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ACOR > SEC Filings for ACOR > Form 10-Q on 8-Nov-2012All Recent SEC Filings

Show all filings for ACORDA THERAPEUTICS INC

Form 10-Q for ACORDA THERAPEUTICS INC


8-Nov-2012

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our consolidated financial condition and results of operations should be read in conjunction with our unaudited consolidated financial statements and related notes included in this Quarterly Report on Form 10-Q.

Background

We are a commercial-stage biopharmaceutical company dedicated to the identification, development and commercialization of novel therapies that improve neurological function in people with multiple sclerosis, or MS, spinal cord injury, or SCI, and other disorders of the nervous system.

Ampyra

General

Ampyra was approved by the FDA in January 2010 for the improvement of walking in people with MS. To our knowledge, Ampyra is the first and only product approved for this indication. Efficacy was shown in people with all four major types of MS (relapsing remitting, secondary progressive, progressive relapsing and primary progressive). Ampyra was made commercially available in the United States in March 2010. Net revenue for Ampyra was $69.8 million for the three-months ended September 30, 2012 and $54.7 million for the three-months ended September 30, 2011. As of the end of September 2012, approximately 70% of all people with MS who were prescribed Ampyra received a first refill, and approximately 40% of all people with MS who were prescribed Ampyra have been dispensed at least six months of the medicine through refills, consistent with previously reported trends.

Ampyra is marketed in the United States through our own specialty sales force and commercial infrastructure. We currently have approximately 90 sales representatives in the field calling on a priority target list of approximately 7,000 physicians. We also have established teams of Regional Scientific Managers, Regional Reimbursement Directors, and Managed Markets account managers who provide information and assistance to payers and physicians on Ampyra, and Market Development Managers who work collaboratively with field teams and corporate personnel to assist in the execution of the Company's strategic initiatives.

Pursuant to our REMS approved by the FDA, Ampyra is distributed in the United States exclusively through: a limited network of specialty pharmacy providers that deliver the medication to patients by mail; Kaiser Permanente, which distributes Ampyra to patients through a closed network of on-site pharmacies; and ASD Specialty Healthcare, Inc. (an AmerisourceBergen affiliate), which is the exclusive specialty pharmacy distributor for Ampyra to the U.S. Department of Veterans Affairs, or VA. All of these customers are contractually obligated to hold no more than an agreed number of days of inventory, ranging from between 10 to 30 days.

We have contracted with a third party organization with extensive experience in coordinating patient benefits to run Ampyra Patient Support Services, or APSS, a dedicated resource that coordinates the prescription process among healthcare providers, people with MS, and insurance carriers. Processing of most incoming requests for prescriptions by APSS begins within 24 hours of receipt. Patients will experience a range of times to receive their first shipment based on the processing time for insurance requirements. As with any prescription product, patients who are members of benefit plans that have restrictive prior authorizations may experience delays in receiving their prescription.

Three of the largest national health plans in the U.S. - Aetna, United Healthcare and Cigna - have listed Ampyra in the lowest branded co-pay tier of their commercial preferred drug list or formulary. These co-pay tiers were recently renewed. Approximately 75% of commercially insured individuals in the U.S. continue to have no or limited prior authorizations, or PA's, for Ampyra. We define limited PAs as those that require only an MS diagnosis, documentation of no contraindications, and/or simple documentation that the patient has a walking impairment; such documentation may include a Timed 25-Foot Walk (T25W) test. The access figure is calculated based on the number of pharmacy lives reported by commercial health plans.

License and Collaboration Agreement with Biogen Idec

Ampyra is marketed as Fampyra outside the U.S. by Biogen Idec International GmbH, or Biogen Idec, under a license and collaboration agreement that we entered into in June 2009. Biogen Idec now has approval for Fampyra in more


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than 30 markets outside the U.S., including the entire European Union, Canada, Australia New Zealand, Israel and South Korea. To date, commercial launches have taken place in Germany and many other EU countries, as well as in Canada, New Zealand, Australia, and Israel. We received a $25 million milestone payment from Biogen Idec in 2011, which was triggered by Biogen Idec's receipt of conditional approval from the European Commission for Fampyra. The next expected milestone payment would be $15 million, due when ex-U.S. net sales exceed $100 million over four consecutive quarters.

Ampyra Development Programs

We believe there may be potential for Ampyra to be applied to other indications within MS and also in other neurological conditions. For example, in December 2011, we initiated a Phase 2 proof-of-concept clinical study of dalfampridine in adults with cerebral palsy, or CP. The first part of this proof-of-concept study, which has been completed, was a single-dose phase primarily to evaluate safety and tolerability prior to proceeding to a multi-dose cohort. This 10-person, single dose part of the study detected no safety signals that would prevent additional study of the drug in the treatment of CP. We are currently enrolling the second part, a multi-dose study including 20 people with CP, to evaluate both safety and efficacy. We expect to announce results of this part of the study by mid-2013. Also, in June 2012 we enrolled the first patient in a Phase 2 proof-of-concept trial of dalfampridine in post-stroke deficits, and we expect to announce initial study results in the second quarter of 2013. This study is exploring the use of dalfampridine in patients who have experienced a stroke and who have stabilized with chronic neurologic deficits, which may include walking impairment and arm weakness. Over the first six months following a stroke, patients typically show some degree of spontaneous recovery of function, which may be enhanced by rehabilitation and physical therapy. This trial is targeting motor impairments that remain after such recovery. We also are providing grants for investigator-initiated studies looking for potential benefits on a range of functional deficits in MS and other neurological disorders.

We are also working with external partners on a once-daily formulation of Ampyra, and expect to begin human pharmacokinetic testing shortly.

Ampyra Patent Update

We have two issued patents listed in the Orange Book for Ampyra, as follows:

The first is U.S. Patent No. US 8,007,826 with claims relating to methods to improve walking in patients with MS by administering 10 mg of sustained release 4-aminopyridine (dalfampridine) twice daily. Based on the final patent term adjustment calculation of the United States Patent and Trademark Office, or USPTO, this patent will extend into 2027.

The Second is U.S. Patent No. 5,540,938 ("the '938 patent"), the claims of which relate to methods for treating a neurological disease, such as MS, and cover the use of a sustained release dalfampridine formulation, such as AMPYRA (dalfampridine) Extended Release Tablets, 10 mg for improving walking in people with MS. In October 2012, the USPTO determined that the '938 patent is entitled to a full five year patent term extension under the patent restoration provisions of the Hatch Waxman Act. With a five year patent term extension, the '938 patent would expire in 2018.

In 2011, the USPTO allowed U.S. Patent Application No. 11/102,559 (the '559 patent application') with claims relating to methods to improve walking, walking speed, lower extremity muscle tone and lower extremity muscle strength in patients with MS by administering 10 mg of sustained release 4-aminopyridine (dalfampridine) twice daily. Also in 2011, the European Patent Office, or EPO, granted the counterpart European patent with claims relating to, among other things, use of a sustained release aminopyridine composition, such as dalfampridine, to increase walking speed. In March 2012, Synthon B.V. and neuraxpharm Arzneimittel GmBH filed oppositions with the EPO challenging this granted European patent. We intend to vigorously defend the European patent, although the outcome of opposition proceedings is unpredictable. In light of the European oppositions, in April 2012, we requested further review by the USPTO of the '559 patent application which was allowed but had not yet issued. After further review, the USPTO again allowed this patent application, but in July 2012 we filed a request for continued examination. In August 2012, the USPTO again allowed the '559 patent application.


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Dalfampridine-ER 5 mg. Post-Approval Commitment Study

In August 2012, we announced results from a post-approval commitment study examining the use of a 5mg dose of dalfampridine-ER to improve walking in people with MS. The study failed to confirm efficacy of the 5mg dose. We believe that this study, together with Ampyra registration studies, continue to show that 10mg twice daily is the appropriate, safe, and effective dose. The study results will be provided to the FDA by the March 1, 2013 FDA deadline and presented in peer-reviewed scientific forums. We are continuing to analyze data from the study.

Zanaflex

Zanaflex Capsules and Zanaflex tablets are FDA-approved as short-acting drugs for the management of spasticity, a symptom of many central nervous system, or CNS, disorders, including MS and SCI. These products contain tizanidine hydrochloride, one of the two leading drugs used to treat spasticity. We launched Zanaflex Capsules in April 2005 as part of our strategy to build a commercial platform for the potential market launch of Ampyra. Combined net revenue of Zanaflex Capsules and Zanaflex tablets was $1.9 million for the three-months ended September 30, 2012 and $10.7 million for the three-months ended September 30, 2011. In February 2012, Apotex commercially launched a generic version of tizanidine hydrochloride capsules, and we also launched our own authorized generic version, which is being marketed by Watson Pharma. The commercial launch of these generic tizanidine hydrochloride capsules has caused a significant decline in sales of Zanaflex Capsules, and the launch of these generic versions and the potential launch of other generic versions is expected to cause the Company's net revenue from Zanaflex Capsules to decline further in 2012 and beyond. In May 2012, we received a Paragraph IV Certification Notice from Mylan Laboratories Limited advising us that Mylan Laboratories has filed an Abbreviated New Drug Application for generic versions of the three dosage strengths of Zanaflex Capsules. Based upon our request, the FDA has delisted from the Orange Book the patent against which Mylan Laboratories filed the Paragraph IV Certification Notice.

Research & Development Programs

Our lead research and development programs include three distinct therapeutic approaches to restoring neurologic and cardiac function and a fourth program, initiated in 2011, to develop an acute treatment for neurological trauma. We believe that these programs have broad applicability and have the potential to be first-in-class therapies. While our existing programs have been focused on MS and SCI, we believe they may be applicable across a number of CNS disorders, including stroke and TBI, because many of the mechanisms of tissue damage and repair are similar. In addition, we believe that some of our research and development programs may have applicability beyond the nervous system, including in the field of cardiology.

Glial Growth Factor 2

We have completed enrollment in our GGF2 Phase 1 clinical trial in heart failure patients. This was a dose-escalating trial designed to test the maximum tolerated single dose, with follow-ups at one, three, and six months. We expect to complete analysis of the three-month data by the end of 2012, which we plan to present in a peer-review setting. We will also discuss the data with the FDA before proceeding to a multiple dose study. If we are able to establish a proof of concept for treatment of heart failure through human clinical studies, we may decide to develop the product independently or to enter into a partnership, most likely with a cardiovascular-focused company.

Remyelinating Antibodies

We have submitted an IND application to the FDA for one of the remyelinating antibodies, rHIgM22, for the treatment of MS. The FDA has requested additional information, and we expect to submit a response by the end of 2012. We had previously announced problems with a bioactivity assay that had delayed the filing but we successfully completed the qualification of the bioactivity assay in the second quarter of 2012. In preparation for an IND filing, we worked with a contract manufacturer to complete the scale-up manufacturing and purification processes and completed formal preclinical safety and toxicity studies. The manufacturing data, clinical plans and preclinical safety profile are subject to FDA review as part of the IND filing.

Chondroitinase Program

We are continuing research, which has been funded in part by federal and state grants, on the potential use of chondroitinases for the treatment of injuries to the brain and spinal cord, as well as other neurotraumatic indications. The


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chondroitinase program is in the research and translational development phase and has not yet entered formal preclinical development. We are exploring the possibility of obtaining additional research grants from the National Institutes of Health, or NIH, as well as potential partnerships with other companies to support our efforts.

AC 105

In June 2011, we entered into a License Agreement with Medtronic, Inc. and one of its affiliates, pursuant to which we acquired worldwide development and commercialization rights to certain formulations of magnesium with a polymer such as polyethylene glycol (which we refer to as AC 105). Pursuant to the License Agreement, we paid Medtronic an upfront fee of $3 million and are obligated to pay up to an additional $32 million upon the achievement of specified regulatory and development milestones. If we commercialize AC 105, we will also be obligated to pay a single-digit royalty on sales. We plan to study AC 105 as an acute treatment for patients who have suffered neurological trauma, such as SCI and traumatic brain injury, or TBI. We have submitted a Phase 2 clinical trial protocol for AC 105 for acute treatment of SCI to the FDA for review, and we are continuing preparations to initiate the trial.

Corporate Updates

In July 2012, we relocated our corporate headquarters from Hawthorne, New York, to a facility in Ardsley, New York consisting of an aggregate of approximately 138,000 square feet of office and laboratory space. Base rent is initially $3.4 million per year, subject to a 2.5% annual increase. Our lease of the facility has a 15 year term, but we have options to extend the lease term for three additional five-year periods, and we may terminate the lease after 10 years, subject to payment of an early termination fee. We also have the right to lease up to approximately 120,000 additional square feet of space in additional buildings at the same location.

In October 2012, we named Jane Wasman as President, International. Ms. Wasman most recently has served as the Company's Chief, Strategic Development and General Counsel. In her new role, Ms. Wasman will lead our efforts to identify and launch in-licensing and commercial opportunities outside the United States. She will also be responsible for managing our collaboration with Biogen Idec in their international development and commercialization of Fampyra (prolonged-release fampridine tablets). Ms. Wasman will also continue to lead our global strategic development and will retain the title of General Counsel and Corporate Secretary.

Outlook for 2012

Financial Guidance for 2012

We are providing the following guidance with respect to our 2012 financial performance. The following does not reflect any potential expenditures related to the Neuronex transaction described below.

We expect 2012 net revenue from the sale of Ampyra to range from $255 million to $275 million.

We expect combined net revenues from sales of Zanaflex Capsules (including from sales of authorized generic tizanidine hydrochloride under our agreement with Watson Pharma) and Zanaflex tablets, and royalty revenue from sales by Biogen Idec of Fampyra outside the U.S., of at least $25 million.

Research and development expense guidance has been revised downward, and research and development expenses are now expected to be approximately $45 million, excluding share-based compensation charges and future expenses related to the potential acquisition of Neuronex and its Diazepam nasal spray product, discussed below. These expenses will include post-marketing studies for Ampyra, Phase 2 proof-of-concept studies in cerebral palsy and post-stroke deficits, and sponsorship of investigator-initiated studies of Ampyra. This revision to our prior guidance results from changes in the timing of several of our research and development programs.

Selling, general and administrative expenses are expected to range from $145 million to $160 million, excluding share-based compensation charges. The principal factors affecting SG&A will be commercial and administrative costs related to Ampyra.

We expect to be cash flow positive in 2012.


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The projected amounts of SG&A and R&D expenditures for 2012 are non-GAAP financial measures because they exclude share-based compensation charges and future expenditures related to the potential acquisition of Neuronex and diazepam nasal spray. Non-GAAP financial measures are not an alternative for financial measures prepared in accordance with GAAP. However, we believe the presentation of these non-GAAP financial measures, when viewed in conjunction with actual GAAP results, provides investors with a more meaningful understanding of our projected operating performance because they exclude non-cash charges that are substantially dependent on changes in the market price of our common stock and expenses and income that do not arise from the ordinary course of our business. We believe that non-GAAP financial measures help indicate underlying trends in our business, and are important in comparing current results with prior period results and understanding expected operating performance. Also, our management uses non-GAAP financial measures to establish budgets and operational goals, and to manage our business and to evaluate its performance.

Key 2012 Initiatives and Expected Developments

Our key initiatives and expected developments during 2012 are as follows:

Targeted Development Milestones

Our goals with respect to our development pipeline in 2012 are as follows:

We are currently enrolling the second phase of our Phase 2 proof-of-concept clinical trial of dalfampridine in adults with CP. This is a multi-dose study including 20 people with CP, to evaluate both safety and efficacy. We expect to announce results of this phase of the study by mid-2013.

A Phase 2 proof-of-concept clinical trial of dalfampridine in patients with post stroke deficits began in the second quarter of 2012 and is ongoing. We expect to announce initial study results in the second quarter of 2013.

We submitted an IND application to the FDA for rHIgM22, a remyelinating antibody for the treatment of MS. The FDA has requested additional information, and we expect to submit a response by the end of 2012. We plan to begin a Phase 1 study following FDA review of the study protocol.

We have completed enrollment in our GGF2 Phase 1 clinical trial in heart failure patients. This was a dose-escalating trial designed to test the maximum tolerated single dose. We expect to complete data analysis by the end of 2012, and we plan to present findings in a peer-review setting. We will discuss the data with the FDA before proceeding to a multiple dose study.

We submitted a Phase 2 clinical trial protocol for AC 105 for acute treatment of SCI to the FDA for review, and we are continuing preparations to initiate the trial.

Funding of investigator-initiated studies of Ampyra in MS, focused on a range of neurological functions and other neurological disorders, will be ongoing in 2012.

Neuronex Acquisition Agreement and Development of DZNS

On February 15, 2012, we entered into an agreement with Neuronex, Inc., which is preparing a 505(b)(2) type NDA for a proprietary nasal spray formulation of Diazepam, or DZNS, as a rescue treatment for certain epilepsy patients. Pursuant to the acquisition agreement, we made an upfront payment of $2 million upon signing the agreement and agreed to fund up to $1.2 million in research and development costs prior to closing. We paid $500,000 of the research and development funding commitment during the three-month period ended March 31, 2012, and we paid the remaining $700,000 of this commitment during the three-month period ended June 30, 2012. Also, in July 2012 we further agreed with Neuronex that we would fund up to an additional approximately $165,000 for specified development work relating to DZNS.

The closing is subject to a number of conditions including our satisfaction with the results of a meeting with the FDA regarding Neuronex's expected NDA filing. Following the pre-NDA meeting, we can, at our option, complete the acquisition by paying an additional $6.8 million in consideration. If we do not complete the transaction, other than as a result of a breach by Neuronex, Neuronex is entitled to retain all amounts previously paid by us as a break-up fee and we have no further obligations to Neuronex.

If we consummate the acquisition and the Neuronex product is approved by the FDA, additional potential payments would include up to $18 million to the former Neuronex equity holders in earnout payments upon the achievement of


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specified regulatory and manufacturing-related milestones and up to $105 million upon the achievement of specified sales milestones. The former Neuronex equity holders would also be entitled to receive milestone and royalty-like earnout payments from us based on worldwide net sales, ranging from the upper single digits to lower double digits.

In addition to the potential payments to former Neuronex equity holders, if we consummate the acquisition, we would be obligated to pay certain amounts to SK Biopharmaceuticals Co., Ltd. ("SK"), the licensor of the patent and other intellectual property and other rights relating to the DZNS product, under its license agreement with Neuronex. Pursuant to this license, Neuronex is obligated to pay SK up to $8 million upon the achievement of specified development milestones with respect to the DZNS product (including $1 million upon the FDA's acceptance of the NDA for the DZNS product), and up to $3 million upon the achievement of specified sales milestones with respect to the DZNS product. Also, Neuronex is obligated to pay SK a tiered, mid-single digit royalty on net sales of DZNS products.

If the acquisition is completed, we will assume oversight and financial responsibility for Neuronex's development and regulatory programs for diazepam nasal spray.

Results of Operations

Three-Month Period Ended September 30, 2012 Compared to September 30, 2011

Net Product Revenues

Ampyra

We recognize product sales of Ampyra following shipment of product to our network of specialty pharmacy providers, Kaiser and the specialty distributor to the VA. We recognized net revenue from the sale of Ampyra to these customers of $69.8 million as compared to $54.7 million for the three-month periods ended September 30, 2012 and 2011, respectively, an increase of $15.1 million, or 28%. The net revenue increase was comprised of net volume increases of $6.7 million and price increases and discount and allowance adjustments of $8.4 million. Net revenue from sales of Ampyra increased in the three months ended September 30, 2012 compared to the three months ended September 30, 2011 due to greater demand we believe due to, in part, the success of certain marketing programs such as our First Step program.

Discounts and allowances which are included as an offset in net revenue consists of allowances for customer credits, including estimated chargebacks, rebates, discounts and returns. Discounts and allowances are recorded following shipment of Ampyra tablets to our network of specialty pharmacy providers, Kaiser and the specialty distributor to the VA. Adjustments are recorded for estimated chargebacks, rebates, and discounts. Discounts and allowances also consist of discounts provided to Medicare beneficiaries whose prescription drug costs cause them to be subject to the Medicare Part D coverage gap (i.e., the "donut hole"). Payment of coverage gap discounts is required under the Affordable Care Act, the health care reform legislation enacted in 2010. Discounts and allowances may increase as a percentage of sales as we enter into managed care contracts or amend specialty pharmacy contracts in the future.

Zanaflex

We recognize product sales of Zanaflex Capsules and Zanaflex tablets using a deferred revenue recognition model where shipments to wholesalers are recorded as deferred revenue and only recognized as revenue when end-user prescriptions of the product are reported. We also recognize product sales on the transfer price of product sold for an authorized generic of Zanaflex Capsules during the three-month period ended September 30, 2012. We recognized net revenue from the sale of Zanaflex Capsules and Zanaflex tablets of $1.9 million for the three-month period ended September 30, 2012, as compared to $10.7 million for the three-month period ended September 30, 2011. The decrease was due to the commercial launch of generic versions of tizanidine hydrochloride capsules in February 2012. Net product revenues also include $550,000, which represents the sale of Zanaflex Capsules authorized generic product to Watson for the three-month period ended September 30, 2012. Generic competition has caused a significant decline in sales of Zanaflex Capsules and is expected to cause the Company's net revenue from Zanaflex Capsules to decline further in 2012 and beyond.

Discounts and allowances, which are included as an offset in net revenue, consist of allowances for customer credits, including estimated chargebacks, rebates, and discounts. Adjustments are recorded for estimated chargebacks, rebates, and discounts.


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Milestone Revenue

We recognized $25.0 million in milestone revenue for the three-month period ended September 30, 2011 as part of our ex-U.S. license agreement with Biogen Idec. In July 2011, Biogen Idec reached an agreement milestone when they received conditional approval from the European Commission for Fampyra (prolonged-release fampridine tablets) for the improvement of walking in adult . . .

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