Acorda Therapeutics, Inc.
Q4 2014 Earnings Call Transcript

Published: 12 Feb 2015

[Operator:]

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 your host for today's call Felicia Vonella, Senior Director of Investor Relations at Acorda Therapeutics. Please go ahead, ma'am.

[Felicia Vonella:]

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 that 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.

[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's going to review the financials from the fourth quarter and the 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 2 Phase III studies, one for CVT-301 in Parkinson's disease and one for dalfampridine in chronic post-stroke walking deficits. We also completed our Phase I safety study of rHIgM22, under development for remyelination in MS, and 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. 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 2 months of free drug. Over the 3 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 is 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 5 Orange Book-listed patents that go out to 2027, and we're 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 the U.S. Patent and Trademark Office challenging 1 of the 5 AMPYRA Orange Book-listed patents. IPR filings are challenges that are submitted through the U.S. PTO, and this is separate from the U.S. 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 U.S. PTO review process, just as we are doing in the federal courts with the ANDA filers. It is very important to remember that we have 5 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 III trials began enrolling participants in December of 2014. We are 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 I trial of cimaglermin alfa in heart failure is ongoing, and we expect to complete that trial within 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 5 doses studied and there were no serious adverse events reported in the active drug group. Based on those data, we're planning to initiate a second Phase I trial by the end of the year. This second trial will enroll people who are in an active MS relapse. And finally, we anticipate initiating a Phase I trial of CVT-427 this year. This is an inhaled triptan 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 '14 financials and will review with you the 2015 guidance we provided in January.

[Michael W. Rogers:]

Okay. Thanks, Ron, and good morning, everyone. I want to take a couple of 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 fourth 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 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. The AMPYRA royalty revenue from sales outside of the United States was $10 million for the full year 2014. Moving to the expense side. Total operating expenses for the quarter ended December 31, 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 -- $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 cash tax position. As of year-end, we had federal available NOL carryforwards 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, and it builds up on the balance sheet in a liability called contingent consideration. It's a noncash 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. This, again, is due to the sometimes counterintuitive 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. And 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 JPMorgan 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 III CVT-301 and dalfampridine trials. It also accounts for ongoing work on PLUMIAZ and cimaglermin as well as the expected initiation of Phase I trials for rHIgM22 and CVT-427. In light of our R&D investments, 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 then finally, it's important to note that we expect to remain cash flow positive in 2015. With that Ron, I'll turn the call back over to you.

[Ron Cohen:]

Thanks, Mike. Moving to our goals for 2015. These include continuing to maximize AMPYRA revenue and drive enrollment in our Phase III trials for CVT-301 and dalfampridine. We are also working with external collaborators to develop a once-daily formulation of dalfampridine that could potentially be used in a second Phase III post-stroke study. In addition, we plan to initiate a second Phase I study of rHIgM22 by the end of the year based on the results of the first Phase I study. We anticipate results from our second Phase I 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 I trial for CVT-427 in migraine. Business development remains an important part of our Acorda strategy and we are continuing to assess high-value opportunities. And with that, we will now take questions. Operator?

[Operator:]

[Operator Instructions] The first question comes from the line of Yaron Werber at Citi.

[Kumaraguru Raja:]

This is Kumar Raja for Yaron. And for rHIgM22, what is the rational for doing another Phase I versus a Phase II? And how is this Phase I going to be differentiated from the already completed Phase I like in terms of patient numbers, end points, et cetera?

[Ron Cohen:]

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

[Andrew R. Blight:]

Yes, Kumar. There are 2 main issues that we're addressing with this additional Phase I. 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 are 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 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 II strategy.

[Operator:]

Your next question comes from the line of Cory Kasimov at JPMorgan.

[Brittany R. Terner:]

This is actually Brittany on for Cory. So with the Civitas acquisition a few months behind, and the 301 Phase III study underway, do you have any incremental thoughts about the product and market opportunity? And are you still confident in the greater than $500 million peak sales number you initially pegged?

[Ron Cohen:]

Thanks, Brittany. Yes, we are -- we like to be conservative and we believe that it'd be 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 and in the neurology and the movement disorder community, they are very excited, enthusiastic about the way this product potentially can fill a major need in the market. So that's the long and short of it.

[Operator:]

Your next question comes from the line of Tom Shrader at Stifel.

[Thomas Shrader:]

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

[Ron Cohen:]

Tom, we don't disclose the sort of the curve, but what I can tell you is that, if you just look back and I think year end, over the last couple, 3 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 are now over 65%. And remember, the program just started 3 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 JP Morgan 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've achieved that. And it's continuing to grow, but I can't give you a sense of how fast from here. 65 -- anytime you are over 65%, you are into very good territory.

[Thomas Shrader:]

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

[Ron Cohen:]

I don't have that number in my head, I mean 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.

[Operator:]

The next question is from the line of Phil Nadeau at Cowen and Company.

[Philip Nadeau:]

Just a couple on the IT. I guess first, Ron, on the court case, can you let us know if any of the 8 have first-to-file status or all the challengers kind of at the -- 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 or what was taught by the Goodman presentation or publication and how is that different from what is in the 685 patent?

[Ron Cohen:]

Okay. So the first question is the easier to answer. The second one requires me actually to be under oath in a courtroom. So 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 are 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 5 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 5 patents, and we are defending those vigorously, and that's really all I can tell you at this point.

[Philip Nadeau:]

Maybe just one follow-up, from my read of the IPR, it seems like you had already submitted the Goodman publication or presentation to the U.S. PTO as part of one your filings for them to examine. Am I accurate in that interpretation?

[Ron Cohen:]

Yes. As far as I know, yes.

[Operator:]

Next question comes from the line of David Amsellem at Piper Jaffray.

[Traver A. Davis:]

This is Traver Davis on for David. Just a couple, so 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 timeline for this review by the U.S. PTO? Is there any precedent that you can speak to here? I guess, first...

[Ron Cohen:]

Yes, Traver, it's statutory, right. So this 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 are going to take it or not, they have up to 6 months and then they have -- they hear arguments and then they have another 6 months to come up with a decision.

[Traver A. Davis:]

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

[Ron Cohen:]

Yes, we anticipate that the 30-month stay expires in, I believe, 2017 sometime, July of 2017 is what I recall. It's probably worth noting that this particular IPR filing is on 1 of the 5 patents.

[Traver A. Davis:]

Okay, great. That's helpful. And just switching gears, with rHIgM22 and GGF2, are these 2 assets that you're actively pursuing or maybe have pursued in the past a development partner for? Is it a little bit too early for that, and as we approach potential advancement into later stage studies, is your thought that this, these would be assets that you would rather partner or rather keep in-house?

[Ron Cohen:]

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 possible, the greatest possible shareholder value. Pretty clearly the M22 is right in our wheelhouse, it's in MS and we are 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 I'll 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 are in currently. Also the demands on a Phase III 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.

[Operator:]

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

[Mark J. Schoenebaum:]

Ron, Salim is on with me too, and he -- if you don't mind he will ask the question after I do. Mike, my first question was, this IPR process, has it changed the way that the company is thinking about -- the way it may be thinking about settling the cases with the generic filers at this point, if at all, and 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.

[Ron Cohen:]

Before you go, Salim, 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 that everyone needs to understand, nothing has changed. We have 5 patents, we are defending them vigorously, and whether it's the IPR process or the District Court process, we are prepared.

[Salim Syed:]

Okay. And here on, hey Mike, I have 2, hopefully quick questions, just on the AMPYRA guidance. I know you mentioned, Ron, the First Step Program as well as the educational programs, but it looks like the guidance implies 11% and 15% so slower than your comparable Q4-over-Q4 and Q3-over-Q3 of 2014, so it looks like a slowdown of growth. What hesitations do you have that this growth can't continue? And then the second question, did I hear you correctly Ron, on the QD formulation you would go into a second Phase III, I know you had an adaptive design and so just wondering if that was a shift in language or something.

[Ron Cohen:]

Right. Right. So look, on AMPYRA, we are very happy with the growth that we're seeing and that we saw last year. We tried to put out numbers that we are extremely comfortable that we can hit for you out there. Last year we beat our numbers by 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 III 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 rightsize the recruitment. So they can come back fundamentally with 3 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. And so they could come back and say, "Keep going where you are," which would be great news, because it means that they have 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 have -- 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 the second Phase III 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 a viable QD at that point, possibly to put that QD in the second Phase III trial. There are other strategies by the way, which again, we can go into at a different forum. But the essence of it is that we would complete that second Phase III with the 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.

[Operator:]

The next question is from the line of Ram Selvaraju at MLV & Co.

[Raghuram Selvaraju:]

Just 2, 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?

[Ron Cohen:]

Well, I don't have the ability to comment on historical precedents 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 staring 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. We can go out so far as to point to something less intuitive like stroke, which is why the dalfampridine trial and program exist, because we had a highly successful Phase IIb trial with dalfampridine and 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 demyelinating 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 affect in MS in these trials, and if that is successful, that would potentially open up some very interesting additional areas for pointing the drug.

[Operator:]

The next question is from the line of John Newman at Canaccord Genuity.

[John L. Newman:]

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 there. I think I recall on a previous call you had said that the development was being reprioritized there, and I'm just curious as to how you are thinking about that asset moving forward?

[Ron Cohen:]

Sure. Thanks, John. While you were talking, I didn't write down the first question -- oh QD. So the QD formulation, there is 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 that 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 are going to have to just see the next, I don't know, a 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. 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 NP-1998 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's as far as I'll go right now, and hopefully we will have an update for you in the not-too-distant future.

[Operator:]

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

[John Chung:]

This is John on behalf of Michael Yee. Just 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 the generic companies? And then lastly, you mentioned that the current IPR is only on one, but is it also your expectation for more IPRs to be filed against the 4 other patents?

[Ron Cohen:]

Okay. So -- thanks, John. So again, the -- I want to emphasize, nothing has changed here from our point of view, because we've 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 are essentially looking for the same thing. We are defending our 5 patents, and the filers are attempting 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 5 patents in the Orange Book and our ability to defend them. The difference is -- 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 are -- and are you able to make that case successfully. So that's really the essence of it. I'm sorry, you also asked whether we expect more? 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, ANDA 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 1 of the 5 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.

[Operator:]

[Operator Instructions] I'd now like to turn the call back to Dr. Cohen.

[Ron Cohen:]

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

[Operator:]

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