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MDCO > SEC Filings for MDCO > Form 10-Q on 4-Aug-2014All Recent SEC Filings

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Form 10-Q for MEDICINES CO /DE


4-Aug-2014

Quarterly Report


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

You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and accompanying notes included elsewhere in this quarterly report on Form 10-Q. In addition to the historical information, the discussion in this quarterly report on Form 10-Q contains certain forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated by the forward-looking statements due to our critical accounting estimates discussed below and important factors set forth in this quarterly report on Form 10-Q, including under "Risk Factors" in Part II, Item 1A of this quarterly report on Form 10-Q.

Overview

Our Business

We are a global biopharmaceutical company focused on saving lives, alleviating suffering and contributing to the economics of healthcare by focusing on 3,000 leading acute and intensive care hospitals worldwide. We market Angiomax® (bivalirudin), Recothrom® Thrombin topical (Recombinant), Cleviprex® (clevidipine) injectable emulsion, Minocin® (minocycline) for injection and the Tenaxis surgical sealant, a vascular and surgical sealant acquired in our acquisition of Tenaxis Medical, Inc., or Tenaxis. We also have a pipeline of acute and intensive care hospital products in development, including five product candidates for which we have submitted applications for regulatory approval or plan to submit applications for regulatory approval in 2014 which we refer to as our registration stage product candidates, cangrelor, IONSYSTM (fentanyl iontophoretic transdermal system), OrbactivTM (oritavancin), RaplixaTM, formerly referred to as FibrocapsTM, and RPX-602, and three research and development product candidates, MDCO-216, CarbavanceTM and ALN-PCSsc, which we have the right to develop, manufacture and commercialize under our collaboration agreement with Alnylam Pharmaceuticals, Inc., or Alnylam. We believe that these marketed products and products in development possess favorable attributes that competitive products do not provide, can satisfy unmet medical needs in the acute and intensive care hospital product market and offer, or, in the case of our products in development, have the potential to offer, improved performance to hospital businesses.

In addition to these products and product candidates, we sell a ready-to-use formulation of Argatroban and have a portfolio of ten generic drugs, which we refer to as our acute care generic products, that we have the non-exclusive right to market in the United States. We are currently selling three of our acute care generic products, midazolam, ondansetron and rocuronium. We also co-promote the oral tablet antiplatelet medicine BRILINTA® (ticagrelor) in the United States as part of our global collaboration agreement with AstraZeneca LP, or AstraZeneca, and the Boston Scientific Promus PREMIERTM Everolimus-Eluting Platinum


Chromium Coronary Stent System, or Promus PREMIER Stent System, in the United States under our co-promotion agreement with Boston Scientific Corporation, or BSX. In addition to the product candidates above, we also have an exclusive option to acquire worldwide rights for ABP700, an intravenous anesthetic program, which is under development with Annovation Biopharma Inc., or Annovation.

The following table identifies each of our marketed products and our products in development, their stage of development, their mechanism of action and the indications for which they have been approved for use or which they are intended to address. The following chart also identifies each of our acute care generic products and the therapeutic areas which they are intended to address. All of our marketed products and products in development, except for Recothrom, IONSYS, ALN-PCSsc, the Tenaxis surgical sealant and Raplixa, are administered intravenously. Recothrom and the Tenaxis surgical sealant are, and Raplixa is being developed as, a topical hemostat, IONSYS is being developed to be administered transdermally and ALN-PCSsc is being developed as a subcutaneous injectable. All of our acute care generic products are injectable products.

   Product or Product       Development Stage     Mechanism/Target     Clinical Indication(s)/Therapeutic
     in Development                                                                  Areas
Marketed Products
Angiomax                        Marketed           Direct thrombin     U.S. - for use as an anticoagulant
                                                      inhibitor        in combination with aspirin in
                                                                       patients with unstable angina
                                                                       undergoing percutaneous
                                                                       transluminal coronary angioplasty,
                                                                       or PTCA, and for use in patients
                                                                       undergoing percutaneous coronary
                                                                       intervention, or PCI, including
                                                                       patients with or at risk of
                                                                       heparin induced thrombocytopenia
                                                                       and thrombosis syndrome, or
                                                                       HIT/HITTS
                                                                       Europe - for use as an
                                                                       anticoagulant in patients
                                                                       undergoing PCI, adult patients
                                                                       with acute coronary syndrome, or
                                                                       ACS, and for the treatment of
                                                                       patients with ST-segment elevation
                                                                       myocardial infarction, or STEMI,
                                                                       undergoing primary PCI
Ready-to-use Argatroban      Marketed in the       Direct thrombin     Approved for prophylaxis or
                              United States           inhibitor        treatment of thrombosis in adult
                                                                       patients with HIT and for use as
                                                                       an anticoagulant in adult patients
                                                                       with or at risk for HIT undergoing
                                                                       PCI
Cleviprex                    Marketed in the       Calcium channel     U.S. - Blood pressure reduction
                             United States,            blocker         when oral therapy is not feasible
                           Australia, Germany                          or not desirable
                             and Switzerland                           Switzerland - with indications for
                                                                       blood pressure control in
                               Approved in                             perioperative settings
                            Austria, Belgium,                          Ex-U.S. - with indications for
                             Canada, France,                           blood pressure control in
                             Luxembourg, the                           perioperative settings
                            Netherlands, New
                           Zealand, Spain and
                           the United Kingdom

                            MAA submitted for
                             other European
                             Union countries
Minocin IV                   Marketed in the     Tetracycline-class    Treatment of bacterial infections
                              United States          antibiotic        caused by Acinetobacter species
Tenaxis surgical sealant     Approved in the     Mechanical vascular   U.S. - for use as a vascular
                             United States;         and surgical       sealant Europe - for use as a
                             Marketed in the           sealant         surgical sealant applicable to
                             European Union                            cardiovascular, general,
                                                                       urological, and thoracic surgery


Recothrom                Marketed in the      Recombinant human    For use as an aid to
                        United States and         thrombin         hemostasis to help
                             Canada                                control oozing blood
                                                                   and mild bleeding
                                                                   during surgical
                                                                   procedures
Acute care generic       Approved in the           Various         Acute cardiovascular
products: Adenosine,      United States
Amiodarone, Esmolol
and Milrinone
Acute care generic       Approved in the           Various         Serious infectious
products:                 United States                            disease
Azithromycin and
Clindamycin
Acute care generic       Approved in the           Various         Surgery and
products:                United States;                            perioperative
Haloperidol,               Midazolam,
Midazolam,               Ondansetron and
Ondansteron and        Rocuronium marketed
Rocuronium                in the United
                             States
Registration Stage
Cangrelor               NDA in the United    Antiplatelet agent    Prevention of
                       States accepted for                         platelet activation
                        filing by the FDA                          and aggregation when
                          in the third                             oral therapy is not
                        quarter of 2013;                           feasible or not
                        MAA accepted for                           desirable
                          review in the
                        European Union in
                       the fourth quarter
                             of 2013
IONSYS                  Supplemental New     Patient-controlled    Short-term
                        Drug Application,     analgesia system     management of acute
                        or sNDA, filed in                          postoperative pain
                       the second quarter
                          of 2014; MAA
                          submission in
                         European Union
                         planned for the
                         middle of 2014
Orbactiv                NDA in the United        Antibiotic        Treatment of serious
                       States accepted for                         gram-positive
                        filing by the FDA                          bacterial
                          in the first                             infections,
                        quarter of 2014;                           including acute
                        MAA accepted for                           bacterial skin and
                          review in the                            skin structure
                        European Union in                          infections, or
                        the first quarter                          ABSSSI, and
                             of 2014                               including infections
                                                                   that are resistant
                                                                   to conventional
                                                                   treatment
Raplixa                Phase 3 completed;    Dry powder topical    For use as an aid to
                        Biologics License      formulation of      stop bleeding during
                         Application, or       fibrinogen and      surgery
                        BLA, accepted for         thrombin
                        filing by the FDA
                       in April 2014; MAA
                        submission in the
                         European Union
                       accepted for review
                        by the EMA in the
                        fourth quarter of
                              2013
RPX-602                 NDA submission in         Improved         Treatment of
                        the United States      formulation of      infections caused by
                        planned for 2014         Minocin IV        Acinetobacter
                                                                   species
Research and
Development Stage
Carbavance             Phase 1 completed,      Combination of      Treatment of
                       we expect to enter        RPX-7009, a       hospitalized
                        Phase 3 clinical     proprietary, novel    patients with
                       study in the second     beta-lactamase      serious
                          half of 2014        inhibitor, with a    gram-negative
                                                 carbapenem        infections
                                                 antibiotic
MDCO-216                Phase 1 completed    Naturally occurring   Reversal cholesterol
                                                variant of a       transport agent to
                                              protein found in     reduce
                                                high-density       atherosclerotic
                                             lipoprotein, or HDL   plaque burden
                                                                   development and
                                                                   thereby reduce the
                                                                   risk of adverse
                                                                   thrombotic events
ALN-PCSsc                 Pre-clinical           PCSK-9 gene       Treatment of
                                                 antagonist        hypercholesterolemia
                                                 addressing
                                                 low-density
                                               lipoprotein, or
                                              LDL, cholesterol
                                                   disease
                                                modification

Our revenues to date have been generated primarily from sales of Angiomax in the United States. In the six months ended June 30, 2014, we had net revenue from sales of Angiomax of approximately $318.8 million, net revenue from sales of Recothrom of approximately $29.8 million and net revenue from sales of Cleviprex, ready-to-use Argatroban, Minocin IV and the Tenaxis surgical sealant of approximately $12.4 million in the aggregate.


We continue to expand our sales and marketing efforts outside the United States. We believe that by establishing operations outside the United States, we can increase our sales of Angiomax, Cleviprex and the Tenaxis surgical sealant outside of the United States and be positioned to commercialize Recothrom and Minocin IV and our products in development, if and when they are approved and ready to be marketed outside of the United States.

Cost of revenue represents expenses in connection with contract manufacture of our products sold and logistics, product costs, royalty expenses and amortization of the costs of license agreements, amortization of product rights and other identifiable intangible assets, from product and business acquisitions. Research and development expenses represent costs incurred for licenses of rights to products, clinical trials, nonclinical and preclinical studies, regulatory filings and manufacturing development efforts. We outsource much of our clinical trials, nonclinical and preclinical studies and all of our manufacturing development activities to third parties to maximize efficiency and minimize our internal overhead. We expense our research and development costs as they are incurred. Selling, general and administrative expenses consist primarily of salaries and related expenses, costs associated with general corporate activities and costs associated with marketing and promotional activities. Research and development expense, selling, general and administrative expense and cost of revenue also include share-based compensation expense, which we allocate based on the responsibilities of the recipients of the share-based compensation.

Angiomax Patent Litigation

The principal U.S. patents covering Angiomax include U.S. Patent No. 5,196,404, or the '404 patent, U.S. Patent No. 7,582,727, or the '727 patent, and U.S. Patent No. 7,598,343, or the '343 patent.

In the second half of 2009, the U.S. Patent and Trademark Office, or PTO, issued to us the '727 patent and the '343 patent, covering a more consistent and improved Angiomax drug product and the processes by which it is made. The '727 patent and the '343 patent are set to expire in July 2028. In response to Paragraph IV Certification Notice letters we received with respect to abbreviated new drug applications, or ANDAs, filed by a number of parties with the FDA seeking approval to market generic versions of Angiomax, we have filed lawsuits against the ANDA filers alleging patent infringement of the '727 patent and '343 patent.

On September 30, 2011, we settled our '727 patent and '343 patent infringement litigation with Teva Pharmaceuticals USA, Inc. and its affiliates, which we collectively refer to as Teva. In connection with the Teva settlement, we entered into a license agreement with Teva under which we granted Teva a non-exclusive license under the '727 patent and '343 patent to sell a generic bivalirudin for injection product under a Teva ANDA in the United States beginning June 30, 2019 or earlier under certain conditions. The license agreement also contains a grant by Teva to us of an exclusive (except as to Teva) license under Teva's bivalirudin patents and right to enforce Teva's bivalirudin patents.

On January 22, 2012, we settled our patent litigation with APP Pharmaceuticals LLC, or APP, including our litigation with respect to the extension of the patent term of the '404 patent and our patent infringement litigation with respect to the '727 patent and the '343 patent. In connection with the APP settlement, we entered into a license agreement with APP under which we granted APP a non-exclusive license under the '727 patent and '343 patent to sell a generic bivalirudin for injection product under an APP ANDA in the United States beginning on May 1, 2019. In certain limited circumstances, the license to APP could become effective prior to May 1, 2019. In addition, in certain limited circumstances, this license to APP could include the right to sell a generic bivalirudin product under our NDA for Angiomax in the United States beginning on May 1, 2019 or, in certain limited circumstances, on June 30, 2019 or on a date prior to May 1, 2019.

In September 2013, a three day bench trial was held regarding our patent infringement litigation with Hospira, Inc., or Hospira, with respect to the '727 patent and '343 patent, and a post-trial briefing was completed in December 2013. On March 31, 2014, the court issued its trial opinion on the matter. With respect to patent validity, the court held that the '727 and '343 patents were valid on all grounds. Specifically, the court found that Hospira had failed to prove that the patents were either anticipated and/or obvious. The court further held that the patents satisfied the written description requirement, were enabled and were not indefinite. With respect to infringement, based on its July 2013 Markman decision, the court found that Hospira's ANDAs did not meet the "efficient mixing" claim limitation and thus did not infringe the asserted claims of the '727 and '343 patents. The court found that the other claim limitations in dispute were present in Hospira's ANDA products. The court entered a final judgment on April 15, 2014. On May 9, 2014, a Notice of Appeal to the United States Court of Appeals for the Federal Circuit was filed with the Delaware Court. On May 23, 2014, Hospira filed a notice of cross-appeal. If our appeal is not successful or Hospira's cross-appeal is successful, then Angiomax could be subject to generic competition earlier than anticipated, including from Hospira's generic bivalirudin, as well as potentially Teva's and APP's generic bivalirudin products.


We remain in patent infringement litigation involving the '727 patent and '343 patent with other ANDA filers, as described in Part II, Item 1, Legal Proceedings, of this quarterly report on Form 10-Q. If we are unable to maintain our market exclusivity for Angiomax in the United States through enforcement of our U.S. patents covering Angiomax, then Angiomax could be subject to generic competition earlier than May 1, 2019 and as early as June 15, 2015, the date of expiration of the patent term of the '404 patent and the six month pediatric exclusivity.

Cangrelor Regulatory Review

In February 2014, the FDA Cardiovascular and Renal Drugs Advisory Committee advised against approval of cangrelor for use in patients undergoing PCI or those that require bridging for oral antiplatelet therapy to surgery. On April 30, 2014, the FDA issued a Complete Response Letter for our NDA for cangrelor. For the PCI indication, the FDA stated that the NDA cannot be approved at the present time and the FDA suggested that we perform a series of clinical data analyses of the CHAMPION PHOENIX study, review certain processes regarding data management, and provide bioequivalence information on the clopidogrel clinical supplies for the CHAMPION trials. For the BRIDGE indication, the FDA concluded that a prospective, adequate and well-controlled study in which outcomes such as bleeding are studied, can result in the clinical data necessary to assess the benefit-risk relationship in this indication. The FDA also provided additional comments for us to address, stating that the comments are not currently approvability issues, but could affect labeling. We are focused on the additional analyses in response to the FDA and are working with the FDA to accommodate its review process in a timely manner.

Business Development Activity

Tenaxis Medical, Inc. In April 2014, we entered into an Agreement and Plan of Merger with Tenaxis Medical, Inc., or Tenaxis, Napa Acquisition Corp., our wholly owned subsidiary, and Fortis Advisors LLC, a Delaware limited liability company, solely in its capacity as the representative and agent of the stockholders and optionholders of Tenaxis. On May 1, 2014, we completed our acquisition of Tenaxis and Tenaxis became our wholly owned subsidiary. As a result of the acquisition of Tenaxis, we acquired Tenaxis's sole product, a surgical sealant that mechanically seals both human tissue and artificial grafts. In the United States, the Tenaxis surgical sealant received a premarket approval from the FDA in March 2013 for use as a vascular sealant, but Tenaxis has not yet commercialized the product in the United States. We expect to begin selling the Tenaxis surgical sealant in the United States in the fourth quarter of 2014. In the European Union, the Tenaxis surgical sealant is approved for sale as a surgical sealant applicable to cardiovascular, general, urological, and thoracic surgery with a European CE Mark. Pursuant to this approval, the Tenaxis surgical sealant has been sold in the European Union since September 2008.

Under the merger agreement, we paid to the holders of Tenaxis's capital stock, the holders of options to purchase shares of Tenaxis's capital stock (whether or not such capital stock or options were vested or unvested as of immediately prior to the closing) and the holders of certain warrants and side letters, which we refer to collectively as the Tenaxis equityholders, an aggregate of $58.9 million in cash, subject to customary adjustments at and after the closing. At the closing, we also deposited $5.4 million of the purchase price into an escrow fund for the purposes of securing the indemnification obligations of the Tenaxis equityholders to us for any and all losses for which we are entitled to indemnification pursuant to the merger agreement and to provide the source of recovery for any amounts payable to us as a result of the post-closing purchase price adjustment process. To the extent that any amounts remain in the escrow fund after October 1, 2015 and not subject to claims by us, such amounts will be released to the Tenaxis equityholders, subject to certain conditions set forth in the merger agreement.

In addition, we have agreed to pay to the Tenaxis equityholders milestone payments subsequent to the closing, if we achieve certain regulatory approval milestones and commercial net sales milestones with respect to the Tenaxis surgical sealant, at the times and on the conditions set forth in the merger agreement. In the event that all of the milestones set forth in the merger agreement are achieved in accordance with the terms of the merger agreement, we will pay the Tenaxis equityholders up to an additional $112.0 million in cash in the aggregate.

Promus PREMIER Stent System Co-Promotion. In December 2013, we entered into a co-promotion agreement with BSX for the Promus PREMIER Stent System. Under the terms of the co-promotion agreement, in January 2014, our acute cardiovascular care sales force began a collaboration with the BSX Interventional Cardiology sales force to provide promotional support for the Promus PREMIER Stent System in U.S. hospitals. The Promus PREMIER Stent System combines a platinum chromium alloy stent, everolimus drug (manufactured by Novartis) and polymer coating, and a stent delivery system. Under the terms of the agreement, BSX paid us $2.5 million in December 2013 upon completion of certain training activities and has agreed to pay quarterly, performance-based payments if BSX's drug-eluting stent sales in the U.S. exceed certain targets as specified in the agreement. In addition, under the terms of the agreement, BSX has agreed to pay us an additional fee if yearly sales exceed a certain amount specified in the agreement and a fee if the agreement is still in effect at a certain date as specified in the agreement.

Rempex Pharmaceuticals, Inc. In December 2013, we acquired Rempex Pharmaceuticals, Inc., or Rempex, a company focused


on the discovery and development of new antibacterial drugs to meet the growing clinical need created by multi-drug resistant bacterial pathogens.

Under the terms of our agreement with Rempex, we paid the Rempex equityholders an aggregate of approximately $140.3 million in cash at closing, including purchase price adjustments. In addition, we agreed to pay to the Rempex equityholders milestone payments subsequent to the closing, if we achieve certain development and regulatory approval milestones and commercial sales milestones with respect to Minocin IV, RPX-602, Carbavance and Rempex's other product candidates, at the times and on the conditions set forth in the merger agreement. In the event that all of the milestones set forth in the merger agreement are achieved in accordance with the terms of the merger agreement, we will pay the Rempex equityholders an additional $214.0 million in cash in the . . .

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