Reason for Report: Flash Update: 3Q17 Earnings Results

Oct 25, 2017

The Medicines Company (MDCO – NASDAQ) $32.39

Note: FLASH REPORT; more details to come; changes are highlighted. Except where noted, and highlighted, no other sections of this report have been updated.

Previous Edition: 2Q17 Earnings Update

Flash Update

Medicines Company Reports Q3 Loss, Revenues Miss

The Medicines Company reported third-quarter 2017 loss of 1.19 cents per share. The Zacks Consensus Estimate stood at a loss of $1.46 per share.

However, excluding the impact of one-time items, adjusted loss per share came in at 42 cents, narrower than the year-ago loss of $1.23.

Quarterly revenues plunged 55% year over year to $16.9 million. Reported revenues also missed the Zacks Consensus Estimate of $22 million. This decrease in revenue in the reported quarter is mainly attributable to lower sales of the company’s marketed drug, Angiomax, due to its loss of exclusivity and increased generic competition. Incidentally, an amount of $2 million was also recorded in the third quarter of 2016, related to divestiture of non-core cardiovascular products, which had inflated the revenue in that particular quarter.

Quarter in Detail

Net revenue for the quarter included royalty revenues from the authorized generic sales of Angiomax by Novartis’s generic arm, Sandoz, and net product sales of Angiomax. Total Angiomax revenues slumped 72.7% to $7.9 million in the reported quarter.

Sales of other products like Minocin and Orbactiv surged 38% to $9 million compared with the year-ago sales of $6.5 million.

The Medicines Company’s research and development (R&D) expenses skyrocketed 94.8% year over year to $45.8 million due to higher spend in support of Inclisiran.

Selling, general and administrative (SG&A) expenses dropped 31.6% to $47.2 million.

Details, other news update and broker comments will be provided in the next edition.

The Medicines Company is a global biopharmaceutical company focused on the development and commercialization of hospital-based acute care drugs for cardiovascular indications, surgery and perioperative care and serious infectious diseases. Marketed products include Angiomax (anticoagulant in patients undergoing coronary angioplasty), Orbactiv (added through the Targanta acquisition in 2009) for the treatment of acute bacterial skin and skin structure infections (ABSSSIs)) and Ionsys (acute postoperative pain). However, Angiomax is facing generic competition in the U.S.

Of all the 10 firms covering The Medicines Co., eight were positive on the stock, with two giving a neutral rating and none rendering negative rating on the stock.

Positive or an equivalent outlook (8/10 firms): The firms are bullish on the company’s pipeline progress. In particular, the firms are encouraged by the FDA approval of Vabomere and inclusion of specific pathogens in its label, which they think could facilitate product adoption by infectious disease (ID) physicians. The firms are also optimistic about the favorable data related to Inclisiran. Plus, they appreciate the company’s divestiture of non-core assets. Sep 15, 2017

Overview

Based in Parsippany, NJ, The Medicines Company is a global biopharmaceutical company focused on advancing the treatment of critical care patients through delivery of innovative and cost-effective medicines to the worldwide hospital marketplace. Marketed products include Angiomax (an anticoagulant in patients undergoing coronary angioplasty), Ionsys (acute postoperative pain), Minocin (antibiotic) for injection and Orbactiv (treatment of acute bacterial skin and skin structure infections (ABSSSIs)). Angiomax is however, facing generic competition in the United States.

The Medicines Co. is currently focusing on increasing shareholder value by divesting non-core assets. In February 2016, it divested the hemostasis portfolio including drugs like Recothrom, PreveLeak and Raplixa to Mallinckrodt.

In June 2016, the company had completed the divestiture of its non-core cardiovascular products — Cleviprex, Kengreal and its rights to Argatroban. With this transaction, the company received $264 million in cash and expects to receive $480 million in future sales-based milestone payments.

The company’s website is www.themedicinescompany.com.

The firms identified the following factors for evaluating the investment merits of The Medicines Co.:

Key Positive Arguments Key Negative Arguments The Medicines Co. is actively pursuing acquisitions With Angiomax sales eroding due to the presence and in-licensing agreements to grow its pipeline. The of generics, the company’s ability to successfully company’s divestiture of its non-core assets should develop and bring in new products to the market is allow it to focus on key assets and bring in a non- important for growth. dilutive source of funds as well. The Medicines Co. has several pipeline candidates, representing blockbuster potential.

Zacks Investment Research Page 2 www.zackspro.com The signing of the Gaining Antibiotic Incentives Now (GAIN) Act is a major positive for Orbactiv, which has Qualified Infectious Disease Product (QIDP) designation. This provided Orbactiv with an additional five years of marketing exclusivity.

Note: The company’s fiscal year coincides with the calendar year. Sep 15, 2017

Long-Term Growth

With The Medicines Co.’s flagship product Angiomax going generic, the company has entered a challenging period where driving top-line growth will become increasingly difficult.

Currently, The Medicines Co. has undertaken a restructuring program to boost shareholder value. In Feb 2016, the company divested its hemostasis portfolio, which included drugs such as Recothrom, PreveLeak and Raplixa, to Mallinckrodt. In Jun 2016, the company divested its non-core cardiovascular products, Cleviprex, Kengreal and their rights to Argatroban. With the divestment of non-core products, The Medicines Co. is focusing on developing pipeline candidates targeting its key focus areas which should drive long term growth.

In Feb 2015, the company acquired Annovation and added ABP-700 (sedative–hypnotic used to induce and maintain sedation for procedural care and general anesthesia for surgical care) to its portfolio. In Dec 2013, it acquired Rempex in a transaction that added anti-infective assets like Minocin IV and Carbavance (treatment of hospitalized patients with serious gram-negative bacterial infections) to its portfolio. Apart from this, Inclisaran (treatment of hypercholesterolemia) is being developed under a collaboration agreement with Alnylam. These pipeline candidates represent blockbuster potential. Other deals include the acquisition of Germany-based Curacyte Discovery GmbH, the acquisition of Targanta Therapeutics.

The signing of the GAIN Act in 2013 was a major positive for Orbactiv, which has QIDP designation. This provided Orbactiv with an additional five years of marketing exclusivity. The company expects global peak revenues of around $400 million from Orbactiv.

Recently, the FDA has granted accelerated approval to its experimental antibiotic, Vabomere, a combination of meropenem and vaborbactam, for treating complicated urinary tract infections (cUTI), including the pyelonephritis. The company expects to make Vabomere available in the market in fourth- quarter 2017. It filed a new drug application (NDA) for the antibiotic in February, currently under review in the EU. Successful commercialization of Vabomere is expected to boost the company’s top line, considering the lucrative market that it targets.

Target Price/Valuation

Rating Distribution Positive 80.0%↓ Neutral 20.0%↑ Negative 0.0% Avg. Target Price $54.11↓ High $85.00↑ Low $43.00↓ No. of Brokers with target price/Total 9/10

Zacks Investment Research Page 3 www.zackspro.com Risks: Late-stage pipeline setbacks and slower-than-expected ramp up of new products. There are also clinical and regulatory risks for products that are in development. Sep 15, 2017

Recent Events

The Medicines Company Q2 Loss Widens, Revenues Miss

The Medicines Company reported second-quarter 2017 loss of $5.52 per share, massively wider than the Zacks Consensus Estimate of a loss of $1.29.

Quarterly revenues plunged 65.8% year over year to $18.7 million. Reported revenues also missed the Zacks Consensus Estimate of $31 million. This decrease in revenue in the reported quarter is mainly attributable to lower sales of the company’s marketed drug, Angiomax, due to the loss of exclusivity and increased generic competition. An amount of $8.2 million was also recorded in the second quarter of 2016, related to divestiture of non-core cardiovascular products, which had inflated the revenue in that particular quarter.

Quarter in Detail

Net revenue for the quarter included royalty revenues from the authorized generic sales of Angiomax by Novartis’s generic arm, Sandoz, and net product sales of Angiomax. Total Angiomax revenues slumped 73.4% to $10.7 million in the reported quarter.

Sales of other products like Minocin and Orbactiv were up 27% to $8 million compared with the year-ago sales of $6.3 million.

The Medicines Company’s research and development (R&D) expenses shot up 19.6% year over year to $29.9 million due to higher spend in support of Inclisiran.

Selling, general and administrative (SG&A) expenses were down 19.7% to $49.9 million.

Revenue

The Medicines Company’s 2Q17 revenues plummetted 65.8% year over year to $18.7 million. This decrease in revenue in the reported quarter is mainly attributable to lower sales of the company’s marketed drug, Angiomax, due to the loss of exclusivity and increased generic competition. An amount of $8.2 million was also recorded in second-quarter 2016, related to divestiture of non-core cardiovascular products that had inflated the revenue in that particular quarter.

Revenue ($ in million) 2Q16A 4Q16A 2016A 1Q17A 2Q17A 3Q17E 4Q17E 2017E 2018E Digest Average $54.7 $25.2 $167.8 $24.2 $18.7 $26.1 $29.3 $98.4 $37.5 Digest High $54.7 $25.2 $167.9 $24.2 $18.7 $26.1 $29.3 $98.4 $37.5 Digest Low $54.7 $25.2 $167.8 $24.2 $18.7 $26.1 $29.3 $98.4 $37.5

Specific Products

Angiomax/Angiox (bivalirudin)

Indications: Approved for use as an anticoagulant in combination with aspirin in patients with unstable angina undergoing percutaneous transluminal coronary angioplasty or percutaneous coronary intervention (PCI) including patients with or at risk of heparin induced thrombocytopenia (HIT) and thrombosis syndrome. The drug is also approved for acute coronary syndrome (ACS) and ST-segment elevation myocardial infarction in patients undergoing primary PCI.

Zacks Investment Research Page 4 www.zackspro.com Product Life Cycle Position: Marketed; generic available

Safety Issues: Angiomax is contra-indicated for patients with active major bleeding or hypersensitivity to Angiomax or its components.

Partners: Sandoz for an authorized generic version of Angiomax and SciClone Pharmaceuticals (co- commercialization in China).

Sales: Worldwide sales of Angiomax were $5.3 million in 2Q17, substantially lower than the year-ago sales of $15.8 million due to the July 2015 loss of exclusivity.

Patents/Generics: In Nov 2015, The Medicines Co. had announced that its petition had received an en banc review related to the U.S. Court of Appeals for the Federal Circuit’s ruling. With the Court agreeing to review the patent infringement lawsuit all over again, it nullified its former decision (Jul 2015) of invalidating the Orange Book-listed patents (U.S. Patent Nos. 7,582,727 and 7,598,343) covering Angiomax. The patents (including pediatric exclusivity expiring in 2029) are slated to expire in 2028.

In Jul 2016, The Medicines Co. announced that the U.S. Court of Appeals for the Federal Circuit Court, in an en banc review, has unanimously held up an earlier district court ruling in the company’s patent infringement lawsuit against Pfizer’s Hospira regarding Angiomax.

Minocin IV (minocycline)

Indication: Treatment of bacterial infections caused by susceptible isolates of designated microorganisms including Acinetobacter species.

Product Life Cycle Position: Marketed in the U.S.

Additional Formulation: A new formulation of Minocin IV (RPX-602), which was approved in Apr 2015, has been launched in the U.S. replacing the previous one.

Importance: The FDA has granted QIDP designation to the new formulation as well as to certain additional potential indications involving gram-negative bacteria indications.

Orbactiv (oritavancin)

Indication: Treatment of adults with ABSSSI-caused or suspected to be caused by susceptible isolates of the label-designated gram-positive micro-organisms including methicillin-resistant Staphylococcus aureus.

Product Life Cycle Position: Marketed in the U.S; approved in the E.U.

Importance: Orbactiv enjoys QIDP designation resulting in an additional five years of marketing exclusivity (Aug 2024).

Patent/Generics: Orbactiv’s principal patents in the U.S. and Europe expired in Nov 2016. The company has filed for the extension of this patent in the U.S. Meanwhile, patents covering the process of Orbactiv are set to expire in 2017, if the company fails to obtain a patent extension.

Additional Indications: The Medicines Co. is exploring the possibility of developing Orbactiv for ABSSSIs in children, uncomplicated bacteremia, endocarditis, prosthetic joint infections and other gram- positive bacterial infections.

Zacks Investment Research Page 5 www.zackspro.com Competitors: Merck’s Cubicin, Allergan’s Dalvance and Teflaro and Theravance’s Vibativ.

Ionsys (fentanyl iontophoretic transdermal system)

Indication: Short-term management of acute postoperative pain in hospitalized patients (adults) requiring opioid analgesia.

Product Life Cycle Position: Marketed in the U.S. and the E.U. The drug is available under a Risk Evaluation and Mitigation Strategy program.

Partner: SymBio Pharmaceuticals (Japan)

Sales: Combined sales of other products like Minocin, Orbactiv, Ionsys and the recently divested non- core cardiovascular products were $8 million in 2Q17, up 26% compared with the year-ago sales of $6.3 million.

Additional Studies: The Medicines Co. is conducting an adolescent study evaluating the efficacy and safety of Ionsys in postoperative patients aged between 12 and 17 years.

Vabomere: Recently the FDA has granted accelerated approval to its experimental antibiotic, Vabomere, a combination of meropenem and vaborbactam, for treating complicated urinary tract infections (cUTI), including the pyelonephritis. The company expects to make Vabomere available in the market in fourth- quarter 2017. It filed a new drug application (NDA) for the antibiotic in February, currently under review in the EU.

The NDA was supported by positive data from a phase III (TANGO-1) multi-center, randomized, double- blind, double-dummy study. The study (n=550) was designed to evaluate the efficacy, safety and tolerability of Vabomere in patients with cUTIs or acute pyelonephritis compared with Pfizer Inc.’s (PFE) Zosyn (piperacillin/tazobactam). Data from this trial showed that Vabomere achieved statistical superiority over Zosyn with successful results obtained from 98.4% of patients treated with Vabomere as compared to 94.3% administered with Zosyn.

Carbavance is conducting another phase III study, TANGO 2 which compares the safety, tolerability and efficacy of Carbavance with best available therapy in patients with selected serious infections due to confirmed or suspected carbapenem-resistant Enterobacteriaceae (CRE). The company expects results to be available before the end of the third quarter of 2017.

Carbavance was added to The Medicines Co.’s pipeline with the acquisition of Rempex.

Pipeline

Inclisiran (Formerly PCSK9si): Inclisiran, a PCSK9 synthesis inhibitor subcutaneously administered RNAi therapeutic, is being developed, under a collaboration agreement with Alnylam Pharmaceuticals, for the treatment of patients suffering from hypercholesterolemia.

In Apr 2017, The Medicines Company and Alnylam Pharma announced that the FDA has approved plans on phase III study design for inclisiran, designed to support the submission of a NDA for the drug. The study will be conducted on patients with atherosclerotic cardiovascular disease (ASCVD) and familial hypercholesterolemia (FH) and will collectively enroll approximately 3,000 subjects, randomized to treatment with inclisiran or placebo (1,500). The primary endpoint for all pivotal trials will be LDL-C change from baseline. The NDA submission is expected by the end of 2019.

Earlier in Mar 2017, both the companies together announced positive data from the ongoing ORION-1 phase II study, evaluating Inclisiran for treatment of hypercholesterolemia. Data from the study

Zacks Investment Research Page 6 www.zackspro.com demonstrated that Inclisiran delivered significant and sustained reductions of LDL-C and high standards of safety and tolerability.

MDCO-700 (formerly known as ABP-700): MDCO-700, an intravenous anesthetic agent, became part of The Medicines Co.’s pipeline following its Feb 2015 acquisition of Annovation Biopharma. It is a sedative-hypnotic used to induce and maintain sedation for procedural care and general anesthesia for surgical care. In Jun 2016, the company began a phase II trial (n=75) on patients undergoing elective colonoscopies. If all goes well, the company will be able to advance the candidate into a phase III program in 2017.

MDCO-216: On Nov 7, 2016, The Medicines Company announced discontinuation of the clinical development program for MDCO-216, its investigational cholesterol efflux promoter. The discontinuation was based on data from the MILANO-PILOT trial, which did not show sufficient drug effects on intracoronary atherosclerotic plaque to warrant further development.

Margins

Per the company, research and development (R&D) expenses escalated 19.6% year over year to $29.9 million due to higher spend in support of Inclisiran. Selling, general and administrative (SG&A) expenses declined 19.7% to $49.9 million. The Zacks Digest average R&D and SG&A expenses were in line with the company’s report.

Margins 2Q16A 4Q16A 2016A 1Q17A 2Q17A 3Q17E 4Q17E 2017E 2018E Gross 85.2% 59.7% 77.2% 69.5% 55.3% NA NA NA NA Operating -74.1% -314.2% -136.5% -288.9% -370.2% NA NA NA NA Pre-Tax -334.5% -144.9% -308.3% -514.9% -401.4% -303.0% -370.8% -287.1% -334.5% Net -78.5% -333.9% -145.8% -308.5% -392.0% -401.4% -303.0% -347.5% -645.6%

Please refer to the Zacks Research Digest spreadsheet on MDCO for further details on margins.

Earnings per Share

The Medicines Company reported a loss of $5.52 per share in 2Q17 compared with the earnings of $2.62 a year ago. Loss per share was wider than expected for some firms. The Zacks Digest Average Loss for 2Q17 stood at $1.02 per share.

EPS 2Q16A 4Q16A 2016A 1Q17A 2Q17A 3Q17E 4Q17E 2017E 2018E Digest High ($0.62) ($1.19) ($3.48) ($1.05) ($1.02) ($1.46) ($1.22) ($4.75) ($3.19) Digest Low ($0.62) ($1.19) ($3.55) ($1.05) ($1.02) ($1.46) ($1.22) ($4.75) ($3.19) Digest Avg. ($0.62) ($1.19) ($3.50) ($1.05) ($1.02) ($1.46) ($1.22) ($4.75) ($3.19)

Please refer to the Zacks Research Digest spreadsheet on MDCO for further details on EPS.

Other News

On Mar 27, 2017, The Medicines Company announced that Paris Panayiotopoulos has been appointed to its board of directors. With his appointment, the company’s board now comprises 11 directors, 10 of whom are independent and three were appointed over the last couple of years.

Analyst Debapriya Chakraborty

Zacks Investment Research Page 7 www.zackspro.com Copy Editor Pramita Bose Lead Analyst Kinjel Shah QCA Kinjel Shah Last Updated by Reason for Update 3Q17 Earnings Flash Update Content Editor

Zacks Investment Research Page 8 www.zackspro.com