Medicis Pharma Executive Insights: SOLODYN, Wholesaler Adjustment

On Tuesday, Medicis Pharmaceuticals Corporation Class A (NYSE:MRX) reported its first quarter earnings and discussed the following topics in its earnings conference call. Take a look.


David Amsellem – Piper Jaffray & Company: Just a couple, so first starting on SOLODYN, I just want to be clear that safe to say that most of your contracting efforts are in the rearview mirror, and is it also safe to say that with these being mostly multi-year that you won’t have a lot of contracts that will come up for renegotiation next year? How should we think about that?

Jonah Shacknai – Chairman and CEO: Well, I think the contracting process is ongoing. We still have theoretically a target of acquiring 40%, 35% more lives; although, we think that’s an unrealistic objective. We have signaled the fact that 75% of the insured commercial lives is our goal and we continue to negotiate with several regional or smaller plans as well as a few national plans to try to gain inclusion of products on their formularies. So, I don’t think it’s fair to say that this is over. I think we’ve put to bed many of the largest managed care organizations in the country as well as the pharmacy benefit managers. But this is a dynamic process and there is always more to be done.

David Amsellem – Piper Jaffray & Company: That’s helpful. And then, second question on the second quarter guidance. It looks down from the prior range. Can you give us some more color on what’s driving that and how we should think about the delta?

Mark A. Prygocki, Sr. – President: Sure. David this is Mark Prygocki. So, I think the best way to look at it is really what’s going on in the prescription level. With the initiation of the alternate fulfillment initiatives which happened the week of March 2nd, our prescription volumes in SOLODYN in particular went from about 25,000 scripts a week to where we are today at a little less than 20,000 scripts a week. Parenthetically, as Jonah mentioned during the call, those 5,000 scripts were a vast majority of them were unprofitable scripts, so that increases our ASP over time, but from a wholesale perspective, their volume moving through their channels went down about 15%, so they have to adjust their inventory levels to reflect that reduction in demand, and that’s what they will probably do during the second quarter and that’s what we’ve assumed in our guidance, and that’s why it goes down really from first quarter to second quarter. As it relates to ZIANA, the prescription volume as well as wholesaler movement through their channels went down about 22%. So we think we’ll more than make up for this in ASP and you’ve seen the benefit in the first quarter and what we can do in the third quarter and beyond, but right now we need that inventory demand and how we recognize revenue through that wholesaler demand to really normalize in the meantime.

David Amsellem – Piper Jaffray & Company: So just to be clear, this is just essentially a one-time phenomenon?

Mark A. Prygocki, Sr. – President: I hope so yes. How long that phenomenon will last is yet to be seen because we think the IMS reportable scripts will most likely continue to go down because there’s still unprofitable scripts that we expect to go through the alternate fulfillment initiative. So we’re thinking it’s going to hopefully tail off in the second quarter into the third quarter but I think our guidance reflects our current estimate of that.

Wholesaler Adjustment

Chris Schott – JPMorgan: Just had a multi-part question if that’s okay. Just following up on this wholesaler adjustment, can you quantify what that impact is reflected in your second quarter guidance for SOLODYN and ZIANA?

Mark A. Prygocki, Sr. – President: The way we reflected that is really much you can see. What we are trying to do is give you guidance. You have two components that you can forecast from, the prescriptions that you can get through IMS and/or ASP. So what we did was we tried through the ASP range to get you to by multiplying that ASP range by anticipated prescriptions, you will get close to our wholesaler movement. That’s what we are anticipating for Q2, and beyond we are going to be giving our ASP guidance again on prescription not wholesaler movement.

Chris Schott – JPMorgan: Maybe just I am clear that ASP number for SOLODYN you are giving, I just want to make sure, is that impacted by the wholesaler adjustment this quarter?

Mark A. Prygocki, Sr. – President: It is. That reflects that.

Chris Schott – JPMorgan: Can you maybe talk about just to get a sense of what this maybe we can think about longer term if we were to normalize for wholesalers? What ASP would be looking like in 2Q in a more normalized environment?

Mark A. Prygocki, Sr. – President: We wanted to take it one step at a time and I think we have given the guidance based on what we know today. So I don’t want to speculate this to what portion of that is inventory movement, (AS), profitability scripts, I think what we would anticipate is that (AS) going up in Q3 and Q4 once the inventory levels normalize in the retail and wholesale channel, but we haven’t quantified them into the (indiscernible)

Jonah Shacknai – Chairman and CEO: I mean in essence to just to place this in some perspective Chris, our objective here, as Mark said earlier, is to reduce to an absolute minimum the number of unprofitable prescriptions that are sort of reported in the IMS database that that means that are passing through retail pharmacies. So, per force, if we can succeed in reducing that number and really having profitable prescriptions passing through that channel, it should theoretically over time have an extremely salutary effect on our average selling price. We saw that already with ZIANA. I think you see that we’re at the top of the range with SOLODYN, and we have put this program in effect essentially to improve our gross to net calculations, so that the average selling prices, in fact, reflect a more favorable outcome for the Company; the whole idea here.

Chris Schott – JPMorgan: Yeah. And just one final one on that, and can you just give us a little bit of the physician feedback you’ve had from this alternative fulfillment program is they’ve been accepting of this, understanding of this, has there been any pushback at all you’ve been hearing?

Jonah Shacknai – Chairman and CEO: Well, I think there is no theoretical pushback. I think they appreciate the idea that we are providing a safety net for patients who have inadequate health insurance or are cash patients. So, I think theoretically they’re very appreciative; we’ve always been a leader in trying to provide access solutions to our products beginning years ago with the SOLODYN patient access program morphing to the MediSAVE card and now sort of MediSAVE Plus, if you will, with this alternate fulfillment. It’s also true that demand for the alternate fulfillment services of the Company have largely been greater than expected. So, I think on any given day, the volume of calls coming in and prescriptions being dispensed is significantly larger than we would have expected, and I think that’s an index of the enthusiasm for the program. Patients want their SOLODYN and ZIANA, physicians want them to get it, and I think we’ve had to make some significant adjustments in the infrastructure of our programs to be able to accommodate the very large demand for the services. So, innovation is not without its challenges, we are scaling up and I think doing it very effectively with our vendor partners. Importantly, profitable prescriptions, as an example, were up greater than 1,300 during the week of 4/27 versus a month earlier. So, we’re seeing very significant economic success associated with this. What we need to do now is ensure that the customer interface with this provides the same level of exceptional service that everyone has a right to expect at Medicis, and I think we will be there soon.