- Adolor held a conference call 6/15/11 to discuss the transaction announced 6/14/11 re the acquisition of full rights to Entereg (alvimopan) from GlaxoSmithKline $GSK. Click here to read the press release.
- Click here for the complete ADLR research page.
- See below for my notes from the call:
- This is "a great day for Adolor"
- Company announced agreement to acquire GSK's rights to Entereg, which they currently co-promote together. Transaction was structured as termination of previous license.
- Terms: $25m cash over 6 years. including $2.5m in 2011. ADLR wll owe tiered single digit royalties on net sales. There is one potential future sales milestone of $15m based on achieved of unspecified sales level [see below for more color on the terms]
- Product was launched 2h2008 and initially the companies focused on registration (REMS) and formulary - the "heavy lifting"..learned that being first to market and first in class does not guarantee easy road
- Entering 2011, sales were at $30m run rate, want to enter 2012 at $40m run rate and continue to grow from there
- Have market exclusivity, IP protection thru 2020
- ADLR expects that Entereg will contriubute meaningful cash flows
- In 2012, expect product contribution of 30% of sales. could grow to 50% in future years [I am not sure exactly what calculation they are making in terms of accounting, but they seem to be saying that Entereg efforts will be profitable for the year, whereas previously it had been losing money and only recently approached break-even]
- This deal is immediately cash flow accreitive compared to current joint venture (JV) structure with GSK
- ADLR has always played significant leadership role: ran NDA, REMS, manufacturing, medical affiairs. So the primary change after this transaction closes will be product detailing
- ADLR needs to take over new roles, especially by expanding sales force. Currently ADLR has reps that work alongside GSK reps in large markets. These will remain in their current georgraphies. Also will add new account managers where only GSK reps were previously. Expect to have doubled staff in field by September 1st in order to cover vast majority of exisitng customers
- 70% of target accounts are registered for REMS program, 50% have Entereg on formulary or otherwise available to surgeons
- Other new task: physical distribution and contractor relationships with government, GBO, etc. Plan to use an established 3rd-party distribution company
- Goal with the product is to deliver value to pts, customers, and shareholders
- Broader ADLR prospective: we are just ahead of OIC p2 data for ADL 5945. The studies have enrolled well. This is an important event in company's decade-long activity in OIC, have high expectations, will report in 3q2011
- This transaction opens new commercial opportunites to "leverage sales force" (mentioned their potential future OIC drug or opportunity to promote other current hosptial products)...this is a little scary to me as rationale for doing this. I am not in the camp that is supportive of companies trying to become commercial enterprises after many years, this rarely works out well.
- q&a session:
- Brean Murray: old guidance was $30m sales level to breakeven, have lowered that bar with this transaction. Entire ADLR break-even now requires low $40m's in sales - but this calcuation is excluding future OIC clinical expenses
- ADLR will owe royalties to GSK as long as they sell the product. But will eliminate royalties of about 8% of sales on a licensed patent that expires 2016 [I am quite sure he meant that these royalties will cease in 2016, not that this transaction has any affect on these royalties...but the phrasing was unclear]. Also is a use patent that expires in 2020 (ALDR developed this internally, no royalties owed to anyone else).
- "Target list" is 1600 hopsitals that do 80% of bowel ressection. Analsyt mentioned that company is selling to about 900 of these right now.
- Madison Williams: Currently have 25 people in field including a few MSLs, on top of national GSK hospital sales force (150 or so, but they sell other products, entereg gets only portion of their attention). ADLR will double this, and be able to get to vast majority of existing accounts. They are already past EASE (REMS) anf formulary hurdles, lots of room for growth at these existing accounts. Will shift advertising efforts to remote/nonpromotional efforts in other areas..result is less geographic reach but better productivity.
- The $15m sales milestone is "structured to be out there a few years". But at a level they expect to reach eventually. A level at which we and invetsors would be pleased to pay a milestone to GSK
- ?? Capital mgmt: $2.5m paid on closing. $22.5m over next 6 yrs - won't specify, but no more than $4m or so in any year
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