Merrimack Pharmaceuticals, Inc.
Q4 2015 Earnings Call Transcript

Published: 26 Feb 2016

[Operator:]

Good day, ladies and gentlemen, and welcome to the Merrimack Pharmaceuticals’ Fourth Quarter 2015 Investor Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference call maybe recorded. I would now like to turn the conference over to Geoff Grande, with Investor Relations. Please go ahead.

[Geoff Grande:]

Thanks, Abigail. Good afternoon, everyone, and thank you for joining us on our call to discuss our fourth quarter 2015 financials and our recent commercial and clinical progress. A press release detailing this information issued a short while ago can be found in the Investors section of our website at merrimack.com. This call is being broadcast live and will be archived on our website for six weeks. Joining me on the call today are Bob Mulroy, our President and CEO; Tad Stewart, our Head of Commercial; and Dr. Yasir Al-Wakeel; our CFO and Head of Corporate Development. We’ll end the formal portion of the call with time for Q&A. Before we begin, I need to remind you that during this call, we will be making forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These may include statements about our future expectations and plans, the potential success of our products and product candidates, clinical development timelines, and financial projections. These statements involve risks and uncertainties which are described in the Risk Factors section of our most recent Form 10-Q and the other reports we file with the SEC, which are available online at sec.gov. All these forward-looking statements represent our views as of today, they should not be relied upon as representing our views in the future. We may update these statements in the future, but we are not taking on an obligation to do so. And with that, I’ll turn the call over to Bob.

[Bob Mulroy:]

Thank you, Geoff, and good afternoon, everyone. It’s a pleasure to speak with you today and update you on our progress over the past few months. On today’s call we’d like to focus on the following topics. Review the progress of our commercial launch of ONIVYDE, update you on our business activities and our financial results and provide a brief update on our pipeline progress. It’s been a substantial quarter for Merrimack. So to begin, let’s start with ONIVYDE. Since the full nationwide launch executed just a few days after ONIVYDE’s approval in October. Our team has been fully engaged in the field visiting key institutions and targets, educating physicians and providing active patient and oncology practice support services. We are very pleased with our first two months of commercial efforts in delivering ONIVYDE to patients in need. We remain focused on the commercial goal to make ONIVYDE the new standard of care for the approximately 18,500 post-gem patients in the United States. Next our systems engineering R&D platform is firing on all cylinders. Our systems insights have allowed us to build a comprehensive pipeline of targeted therapies that cover the full spectrum of anti-cancer mechanisms. Post-approval ONIVYDE is now targeting five expansion indications. We have two more programs on the path to registration providing a unique opportunity for near-term catalysts and revenue growth. I will return to cover our pipeline progress later. But first, let me turn the call over to Tad Stewart, Head of commercial to report on our launch and then Yasir Al-Wakeel, our CFO and Head of Corporate Development to review our financials. Tad?

[Tad Stewart:]

Thanks, Bob, and hello everyone. The fourth quarter of 2015 was certainly an exciting time for ONIVYDE and for Merrimack. And we’re looking forward to continuing the positive momentum we’ve built to date. We’re exceptionally pleased with the launch of ONIVYDE. We’re proud of the performance of our entire commercial team and especially the great work of our field team in educating and supporting the oncology community. Based on their strong efforts, we’ve exceeded our expectations across the Board in sales, in gaining access to our priority accounts, in the number of institutions we’ve shipped to and most importantly in the number of patients that have started on therapy with ONIVYDE. Overall it’s been a very positive start. Before I get into the details, let me take a quick step back. As we told everyone back in October, we knew that execution would be the key to a successful launch for ONIVYDE and our execution has been fantastic. And discussions with oncologists in the field with payers and with our distribution and commercial infrastructure. Early on in the launch, our initial focus is gaining access. Especially with the priority accounts that we’re targeting. As launch progresses we continue to expand access and some of our focus were shift more to broadening and deepening our relationships within key accounts. Where we stand today based on the feedback we’ve received and the metrics we’re following. We feel very confident that we’re well positioned and prepared for a significant ramp up and acceleration of the uptake of ONIVYDE. So now let me give a quick summary of some of the key ONIVYDE launch data for Q4. As a reminder, we were up and running in the field with ONIVYDE drug product available on Monday, October 26. So from a practical perspective, there are two months of data in our Q4 numbers. Gross revenue for that two-month period was $5.0 million, but net revenue of $4.3 million. This equates to a gross to net of approximately 13%, which OS Yasir will discuss in more detail later. Ordering and shipping to facilities has been on a just in time basis and we’re not seeing any significant stocking at the facility level or at the specialty distributor level where inventories have consistently averaged below 14 days on hand. In those first two months ONIVYDE were shipped to over 250 unique facilities across the country. That’s an average of approximately 25 new institutions per week right out of the gate. We’re very pleased with the early reach of our field team and the growth in organizations that are ordering ONIVYDE. With respect to penetration, we estimate that we reached approximately 10% of addressable post-gemcitabine pancreatic cancer patients in Q4. This is based on our estimate of approximately 300 patients starts during those first two months. Which is one tenth of the approximately 3,000 patients that would potentially be available over a two-month period based on our annual estimate of 18,500 total post-gem pancreatic cancer patients in the U.S. Of course we’re thrilled with this level of early uptake and we feel this initial penetration compares very favorably with other oncology product launches. We’re also excited to report that thus far in early 2016, we continue to see growth in the number of unique facilities that have been shipped to and growth in the total number of vials that are being shipped from specialty distributors to facilities. Data that reinforce our confidence in the strong start. We’re also very pleased with the performance of our field team as they seek to build awareness and access for ONIVYDE across the U.S. As we’ve discussed in the past the post-gem pancreatic cancer market is highly concentrated with the majority of patients being treated there, only a small percentage of key accounts. In our initial outreach, we’ve targeted approximately 250 priority accounts. And by the end of December, our field team had already reached more than 80% of those priority accounts. Overall, we’ve conducted more than 3,000 engagements today achieving not only our initial goal of access, but also beginning to deepen and broaden relationships and many priority accounts where we’ve had multiple engagements with prescribers, treatment staff, pharmacists and billing staff. Our priority accounts include major academic centers and large group practices. Most of these organizations have pharmacy and therapeutics or P&T committee evaluations to determine whether a drug will be added to the formulary at that practice or institution. Those P&T processes can take time up and several months. But we’re already seeing champions for ONIVYDE we’re driving the P&T review processes and getting positive decisions made. We’re doing very well with these key priority accounts. As an example just looking at the National Comprehensive Cancer Network or NCCN, which is comprised of the third-year so leading influential cancer treatment centers across the country. ONIVYDE has already been ordered at more than two-thirds of the member organizations. While only one-third have completed their P&T approval process so far, which demonstrates the enthusiasm we’re seeing for ONIVYDE in this indication. Our interactions with payers continue to be very positive. Today, we reached approximately three quarters of our targeted national and regional payers. And those priority payer organizations account for over 300 million lives in the U.S. The feedback that we’ve received thus far is very much as we expected. The vast majority of payer accounts indicate that ONIVYDE will be cover to label regardless of whether our formal policies put in place or not. So in summary, we’re off to a great start. We’re executing well across our entire commercial team. We’re accessing and educating our key priority accounts. And we’ve seen a very positive response to our efforts. As the need for ONIVYDE is resonating with the oncology community and filling a clear need in the post-gemcitabine pancreatic cancer setting. We believe that ONIVYDE is on track to become the clear standard of care. Finally, I just want to add a couple quick comments on the recent ASCO GI conference and our ongoing development plans for ONIVYDE. At the ASCO GI conference in January, we presented updated survival data from the NAPOLI-1 study, which demonstrated a significant improvement in survival for the ONIVYDE plus 5-FU leucovorin regimen over control. Importantly, the final analysis demonstrated that 26% of patients receiving the ONIVYDE plus 5-FU leucovorin treatment regimen live 12 months or more compared to 16% of those receiving the control. In the context of the terrible survival data for pancreatic cancer 12 months survival is a very significant milestone for patients. And this data is especially compelling, when you consider that the majority of the patients in the NAPOLI-1 study, we’re receiving ONIVYDE in the second or third line setting. Those updated data were received very well by key opinion leaders and other physicians at the conference and there continues to be great interest in further development of ONIVYDE. Along those lines, we’re seeing continued enthusiasm for our ongoing first line pancreatic cancer trial, which is also presented as the trials and progress poster at ASCO GI. And the first stage of that trial was up and running and we expect to progress to the second stage later this year. With that, I’ll hand it over to Yasir to review our financial results.

[Yasir Al-Wakeel:]

Thanks, Tad, and good afternoon, everyone. With plenty to cover today, I’d like to touch upon a few key achievements during our fourth quarter as well as go through our Q4 2015 financial results, and finally, I’ll be providing forward-looking guidance. Starting with our key highlights for Q4. There are three in particular that I’d like to cover on this call. We booked $4.3 million of net product revenue. We received a milestone payment of $47.5 million from Baxalta. And finally, we received $175 million from the issuance of senior secured notes. With respect to product revenue, as Tad noted, we are very pleased with the breadth of our launch so far. I’d also like to point out that our contracts incentivize our specialty distributors to maintain a limited amount of ONIVYDE on hand. This is relevant because we recognize product revenue using a sell in approach, meaning that we record revenue when ONIVYDE is delivered to our specialty distributors. Our other two notable achievements for the quarter, whether received $47.5 million from Baxalta for the first patient dose in our front-line pancreatic cancer trial, as well as the issuance of $175 million of senior secured debt that matures in December 2022. With respect to the financing, we received net proceeds after deducting offering costs and the payoff of our Hercules debt of approximately $127 million. As a result, we believe we have entered 2016 strongly. With a cash position that will provide us with the liquidity needed to help ensure a successful launch of ONIVYDE as well as to further advance our robust pipeline. Let’s now turn to our Q4 2015 financial results, which were included in our press release distributed a short while ago. Total revenue for Q4 2015 was $21.4 million, which consisted of the $4.3 million of net product revenue previously discussed and $17.1 million of license and collaboration revenue under the proportional performance model. One comment with respect to cost of goods sold, while it was only $46,000 for Q4 as a result of having not capitalized costs associated with the production of ONIVYDE prior to receiving FDA approval. Going forward, we expect that to increase as the zero cost inventory itself. Turning now to OpEx. Total costs and expenses for Q4 2015 was $64.1 million, of which approximately $44.7 million or 70% consisted of research and development expenses. I’d like to highlight, this is $7 million higher than the prior quarter, primarily due to one-time material purchasing costs and manufacturing runs supporting our potentially registration enabling MM-121 trial in advanced non-small cell lung cancer. The other $19.3 million or 30% of operating expenses consisted of selling, general and administrative expenses with a significant portion related to cost incurred for the launch of ONIVYDE in October. These items were the primary contributors to the $47.8 million net loss attributable to Merrimack recognized during the fourth quarter of 2015. With that we’ll close the chapter on an exciting and eventful 2015 for Merrimack and look ahead to what 2016 has in store. First, we expect to receive $46.5 million of net milestones related to ONIVYDE from Baxalta after offsetting payments to PharmaEngine. Of which $46.5 million, $36.5 million are related to regulatory approvals outside of the U.S. and therefore are considered substantive milestones. As a result, this will be booked as additional revenue outside of the proportional performance revenue recognition model. The remaining $10 million is a non-substantive milestone and is therefore already included in our proportional performance model. Over the course of 2016, we expect to recognize approximately $50 million of revenue under our proportional performance model, which has been classified as short-term deferred revenue on our balance sheet. Second, in Q4, there was an approximate 13% gross to net discount on ONIVYDE revenue related to product reserves and allowances that offset gross product revenue. In 2016, we expect a range of 10% to 15% over this launch period, but this will ultimately be driven by payer and provider mix. Finally, in 2016, we expect to incur adjusted OpEx in the range of $225 million to $245 million. We define adjusted OpEx as our aggregate R&D and SG&A expenses excluding milestone payments to PharmaEngine. What I’d like to highlight is that this reflect R&D expenses that are approximately flat compared to 2015 expenses. And SG&A expenses that are generally comparable to annualized Q4 2015 SG&A expenses. We are confident that this level of investment will strike the right balance between continuing to invest in our robust pipeline and maximizing ONIVYDE revenue on the one hand and prudent financial management of our business on the other hand. So in summary, we have started 2016 in a strong position. Firstly, we have $186 million of cash on the balance sheet. Secondly, with respect to inflows, we expect to both generate revenue from ONIVYDE as well as receive $46.5 million of cash net milestones from Baxalta. And finally, with respect to OpEx, we are taking active measures to meaningfully extend our cash run rate without jeopardizing execution of future development plans. With that, I’ll turn the call back over to Bob.

[Bob Mulroy:]

Thank you, Yasir. Let me now touched on the development progress across the rest of our clinical pipeline. Starting with ONIVYDE, we continue to work with our partner Baxalta on aggressive campaign to expand the opportunity across new indications. As we build the U.S. brand and our own revenue stream, our partner continues to make progress on the Ex-U.S. launch of ONIVYDE. We expect the Ex-U.S. regulatory process to provide several catalysts in 2016, including improvement progress in the EU and other territories. Over the past several months, there have also been significant changes to the competitive landscape in pancreatic cancer with several of these programs ceasing development. These events reinforce the difficulty of the indication, the outside value of ONIVYDE and the underlying value of our systems inside that drove of the opportunity. On MM-121, since our last call we announced that we amended the ongoing study in heregulin positive non-small cell lung cancer patients to meet requirements for potential registration study. Specifically, we changed the primary endpoint to overall survival and increase the size of the study from 150 to 280 patients. Our ongoing research continues to build the case that MM-121 has the potential to be a transformative therapy. They could address drug resistance in 30% to 50% of solid tumors. We offer the study for three key reasons. First, we’ve seen exceptional interest for investigators to address the lack of therapeutic options for the high percentage of patients who are not deriving benefit from immunotherapy. We’ve also seen higher than expected patient availability. The screening rates for patients exceeding our initial prevalence estimates reinforcing the significance of the unmet needs to treat heregulin positive disease. Second, we adopted the stronger endpoint of overall survival to meet the clinical and regulatory goal standard as it means to ensure that we are investing in the truly accretive trial. Third, we saw the opportunity with incremental dollars to significantly reduce the time and capital required to get to market and to ensure our first-in-class status relative to our competitors. Financing completed at the end of 2015 provide that means to support the expanded design, will also meeting our goal of retaining maximum ownership in MM-121 for our shareholders. The trial is now ongoing, progressing well and we look forward to updating you in the future. For MM-302 and MM-141, trials continue to make strong progress enrollment and we expect data from both in 2017. Specifically, the trial to support potential accelerated approval of MM-302 in HER2 positive breast cancer and the control double-blinded Phase 2 at MM-141 in IGF positive disease in front-line pancreatic cancer. We continue to develop a registration path for MM-151 and we look forward to sharing those results with you soon. In some – our progress over the past quarter continues to demonstrate that we are successfully executing across the business. Our work has set the stage for a transformational future across our commercial, clinical and scientific efforts. Our first product is now commercial, serving as a demonstration of our capabilities in research and development and regulatory management. Our early commercial performance is on track to create a new standard of care therapy for post-gem pancreatic cancer. To date, ONIVYDE has outperformed on sales, account growth and patient initiations, supporting a strong response from the oncology community. We possession exceptional set of near-term growth catalysts in a pipeline of precision medicines that cover a broad spectrum of cancer medicines including five expansion opportunities for ONIVYDE and two potential registration enabling studies with MM-302 and MM-121. We are well capitalized and have additional sources of costs [ph] including future sales of ONIVYDE and anticipated milestones cost sharing in future royalties from our partnership. And underlying all of our work is an industry leading systems engineering platform just focused on understanding the operating system of cancer as it means to engineer better point solutions and to develop the integrated medicines necessary to defeat the dynamic systems disease of cancer. With that, let me turn the call back over to Geoff.

[Geoff Grande:]

Thanks, Bob. Before we wrap up, I’d like to mention that we will be hosting an Analyst Day on May 19 in New York. For analysts and institutional investors a live webcast of the event will be available in the investor section of our website. We’ll also be attending a number of investor conferences over the coming months including the Credit Suisse 2016 Healthcare Conference next week in London. The Cowen and Company 36th Annual Healthcare Conference on March 9 in Boston; Barclays Global Healthcare Conference on March 15 in Miami; and Deutsche Bank Securities 41st Annual Healthcare Conference from May 4 through 5 in Boston. We hope to see you at one of these events. And with that, we like to open up line for any questions.

[Operator:]

Thank you. [Operator Instructions] And our first question comes from the line of Anupam Rama with JP Morgan. Your line is open.

[EricJoseph:]

Hey guys, this is Eric in for Anupam. Congrats in the quarter and thanks for that level of details on the launch so far. Just on an ONIVYDE, I know it’s early days, just wondering if you could maybe comment on what you’re seeing in terms of repeat prescriber pattern so far. And I’m sure could you help us really the kind of comment on [indiscernible] well duration of therapy. I was just wondering what you might be seeing so far in terms of the discontinuation when it is relative to expectations. Thanks.

[Tad Stewart:]

Hey Eric, thanks for the question. This is Tad. As far as repeat prescriber metrics, it’s a it’s a great question. It’s not something that we can track down to the prescriber level. What we can tell you is that we’ve seen significant growth. And what we are tracking is at the account and the facility level. So we’ve seen great growth there as we mentioned 250 unique facilities over Q4. We’re seeing the majority of those facilities having multiple shipments. So you can see that there’s good growth there. Just moving on, you’re correct on the duration of therapy. That’s a very important metric that we will be following. But it is too early to really be able to see that the average time on therapies about four months for ONIVYDE. We’ve been out for about four months. So it’s really too early to say anything meaningful there.

[EricJoseph:]

Thanks for taking my question.

[Operator:]

Thank you. [Operator Instructions] Our next question comes from the line of Jeff Chen with Cowen and Company. Your line is open.

[Jeff Chen:]

Hi, thanks for taking my questions and congrats on the successful launch thus far early in the game. And just a couple of questions on ONIVYDE, one is in terms of getting the paperwork done for the rest of the, I think one-third potential payers. When do you anticipate that to be done as well as how do you see the ramp continuing, expecting sure, of course a good ramp? But where do you see the ramp continuing throughout 2016 and I’ll have a follow-up. Thanks.

[Tad Stewart:]

Sure, Jeff. Thanks. This is Tad again. As far as the paperwork on the one-third that I was referencing the NCCN facility, I think you're talking about. The P&T committees those can take some time really hard to know on a institution-by-institution level how long that's going to take. What we are really excited about is that we've seen a third of those institutions already being approved. We know that the process is being championed that we are – there are oncologists who are asking us for information to help them through those discussions. And we think that those will get themselves sorted out in the very near future. As far as the ramp really too early to say anything about the ramp and where we see that going. We're extremely excited about where we are now in terms of the uptake that we've seen, the penetration that we've got through just those first few months and we think we're really poised for significant acceleration as we go forward and will certainly be following-up on that.

[Jeff Chen:]

Thanks for that. And so since there are no stocking involved in ONIVYDE, how is the supply chain management you expect to be able to sort of meet accelerated ramp throughout 2016?

[Tad Stewart:]

Yes, from a supply chain point of view manufacturing, bulk all the way through label fill-finish and distribution were in very good shape. As far as that we forecasted that we think very well. We've got a very good set of distributors that are able table to handle everything that we want. And they cover that – they covered the vast majority of the accounts and we built up sufficient reserves in our inventory to make sure that we can handle any growth that we see coming our way.

[Jeff Chen:]

Great thanks. And just one last one for me, so in terms of the after these priority accounts, in terms of the other accounts are left how many patients or doctors do you expect there to be reachable as well as when that might come online?

[Tad Stewart:]

So yes, our focus now initially is on accessing those priority accounts. We know that the market is very concentrated. So the majority of patients are going to be at those priority accounts and that's why that's our focus. Obviously we want to make sure that we're accessing the remaining folks in the community and in other large centers. We’ve already begun to do that to expand our breadth there. And we will continue to do that throughout the year, but certainly where we are now in terms of accessing and focusing on the key priority accounts. We’re in very good shape.

[Jeff Chen:]

Thanks very much.

[Operator:]

Thank you. Our next question comes from the line of Tony Butler with Guggenheim. Your line is now open.

[Kaitlin Sandor:]

Hi guys, this is Kaitlin on the line for Tony. I just want to ask two quick questions. One, the ONIVYDE is already in the ESMO guidelines, respected lines. But any guidance on when we might expect and see guidelines for U.S. And then two, with regard to the pending Shire, Baxalta deal, we know shortly after the deal you mentioned that Shire publicly committed to Baxalta’s oncology portfolio. But we just wanted to see if you had any updates and then if you talk to Shire or any impact do you think this might have on ONIVYDE’s European launch. Thanks.

[Tad Stewart:]

Thanks Kaitlin and this is Tad. I’ll take the first question on the guidelines. You're correct. It is in the ESMO guidelines, the NCCN guidelines, they review data on a periodic basis. They don't provide guidance on when they're changes in policy will come out. We certainly expect that the NAPOLI study as the largest study that's been conducted in this population will be reviewed shortly. And that they would issue guidelines based on that. We hope that that would come out sometime in the next few months perhaps sometime around ASCO. We're not quite sure. But we're very confident that, that will be reviewed soon and those guidelines will be out.

[Bob Mulroy:]

Kaitlin this is Bob. I'm going to take on your question about our partnership. So you're right in that when the transaction was Shire did announce publicly and then press release in the near comments. Their excitement for the oncology assets involved in Baxalta and specifically the ex-U.S. right they have for ONIVYDE. Where we are as we're focused on continuing to work with Baxalta right now on executing the expansion indications and supporting their efforts to get global regulatory approvals around the globe for ONIVYDE as quickly as possible. And so that's our focus for the moment and when and if that transaction is completed, we’ll be able to provide more color on any insights we have at that time.

[Kaitlin Sandor:]

Okay, great. Thanks, guys.

[Operator:]

Thank you. That does conclude today's question-and-answer session. I'd like to turn the call back to management for closing remarks.

[Bob Mulroy:]

Very well. Thank you everyone for joining us. We look forward to updating you again next quarter. Have a good night.

[Operator:]

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program. You may all disconnect. Everyone, have a great day.