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Medicines Company Reports Operating Results (10-Q)

November 09, 2010 | About:

10qk

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Medicines Company (MDCO) filed Quarterly Report for the period ended 2010-09-30.

Medicines Company has a market cap of $657.7 million; its shares were traded at around $12.33 with and P/S ratio of 1.6. MDCO is in the portfolios of Stanley Druckenmiller of Duquesne Capital Management, LLC, Columbia Wanger of Columbia Wanger Asset Management, Paul Tudor Jones of The Tudor Group, Louis Moore Bacon of Moore Capital Management, LP, Steven Cohen of SAC Capital Advisors, Charles Brandes of Brandes Investment, Charles Brandes of Brandes Investment.

Highlight of Business Operations:

Angiomax and Cleviprex to a limited number of national medical and pharmaceutical wholesalers with distribution centers located throughout the United States and in certain cases, directly to hospitals. Our agreement with ICS, which we initially entered into February 2007, provides that ICS will be our exclusive distributor of Angiomax and Cleviprex in the United States. Under the terms of this fee-for-service agreement, ICS places orders with us for sufficient quantities of Angiomax and Cleviprex to maintain an appropriate level of inventory based on our customers historical purchase volumes. ICS assumes all credit and inventory risks, is subject to our standard return policy and has sole responsibility for determining the prices at which it sells Angiomax and Cleviprex, subject to specified limitations in the agreement. The agreement terminates on February 28, 2012, but will automatically renew for additional one-year periods unless either party gives notice at least 120 days prior to the automatic extension. We may also terminate the agreement at any time and for any reason upon prior written notice to ICS and payment of a termination fee of between $100,000 and $250,000.

We expensed the transaction costs as incurred and capitalized the value of acquired in-process research and development as an indefinite lived intangible asset. We recorded contingent payments at their estimated fair value. We included the results of Targantas operations in our consolidated financial statements since the acquisition. The purchase price of approximately $64 million, which includes $42 million of cash paid upon acquisition and $23 million that represents the fair market value of the contingent purchase price on the date of acquisition, was allocated to the net tangible and intangible assets of Targanta based on their estimated fair values.

Licensing Arrangement with Pfizer. In December 2009, we licensed exclusive worldwide rights to MDCO-216 (formerly known as ApoA-I Milano) from Pfizer Inc., or Pfizer. Under the terms of the agreement, we paid Pfizer an up-front payment of $10.0 million and agreed to make additional payments upon the achievement of clinical, regulatory and sales milestones up to a total of $410 million. We also agreed to pay Pfizer single-digit royalty payments on worldwide net sales of MDCO-216. We also paid $7.5 million to third parties in connection with the license and agreed to make additional payments to them of up to $12.0 million in the aggregate upon the achievement of specified development milestones and continuing payments based on sales of MDCO-216.

On January 7, 2010 and February 9, 2010, we commenced two separate workforce reductions to improve efficiencies and better align our costs and structure for the future. As a result of the first workforce reduction, we reduced our office-based personnel by 30 employees. The second workforce reduction resulted in a reduction of 42 primarily field-based employees. In the nine months ended September 30, 2010, we recorded, in the aggregate, charges of $6.9 million associated with these workforce reductions. Of the approximately $6.9 million of charges related to the workforce reductions, $1.0 million were noncash charges, $5.7 million was paid during the nine months ended September 30, 2010 and approximately $0.2 million is expected to be paid out during the remainder of 2010. We expect to realize estimated annualized cost savings from the workforce reductions in the range of $14.5 to $16.5 million.

Cost of revenue in the three months ended September 30, 2010 was $31.6 million, or 30% of net revenue, compared to $28.3 million, or 29% of net revenue, in the three months ended September 30, 2009. Cost of revenue consisted of expenses in connection with the manufacture of Angiomax and Cleviprex sold, royalty expenses under our agreements with Biogen Idec and Health Research Inc., or HRI, related to Angiomax and with AstraZeneca AB, or AstraZeneca, related to Cleviprex and the logistics costs related to Angiomax and Cleviprex, including distribution, storage and handling costs.

Cost of revenue increased $3.3 million during the three months ended September 30, 2010 compared to the three months ended September 30, 2009. The increase in cost of revenue is primarily related to the higher volume of goods sold and an increase in royalty expense due to a higher effective royalty rate to Biogen Idec and was partially offset by a $0.5 million decrease related to manufacturing costs of Angiomax reflecting higher manufacturing costs in the third quarter of 2009 due to production failures at the third-party manufacturer for Angiomax that occurred in the third quarter of 2009.

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