Merck & Co Inc (MRK) — Q4 2018 Earnings Call Transcript

Thanks, and welcome everyone to our third quarter 2018 earnings conference call. The press release reporting our financial results, in addition to the presentation for today's webcast, are available on the Investors and Media page on the corporate website. Joining me for the call today are Habib Dable, our Chief Executive Officer; Robert Zeldin, our Chief Medical Officer; Kevin McLaughlin, our Chief Financial Officer; John Quisel, our Chief Business Officer; and Sujay Kango, our Chief Commercial Officer. As a reminder, we will be making forward-looking statements regarding our financial outlook in addition to regulatory and product development plans and research activities. These statements are subject to risks and uncertainties that may cause actual results to materially differ from those forecasted. A description of these risks can be found in our most recent Form 10-K on file with the SEC. I would now like to turn the call over to Habib Dable, our Chief Executive Officer.

Thank you, Todd, and good afternoon, everyone. Thank you for joining us today. 2018 was an important year for Acceleron, and I am extremely proud of the progress we've continued to make across our entire pipeline. Fifteen years after our founding, we have one of the most advanced TGF-beta superfamily-based pipelines in the industry, focused on three disease areas: Hematology, Neuromuscular, and Pulmonary. Looking ahead, 2019 and 2020 include several key milestones for all of our programs, including the potential approval and commercial launch of our lead product candidate luspatercept in both the United States and Europe. We also expect important Phase 2 results from each of our ongoing trials in Neuromuscular and Pulmonary disease. Focusing first on luspatercept, last year we were excited to announce positive results from our pivotal Phase 3 trials, MEDALIST and BELIEVE in lower-risk MDS and beta-thalassemia, respectively. This set the stage for a strong showing at ASH 2018 with luspatercept front and center. The Acceleron and Celgene teams did a phenomenal job planning and executing at this key Hematology Congress attended by more than 25,000 people. Among the key highlights at ASH, the top-line results from both MEDALIST and BELIEVE trials were reviewed and discussed at the meeting's opening press conference along with only two other clinical trials. The BELIEVE trial was presented by Dr. Anika Capellini from the University of Milan to a full room along with multiple ancillary rooms of attendee overflow. The MEDALIST trial, the first of six plenary presentations, was presented by Dr. Alan List from Moffitt Cancer Center to a main conference center room packed with over 10,000 meeting attendees, and both trials were selected from among thousands of scientific presentations at the meeting for Best of ASH honors, distinguishing them as some of the biggest breakthroughs in hematology. Finally, with these important results in both MDS and beta-thalassemia, we and Celgene remain on track to submit regulatory marketing applications in the US and EU in the first half of 2019, starting with the submission of the BLA to the FDA expected in April. As a result of the significant unmet medical need, we and Celgene estimate annual global peak sales of luspatercept to exceed $2 billion for the MDS and beta-thalassemia indications alone. We also estimate as much as another $1 billion of global peak sales potential for the opportunity in myelofibrosis associated anemia. With our low to mid 20% tiered royalty rate and Celgene covering approximately 100% of the program cost, these peak sales estimates have the potential to translate to significant royalty revenue for Acceleron. I will now hand the call over to our Chief Medical Officer, Robert Zeldin to review our neuromuscular and pulmonary disease programs.

Thanks, Habib. I'd like to begin with ACE-083 in neuromuscular disease. We continue to advance ACE-083, our locally acting muscle agent, in Phase 2 trials in patients with facioscapulohumeral muscular dystrophy or FSHD and Charcot-Marie-Tooth disease or CMT. FSHD is a myopathy caused by the expression of a typically dormant protein that is toxic to muscle tissue, while CMT is a neuropathy in which diseased nerve leads to muscle atrophy. At the World Muscle Society Annual Meeting in October, we presented positive results from part one of the trials, the open-label part that evaluated safety and tolerability along with changes in muscle mass to enable dose selection for part two. Patients with FSHD and CMT treated with ACE-083 experienced mean total muscle volume increases from baseline of greater than 14%, reduction in absolute fat fraction, and a favorable safety profile over the 12-week treatment period. Based on these positive results, we moved into part two of the trials designed to assess the efficacy and safety of ACE-083 versus placebo over a six-month treatment period followed by a six-month open-label period. The primary endpoint is the percent change in total muscle volume via magnetic resonance imaging with secondary endpoints including motor function tests such as timed walking tests in both FSHD and CMT, as well as upper limb tests in FSHD. With that, I'd like to turn to our pulmonary disease program. We are very excited to be developing Sotatercept in pulmonary arterial hypertension or PAH, a rare progressive disorder characterized by high blood pressure in the arteries of the lungs. There is an urgent need for new therapies in PAH, despite 14 drug approvals over the last 20 years; the median survival for these patients is still only 5 to 7 years post-diagnosis. Our Phase 2 PULSAR trial to evaluate Sotatercept's activity in patients with PAH is ongoing. This is a randomized double-blind placebo-controlled trial that will enroll 100 patients with World Health Organization group one functional class 23 PAH. The primary treatment period is six months, and the primary endpoint is change in pulmonary vascular resistance with multiple secondary endpoints. We also recently initiated an exploratory study called SPECTRA.

Thanks, Robert. Our cash, cash equivalents and investments as of December 31, 2018 were $291.3 million compared to $372.9 million as of December 31, 2017. Additionally, we were recently able to successfully execute a follow-on offering of common stock including the full exercise of the underwriters' over-allotment option for net proceeds to Acceleron of approximately $248.2 million from new and existing institutional shareholders. Based on our current operating plan and projections, we believe that our cash, cash equivalents and investments together with the net proceeds from the offering will be sufficient to fund our projected operating requirements until we expect to receive significant royalty revenue from the luspatercept sales. Collaboration revenue for the year was $14 million, all from the company's Celgene partnership and primarily related to expenses incurred by the company in support of luspatercept. Total costs and expenses for the year were $138.4 million. This includes R&D expenses of $103.9 million and G&A expenses of $34.5 million. The company posted a net loss for the year ended December 31, 2018 of $118.9 million. I will now turn the presentation back over to Habib for final remarks.

Great. Thank you, Kevin. And with that, I'll briefly summarize our priorities for the remainder of this year and beyond. Beginning with luspatercept and Hematology, we and Celgene plan to submit regulatory marketing applications to the US and EU health authorities in both lower-risk MDS and beta-thalassemia in the first half of 2019. In addition, we plan to submit the Phase 3 MEDALIST and BELIEVE results for publication in 2019. For the Phase 2 trial in myelofibrosis, we anticipate reporting top-line results in the second half of 2019 and expect to provide preliminary top-line results for the BEYOND phase 2 trials in 2020. The recently initiated phase 3 COMMANDS trial continues to enroll patients. We also expect to discuss our initial clinical trial expansion plan for luspatercept in 2019. Looking at our neuromuscular programs, we plan to present preliminary results from part two of the Phase 2 trials with ACE-083 in the second half of 2019 for FSHD, and by year-end 2019 for CMT. We expect to provide ASC-2494 preliminary results for the phase 1 healthy volunteer trial in the first half of this year. And lastly for PAH, we expect to provide preliminary results for the PULSAR and SPECTRA trials in 2020. In closing, luspatercept has created significant value from its unmet need to date and we believe it will continue to do so through its commercial launch and further indication expansion over time. I will now open the call to questions. Operator?

Great. Good afternoon, guys. Thanks for taking the question. I guess first on ACE-083, even clear on the need to show benefit in terms of function and strength, but I just kind of wanted to get a little more detail on how you're thinking about the clinical hurdle in terms of them potentially moving that forward into essentially a phase 3 study.

Hey, Carter. This is Habib. Thanks for your question. Maybe I'll just kick it off and then hand it over to Robert to add any additional color. So you're right with respect to ACE-083 in both Charcot-Marie-Tooth and FSHD where we plan to disclose top-line results for part 2 of the studies in the second half of this year. The important part of this study, as you know, is all about function. We have been able to demonstrate double-digit growth in both indications in terms of total muscle volume in a generally safe and tolerable way. Now when you're looking at FSHD where we're dosing both the biceps and the TA muscles, in the biceps we're looking at functional improvements by measuring, using a measurement called the PUL or the Performance Upper Limb test where patients are asked to engage in various exercises like putting pegs in holes, stacking cans, etc., and timing them. When you're looking at the TA muscle for both Charcot-Marie-Tooth and FSHD, we're looking at endpoints such as stair climb time and meter walk/run, six-minute walk distance, etc. So, at the end of the day, Carter, again as I said, we're powering the studies to be able to demonstrate total muscle volume increases, and we're looking across a spectrum of functional endpoints including quality of life assessments through a validated PRO where we're working with collaborators at the University of Rochester. We will look at all that data in totality, and again we power the studies to be able to show us a functional improvement. We're looking for double-digit increases in function, but again looking at the totality of the data at the end of part two we hope to be able to be very well informed in terms of what a phase 3 would look like in terms of a go/no-go. Robert, I don't know if there's anything on top of that you'd like to add?

Too comprehensive.

Hey, Carter, it's Todd. I would just add about the baseline demographics. We targeted patients based off of the muscle scores for the trial that they see mild to moderate patients. So the patients wouldn't be too far gone that we couldn't provide an improvement with a therapy like ACE-083 and so that's in line with the patients that were involved in the trial.

Hey, everyone. This is on for Danielle Brill. I just had a couple of quick questions I wanted to address. First, could you provide some insight into what we should expect from the preliminary data of the myelofibrosis trial that will be released in the second half?

Yes. I know thanks for your question. So from myelofibrosis, just to remind everyone this is a phase 2 study that we're running where we recruited 70 patients, and we have also guided that in the second half of this year we would be presenting data on these patients. Again, the way we looked at these 70 patients was looking at 40 patients who are being treated with our asset luspatercept without the combination of ruxolitinib because they don't have an enlarged spleen. And then 30 patients out of that 70 are looking at luspatercept in combination with ruxolitinib. And again we're looking at transfusion-dependent patients, as well as non-transfusion-dependent patients. I think it's important to highlight the unmet need with these patients because they are suffering from anemia due to the fibrotic bone marrow. And so this disease-induced anemia is something we are looking at in the mono patient, and please remember when you think about ruxolitinib and JAK inhibition, there also suffer impact on these patients due to the mechanism of action.

Hey, it's Todd. As far as the primary endpoints for the Phase 2 depending on which cohort the patient's in, whether it's the anemia-only cohort, there we're looking for consecutive 12 weeks hemoglobin increase of a 1.5 grams or greater within the first 24 weeks or the six-month primary treatment period. For the patients that have the 2 to 4 unit transfusion burden over a four-week period, there we are looking for transfusion independence or no transfusions over a 12 consecutive week period within that 24 week primary treatment period. So that's the main endpoints that you could expect to see when we do present results in the second half of the year.

Great, thanks, Todd.

Got it, thank you so much. That was really helpful. And I guess the second question I had was you mentioned you're getting ready with launch readiness activities right now for luspatercept. Could you expand on that a little bit? What are you guys doing and how is it coming about?

So thanks for your question. With the announcement we made recently with the BLA expected to be filed in April, under a standard review process we could anticipate that a year later from April we could be in launch mode. Now that said, we are also doing a number of activities together with our collaboration partner Celgene in preparation for that. A number of activities in terms of launch readiness, whether it's in preparations for our positioning strategy, pricing research, manufacturing and supply. A tremendous amount of work is going on. I can tell you that we are doing this with the expectation that if indeed we are surprised with a priority review and we were able to launch earlier, we would be prepared.

Sure. Thanks, Habib. We do have joint commercialization teams already in place, and we are clearly understanding what the patient needs that are on the forefront and putting programs together that would be necessary for launch as and when we get approval. In that instance, we are preparing all the materials that are necessary, trying to think from a peer engagement early perspective planning around that component to ensure that access is appropriate and understanding where the patients are within the US. So we are able to deploy the right team members appropriately at the right time point. All this work for planning in a pre-launch phase is what we are doing to ensure that at launch we'll be ready to go day one and have the patient's needs in mind. So that's what we are working on.

Great. Thank you so much. I have a couple of questions. First one to clarify the endpoint, Todd that you mentioned the consecutive 12-week endpoint. Is that any consecutive 12-week and you sort of record the best data within that 24 week or does it need to be consecutive 12 weeks within a specific time point?

Yes, and it's the first. So if it's week 0 to 12 or 2 to 14 or 12 to 24 within that 24 week period, all those instances would be considered a responder within that 24 week period.

Can you remind us how the endpoint for the Sotatercept study was defined? Was it defined the same way as the 33% to 39% response rate?

Yes, that's right and whether it was the Sotatercept IST or MDS trials there we're looking for a consecutive eight-week, that's how we've done the endpoints over the treatment period.

Okay, great. It sounds like you're going to be requesting Priority Review. Can you remind us which division of the FDA is reviewing the application? Is it the same division handling both filings for both indications?

Yes. So Robert would you like to answer that?

What?

Division of Hematology.

So it's Hematology, yes, our expectation is that division will review both applications.

Okay, so there will be a single priority review and they'll review them at the same time.

Yes. So it's, that's not necessarily the case that it would be single. So obviously, Yaron, at standard practice we would be looking and asking for that, but just to remind you again just so I'm clear, our base case assumptions that is a standard review process.

Hi, this is Nicole for Robyn. Thanks for taking the questions. Regarding the regulatory process, do you anticipate it will be similar between the US and EU? From your communications with regulatory authorities, do you sense any potential hurdles or concerns regarding the acceptance of the application?

Robert, would you like to respond?

Yes. I mean I think that at the pre-BLA meeting, that was a very positive open discussion. I think the agency was excited about receiving the application. I could not identify any specific areas of concern as folks are now clearly aware we intend to file with the FDA in April.

Okay, great. And then just a quick follow up given the evolving and competitive landscape in beta cell with multiple different modalities being investigated. Where do you see greater potential for luspatercept?

Yes. So with respect to two beta-thalassemia, let me answer the second part of your question first. The BELIEVE study just to remind everyone it was studied in transfusion-dependent patients. So the initial approval that we will be looking for is exactly that. Now I think it's important to also note, though, that there is a significant population probably equivalent to the transfusion-dependent population that we're exploring through the BEYOND study. And so we're recruiting patients 150 there and obviously this is a population. This is a population with a very high unmet need because they are not actually being transfused but are, in many cases, very symptomatic. We are eagerly anticipating the outcomes of that study. Regarding your first question about competition and the potential for beta-thalassemia and luspatercept, we take great pride in luspatercept's ability to promote healthy red blood cell production in two distinct conditions: lower risk MDS and beta-thalassemia. This achievement has strengthened our confidence to pursue additional life cycle management initiatives. With respect to beta-thalassemia, if we are approved, we feel that there will be a tremendous unmet need that we will be catering to. Obviously, I know there's a lot of attention on gene therapy and if gene therapies are proven to be safe and efficacious, I'm thrilled that the community will have that as an option. Do I feel that that option will cater to the many patients with unmet needs? No, I don't. I feel that if indeed it is another option for patients, I believe there will be a tremendous opportunity for luspatercept to find a space and a very significant space for this patient population who may not be qualified for such a therapy.

Hi, this is Greg Harrison on for Geoff. Thanks for taking the question. So now that potential luspatercept launch is on the horizon, do you think the expanded indications and development could end up garnering the same penetration as with the MEDALIST and BELIEVE populations? And if so, what factors could possibly enable that outcome?

I just want to ensure I understood your question correctly. You're asking whether we believe the follow-on indications beyond MEDALIST and BELIEVE will offer similar opportunities and meet the same unmet needs, is that accurate?

Yes, exactly.

Okay, great. When we look at the datasets that we've got, we feel that we have the most robust information around, and we look at US and Europe. For the MEDALIST population, we feel that there are approximately about 40,000 patients between the US and Europe that we'll be able to serve. With the BELIEVE patient population, we feel that it's approximately 20,000. Now, admittedly, the opportunity for that to expand will be driven by success in our subsequent studies. If the BEYOND study is successful, we feel that the patient population for beta-thalassemia alone could double. If the COMMAND study, which is our first line treatment-naïve study in lower risk MDS is successful, we believe that patient population has an incidence rate of approximately 15,000 a year. When you look at myelofibrosis, the patient population across the US and Europe is approximately 30,000 to 35,000 patients, and if you look at that patient group, probably 50% to 60% of them suffer from moderate to severe anemia. So now you're again looking at another 15,000 to 20,000 patients, independent of whether or not they're on ruxolitinib or not, as I said before, these patients are suffering from chronic anemia due to fibrotic bone marrow, as well as drug-induced anemia. The opportunity for luspatercept to play a role here as an erythroid maturation agent can be quite profound in this group. So all of these groups that we're looking at have a potential to have a very high unmet need and an underserved population. Just to close off on that, we recently have given a bit more granularity in terms of the commercial opportunity of these indications where we have traditionally always said that if you look at the lower risk MDS and beta-thalassemia that represented a $2 billion plus opportunity, and now as we move forward with our next indication in myelofibrosis, if indeed the myelofibrosis study is successful and the drug is approved in that indication, we and our partners believe that it's an incremental $1 billion opportunity in that indication alone.

Hey, guys. Thanks for taking the questions. A couple from us. I guess the first on most luspatercept and myelofibrosis, assuming that safety data are good, can you talk a little bit about the registration path forward? Whether you would need to pursue individualized trials in the non-transfusion-dependent versus transfusion-dependent populations? And whether there's sort of a wholesale way of pursuing the indication?

Eric, I think the first question is pretty easy to answer: it's too early right now. Let's wait and see how the phase 2 reads out, let's see what data comes out of that, and based on that we'll obviously have the appropriate interactions with the regulatory agencies. And then we'll be guided by that feedback, and then we'll share with you the development path forward for phase 3. With respect to Fedratinib, I think all I can tell you at this point are what have already been disclosed in terms of the phase 1 2 studies. The Celgene disclosed this last month.

Got it. Could you clarify your expectations regarding ACE-083? Specifically, are you anticipating the ability to observe a consistent benefit and functional improvement based on the trial size, and which measurements do you expect will demonstrate that benefit?

Yes. So I think Habib's point was that we're going to look at the totality of the data. So we know the primary efficacy endpoint is clear. That's overall muscle growth, and now we have a number of assessments of functional benefit we're going to look at them in totality. In general, we're guiding to say that we'd like to see a 10% improvement on those individual measures that would give us the confidence to advance the program. But I don't think we would pick one of our children above the other.

Yes. So as we haven't gotten to the granularity of the assessment timelines, but again, just so you know, these patients are coming in every three weeks for their injections.

Hey, thanks for taking the question. This is Gerard on for Geoff. A couple on muscle could you remind us how you expect to disclose the 2494 phase one data, what type of disclosure?

As far as the communication plan for those results, hard to say exactly when it'll fall at Congress or not, but at the very least there would be a press release that discloses the results. As far as what you could expect, it's a single ascending dose trial across I think five or six different doses and any serious would absolutely be outlined. If things are just grade one, two we categorize them. If there are injection site reactions for example like we saw in part one, we would comment about that. And as far as the PD that you could expect to see, we're looking at potential increases in muscle volume of the quad, which is very regular to do in this style of a trial. I think it would be difficult to read anything in from the ACE-083 results to the 2494 results, as they’re very distinct molecule of ACE-083, which is a locally acting agent that we can take to very high therapeutic dose levels, whereas a systemic agent like 2494 you likely expect to see mid to high single-digit increases.

So the important thing to remember is that ACE-083 and ACE-2494 are both myostatin plus agents. We can stimulate muscle growth and improve function by inhibiting as many of the relevant ligands that are negative regulators of muscle as you can safely. These two molecules have different approaches as ACE-083 is locally administered, while the other one, 2494, is a ligand that is a systemic agent. Thus, we expect very different effects on muscle mass.

Thanks for taking the questions. Can you talk about conversations you've had with payers and anything that surprised you or any discussions on value-based pricing?

I don't think there's much we can say about that discussion, but do you want to comment, Sujay, in terms of anything we can share with respect to payer or pay research that's ongoing?

Sure. We are conducting payer research, and gaining insights. Celgene has a very methodological approach to value-based pricing. At this juncture, we are gathering insight. We want to ensure that we have the broadest access possible for the patient population. With that in mind, I think we're in a good position to get all that insight. Based on FDA guidance, we can do early payer engagement, and through that, we are collecting that insight. Very close to launch, we'll be able to disclose the price related to the value proposition.

Yes. It's a good question, Jeff. At the end of the day, we are fully committed to both therapeutic areas as we disclosed during R&D day in 2017. We have the appropriate firepower to drive these studies to conclusion. At the end of phase two and based on that data, we will take a good look at what would drive the most value strategically for the programs and for Acceleron. The nuance is that we are positioning ourselves to be in a position to potentially partner rather than the necessity to partner these programs because we would otherwise not be able to afford to run them.

Thanks for taking the question. Habib, that $2 billion to $3 billion in peak sales guidance is reminiscent of Babe Ruth pointing at centerfield bleachers—quite the move! A couple of quick questions. On luspatercept, clearly in MEDALIST there's a major impact on hemoglobin and transfusion, but it looks like there's also some impact on platelets. Could you remind us how requirements for g-csf were impacted in MEDALIST and potentially how this could factor into on-label usage in the clinic?

I'm going to ask Dr. Robert Zeldin to comment.

I can't speak to the specifics on individual patients, but I can tell you that having reviewed the safety data comprehensively, we have no concerns regarding thrombocytosis in the patient population treated in the MEDALIST study.

Oh, no. I was thinking more that you could reduce the need for some of the therapies from your last—

The second part of your question I don't believe was answered. So you want to repeat that again? Okay, we lost him. We were not catching at all. We'll have to go to the next question, operator.

Hi, guys. This is Holly on for Terrence. Just one question from us is that can you discuss the status of the COMMANDS trial enrollment and when we could potentially see data?

Sure. Yes, we kicked off the COMMAND trial with our partner Celgene in late in the third quarter of last year. Enrollment is still in its early days. As far as when you could expect data, we haven't guided to that today, but there are typically some initial forecasts listed on clinicaltrials.gov for trials.

Yes. No, if there are no other questions, thanks everybody for your participation. Thank you for your continued interest in the company. I look forward to meeting you at future investor conferences. With that, everybody, have a good night.