- we would need more power to get to the outcome measure with confidence. And they could come back and say well, it's futile, so you need to stop, in which case we would have to unblind and look at the data in detail.

So that's the adaptive design. And the strategy has been to do that analysis and then if it's full speed ahead, start in second Phase 3 at that point instead of waiting for the end, because we would have de-risked it substantially. That gives us an opportunity if we have the viable QD at that point, possibly to put back QD in the second Phase 3 trial. There are other strategies, by the way, which again you know, we can go into at a different forum. But the essence of it is that we would complete that second Phase 3 with a QD with an eye towards filing only on the QD and then doing a bridging study to demonstrate that they were fundamentally equivalent, the BID and the QD for regulatory purposes.

Thank you. The next question is from the line of Ram Selvaraju at MLV & Co. Please go ahead.

Thanks very much for taking my questions. Just two if I may. Firstly, if you could comment on the precedent of extent of generic erosion of pharmaceutical products that are distributed using a specialty pharmacy network model the way AMPYRA is, just to give us an idea of what the precedent is there. And then secondly, with respect to the remyelinating antibody, do you think that there is potential for its use in arenas outside of MS and if so could you educate us as to what specific target disease indications you might wish to go after?

I don't have the ability to comment on historical precedence on the erosion question, Ram. I just don't have that information. So it's an interesting question, and I'm sure even at this moment some people in our commercial team are busily scurrying to their computers to start the work. So we'll look to the future to see what that looks like. With respect to the M22, sure, there are a number of conditions that afflict people that involve demyelination, you know.

We can go out so far as to point to something less intuitive like stroke, which is why the dalfampridine trial and program exists, because we had a highly successful Phase 2b trial with dalfampridine in stroke. And that's a drug that improves conduction in demyelinated segments. Because demyelination turns out to be a component of stroke. There are other conditions in which demyelination plays a role, transverse myelitis being one of them. There are peripheral demyelating conditions where it would be interesting to see if this had an effect. But all of that at this point is speculative, right? The first order of business is to show that we're seeing a robust remyelinating effect in MS in these trials. And if that is successful that would potentially open up very interesting additional areas for pointing the drug.

Thank you.

Thank you. The next question is from the line of John Newman at Canaccord Genuity. Please go ahead.

Hi, guys, thanks for taking my question this morning. So my first question is, can you give us an update in terms of the status of developing the QD formulation for dalfampridine, just in terms of what you need to see, the number of parties that are working on that, if that's changed at all. The second question I have is what is it that gives you confidence that you'll be able to reach an agreement with FDA on PLUMIAZ that will allow for continued development? I think I recall on a previous call you had said that the development was being reprioritized there. I'm just curious as to how you're thinking about that asset looking forward. Thanks.

Sure. Thanks, John. You know, while you were talking I didn't write down the first question. Oh, QD, yes. So the QD formulation, you know, there's only so much we can say because it's relatively early in the process. We have a number of different vendors or collaborators, each one with their own types of technology for developing sustained release formulations. And we're working them all in parallel so we have belt and suspenders and belt and -- on this. And it's impossible for me to speculate right now how long that process is going to take. Our goal is to have a QD by the time the interim analysis takes place. But we're going to have to just see the next, I don't know, couple of quarters and see what kind of progress we make with some of these vendors. And then we'll maybe be able to give more of a progress report. But right now it's premature.

The -- on PLUMIAZ what I can say, we have not reprioritized PLUMIAZ. We had talked earlier about having reprioritized the AC105 program, and actually canceled it. And then also deferring the MP1998 program at least in 2015. But PLUMIAZ we are in vigorous ongoing discussion with FDA, and I can tell you I'm encouraged by the progress of our discussions. So that is as far as I'll go right now. And hopefully we'll have an update for you in the not-too-distant future.

Great. Thank you.

Thank you. And the next question is from the line of Michael Yee at RBC Capital Markets.

This is John on behalf of Michael Yee. Going back to the IPR filing, as you said these are all quite new to us, so could you just educate us? What are the potential outcomes of the IPR procedure? And how would that impact the other litigations currently ongoing with generic companies? And then lastly, you mentioned that, you know, the current IPR is only on one, but is it also your expectation for more IPRs to be filed against the four other patents? Thanks.

So thanks, John. So again, I want to emphasize, nothing has changed here from our point of view, because we have been preparing for both the IPR potential and the District Court process. I think the most important thing to realize is that in either case, you're essentially looking for the same thing. We are defending our five patents, and the filers are attempted to overturn our patents. So in either case, you rise or fall based on the strength of your patents, right? And your ability to defend your patents. So we are relying on the strength of five patents in the orange book and our ability to defend them. The differences, the fundamental differences really have to do with the timing and the nature of the procedures.

So the District Court procedure, as was noted earlier takes longer. It's also a more expansive procedure. It involves longer discovery, wider or more latitude on discovery. It involves wider latitude in the types of arguments that can be considered and made in Court. And it takes longer. The IPR involves a more constrained process. There are boundaries or limits on the discovery. There are boundaries and limits on what types of arguments can be made and considered. And it's a faster process than the other. But in both cases, it's -- the fundamental is the same. Is your patent strong enough to continue to be valid? Or -- and are you able to make that case successfully? So that is really the essence of it.

Oh, I'm sorry, you also asked whether we expect more. You know, to say that we expect or not, that's not for us to say. What I can tell you is we have been prepared and are prepared for any eventuality here. Any party can decide to file IPRs at any time. They may or may not choose to do so. And the filers may or may not choose to do so. The party that has chosen to do so in this case has chosen to do so against only one of the five patents, at least at this point, and they are not an ANDA filer. So clearly they are not a company that is seeking to put a generic on the market. There are other motivations there, and you can speculate, I'm sure, as to what those might be given that it's a hedge fund.

Thank you. Can any follow up questions be addressed to the Company following this call? I would now like to turn the call back to Dr. Cohen.

Thanks very much. Thank you everyone to joining us and we look forward to speaking with you next quarter.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.