- On 10/24/2011 Cubist (click for archive of my blog posts re CBST) announced a buyout of Adolor (click for research page)
- This deal surprised many people, but in hindsight it fits with the sort of assets that CBST has stated a desire to acquire. I still feel that the price was high, but congrats to ADLR longs. I won't really miss covering ADLR since the price action never seemed to line up with my interpretation of the fundamental progress and status of their programs.
- Click here for ADLR form 8-k with certain details on deal and complete merger agreement (see my notes below).
- Click here for the slides from the webcast.
- See below for my extensive notes from the conference call:
- this deal is another milestone in a transformational year for CBST
- compelling - strategic and financial
- Entereg is an established product to leverage acute care sales force, accretive in near term
- in our hand entereg is very profitable
- think can increase to peak sales of >$100m
- ADL5945 - promising OIC candidate with estimated potential peak sales >$1b
- believe there will be opportunities to partner for ex-US and primary care commericalization. plan to retain US and maybe EU speciality rights
- Contingent payments - up to $3 per share for US approval and $1.50 per share for EU approval by 7/1/2019 with label presenting favorable risk/benefit profile (see the 8k for more details)
- eliminate redundancies - $30m cost savings [presumably getting rid of entire ADLR salesforce they just hired and others too, as this is about half of ADLRs annual cash burn] in 2012 and accretive to 2012 operating income, whether or not ADL5945 is partnered
- size of payment depends on parameters of approval - if reduced, can make up this value by hitting sales milestones (see my notes below)
- 40% of CVR due upon approval, 60% is contingent on commerically favorable label
- all in, value up to $415m, net of ADLR cash on hand
- ye2011 CBST will now have ~$800m cash and equivalents balance
- cash flow from Entereg will be greater than incremental costs for ADL5945 development
- preliminary view is that including Adolor deal - 2012 operating income will grow compared to the guidance for 2011 income
- ADL5945 is an important part of the transaction. think market can accomodate multiple products. anticipate phase 3 in 2012
- Will market to GI and pain specialists, in addition to primary care - many in and around the hospital
- interaction with these Doctors will be valuable for non opiod pain candidate recently nominated into pipeline [this is a stretch and a half as rationalization for and benefit from the deal]
- expect deal to close in 4q2011
- entereg cash flow thru 2013 alone covers development costs for ADL5945
- this deal helps to diversify our revenue base and improve late stage pipeline
- ADLR agrees not to solicit other offers, would owe $10m termination fee.
- Sales milestone thresholds are $400m and $800m cumulative ADL5945 net sales to make up potential contingency payments if the initial FDA and EMEA labels are less favorable.
Question and answer session:
- comment on IP for entereg? last to expire november 2020. COM expires march 2016. data exclusivity ends 5/20/2013. we will take a hard look and see if can implement lifecycle mangement. confident can get to $100m run rate before generic entrants
- competition from transzyme? yes we analyzed, with our saleforce, positioned to remain important player in this field. $100m by no means assumes 100% market share. we'll find the right patients who willl benefit. transzyme is still in phase 3, doesn't look like NDA before 2h2012, signficant lead to establish on formulary and in key hosptials.
- what did you see that GSK didn't see? 400-450k resections per year in US, 20% have some form of POI - costs and patient discomfort. hard to determine a priori. health economics - see 1 day shorter stay. It is clear to us that we have unique undertsanding and ability to speak the language of hospital decision makers - quality clinical outcomes and use of hospital resources. we've learned that hospital selling is different even from speicality, very different from primary. GSK is great commerically generally, but used 40% of reps' time on promoting Entereg, also had Advair, a very detail oriented product, typical specialty/priamary care style. Entereg is very different, similar to what we do with Cubicin, the same challenges we deal with every day. [In other words, our salesforce is God's gift to man and we can anything to anyone, don't question us!]
- 2012 guidance - non GAAP basis. still have to work thru acquisiton accounting around ADLR - will give those numbers in jan
- who adjudicates success on label? see in 8k - more specific in defining competitive label. 2 conditions to earn the full 4.50. either 1) first approved product for chronic use in OIC or 2) label that positions it well (regarding REMS, black box)
- role of NOLs to accretion? little bit of value to us, but not very much, not a source of accretion
- changes in salesforce? We anticipate no changes in our salesforce [again, read that ADLRs rep are gone]. plug entereg into the bag of our 200 reps
- is this it for acquisitions before 2015? We will focus for the foreseeable quarters on this transaction, executing, integration. will focus more on outlicensing.
- ADLR had thought they could do $100m..so you could make changes and go even higher? 94% of the top bowel resection hospitals are alreayd cubcin targets. But it is not appropriate for us to speak for Adolor.
- ADLR5945 phase 3 program? similar endpoints? NDA timing? SBM is likely primary endpoint, but will hold off until regulatory interactions. no comment on filing timeline until confirm design with global regulatory authorities.
- do adlr5945 sales milestones expire? they do have a deadline. within 5 years of launch in major market (US or EU5)
- what fraction of ressections is $100m target based on? relatively small share of total. premature to declare exact number before we can get into market and validate. south of 20%
- how many adlr reps? recently adlr grew from 20 to 50...$30m synergy will be weighted towards sg&a vs r&d line
- assumption behind adl5945 $1b peak forecast? cut market down to those who actually are treated with prescription product. need only relatively low double digit share of those.
- adlr 3q cash balance? they will announce this week [here is the press release]
- 2012 phase 3 spend for 5945? we have that estimate but won't share until interact with regulatory authirities to get concurrence, then we will provide our normal guidance
- debt payable to GSK? payments owed to GSK based on sales going forward. relatively modest [not quite accurate, there are 22.5m fixed payments due over 5-6 years, plus a sales milestone - see link]
- entereg safety use limitations/challenges? There is a REMS associated with entereg, limit of 15 doses. requires drop ship to hospitals - same method as used for years on cubicin
- competitive landscape for ADL5945? others in development. one sc product sold today. others roughly in same place in development. phase 2 data - balance between efficacy and safety. horse race to market, we'll go as fast as we can
- committed to certain # of phase 3 trials for 5945? yes we are committed. declare size/# later [ADLR has stated in prior webcasts that 2 trials will be required, total of "a couple thousand patients", 12 weeks on therapy]
- gross margin of entereg? won't give specifics under cubist. But 2012 gross revenue - COGS - GSK payments - marketing = more than pay for 2012 ADL5945 phase 3 costs.
- assumed need for multiple phase 3 trials to get broad enough safety database for desired label.
- early stage pipeline? There are some other assets. beloxipin has completed phase 1 pain product. not assumed any expense going forward in 2012. no diligence efforts yet. we'll take a hard look. we are interested in pain space. won't proceed at this time.
- cardiac problems with entereg drove REMS - in chronic long term use. have not seen any cardiac signal with ADL5945. We are aware of delta receptors in cardiac msucle - we focused on this in reviewing their data.
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