Q3 2019 Earnings Call
Ladies and gentlemen, thank you for standing by welcome to the PDL Biopharma third quarter 2019 conference call.
At this time, all participants are any listen only mode.
Later, we'll conduct a question and answer session and instructions will follow at that time.
As a reminder, today's call is being recorded.
For opening remarks, and introduction I would now like to turn the call ever to Jody Cain. Please go ahead ma'am.
[laughter] Jody Cain with only two thank you all for participating in today's call. Please note that a slide presentation to accompany management's prepared remarks is available in the Investor Relations section, that's and P. deal web site at P. deal Dot Com joining me today from PDL Biopharma, our Dominique more.
<unk>, President and CEO , and asking Fogged meal, Vice President Finance and Chief Accounting Officer.
Curtis CEO up LENSAR Wonder P. deals operating subsidiaries will join us for the question and answer session.
Please turn to slide to let we knew remind you that during this call management will be making forward looking statements regarding the companys financial performance and other matters and actual results may differ materially from those expressed in or implied by the forward looking statements.
Factors that may cause differences between current expectations and actually sold start described in the company's FCC filings, which are available. It FTC Dot Gov, and then the Investor Relations section of P. deal Dot com.
The forward looking statements made during this call should be considered accurate only as of the date of the live broadcast November six 2019, although the company may elect update forward looking statements from time to time in the future. The company, specifically disclaims any duty or obligation to do so even though.
New information becomes available or other events occur in the future I.
I'd now like to turn the call Ofer Dominic money, how many thanks Jody I good afternoon, everyone and thank you for joining us.
Turning to slide free I'm pleased to report on our progress it past few months, including third quarter revenues exceeding $44 million Oh, well. This performance was driven by sales growth comes a LENSAR and a favorable contribution from all your T.S.. It's both of which are tracking ahead of all 2019 guidance we.
Continued always heard to reduce operating expenses with Janney down 16% year to date at the same time, we made further investment in LENSAR R&D.
We continue to have a balanced approach to our capital allocation.
We completed all food share repurchase program during the quarter.
Since March 2017, we have repurchased 53.1 million shares if Pee Dee Ann almost 42% of all common stock for a total investment of $155 million.
You know the 2019, we began implementing our new strategy aimed at growing shareholder that you by building the focused see mystique portfolio Biopharma companies, we have significant revenue potential.
We believe we aren't as strong position to exit you'd be strategy successfully and you drives the growth of all share price by delivering sustained profitable revenue growth.
How is that as we evaluate further transaction, we decided in September to seek an independent assessment of all strategy and kept the relocation by engaging and independent financial advisor.
VC evaluation is ongoing and we knew timidly be presented to our board of directors.
We Soviets as a pre done of course of action taking into consideration to your boat you need decent synergies into current environment for the top of you know they achieve biopharma companies, we seek to acquire no true and grow.
We also continue to listen to suggestion from all shareholders with whom we seek to meant in an open and constructive dialogue.
[noise], we forgot to our current portfolio by said, we are encouraged by our resorts year to date.
Were particularly excited about the prospects for continued growth for LENSAR.
Turning to slide four [laughter].
Lens on net sales for the quarter reached a record $8.1 million.
This is a 22% increase on the third quarter 2018, and a 9% increase from the second quarter of 29 team.
Year to date net sales exceeded $22 million is up 27% over the prior year period, and putting us on trying to exceed our full year guidance for lens on revenues of $27 million to $29 million.
We are pleased that our investment in R&D of as the past few quarters is paying off Weve LENSAR effectively building upon its position as we know they to for the treatment of cataract that require greater accuracy and posted your customization.
Lets out established itself as the innovation, leading femto leaves the company.
Further LENSAR continued to strengthen its patent estate suites on patent filings as well as he bought important recent acquisition of key intellectual property, making it the premier technology company into Jane to space.
Linzess technology advantage has been increasingly recognized by often make surgeons, we sustained year over year procedure volume growth seems a public was launched in 2012.
In fact posted your volume for the first nine months of 29 p. needs that 30%.
We expect to exceed 2019 with a number of poor should use worldwide exceeding 100 files and Atlanta as quickly captured a 13% share of the global Femtosecond laser assisted cataract surgery market.
Based both on the number of poor should use perform and on revenues.
Turning to slide five.
LENSAR is very well positioned for sustained growth.
LENSAR features a best in class technology, if we could streamlined for which enables the optimal treatment of tissue specific cataract and management investing about season.
Between 70, and 90% of patients have treatable visually significant that it matches empire to cataract surgery, but this I stigmatism remains largely uncorrected.
This represented a significant unmet need in cataract surgery and need but he's uniquely addresses by LENSAR proprietary entirely axes swing factor you kept she likes it.
[noise] 50 technology creates a pair of small tabs on the capsular remain that assay surgeons in <unk> cure a clear linings are terrific I O L marks a long see axes of estimate is enabling its correction.
Over the past few months a number of studies have demonstrated a significant improvement in patient outcome weisel ends our system.
It is worth noting that LENSAR installed system spare from 79% more posted you spent a worldwide I've rage their femtosecond laser.
The advance astigmatism management features improve precision in reproducibility, while driving increased utilization outcome based surgery.
I would like to thank Nicotine's LENSAR CEO for making he says available to take question at the end of our prepared remarks.
On slide six.
Lens ice poised to continue to strengthened its position as an innovation leader with the development of its second generation system, which he which we simply referred to as gentoo.
We expect Gen two to be the first integrated workstation that combines the state of Xiao benefits of the LENSAR laser system and you try some fekola immersive education system, enabling surgeon to switch seamlessly between the two integrated devices, we thought patient or Postured your flow disruption.
In short gentoo, we'd be the first all in one femto FICO device.
He targets a growing trend for you know fish cataract surgery, and the growth of the premium cataract surgery market.
As you make a modest 2.5% share of the FICO market, we estimate a gen two or the potential to generate additional revenues of up to $1 billion over 10 years.
Lens I started seeing a five 10-K submission for chained to at the end of 2021, we've a commercial launch in 2022.
Moving onto a discussion of April same biosciences on slide seven.
As of June we held a 29% equity stake enable same following the closing of the second tranche of $60 million strategic investment.
By the ended the third quarters, if that you have a investment shows a net investment gain of $18 million.
However, the able same share price I suffered since last June for the significant overhang created by the suspension unexpected liquidation of the Woodford equity investment funds, which was 9.1 million shares of Eagle Ford.
We're confident that once this overhang is lifted if offense share price will rebound.
Unfortunately is a drop in April came share price into third quarter resulted in $27 million unrealized investment losses during that period, which contrasts with a $45 million and realized investment gains.
We are reporting on Alevo fame holding into second quarter.
From an operational viewpoint, well very encouraged with the progress made by via both empty.
They are on track to complete the Resubmission of the endpoint deal for the prevention of pregnancy by the end of this year.
Based on our diligence, we share able team's confidence that I'm for I would again, if the approval after six months with you.
Eva and good when planned to launch and for our shortly thereafter as a first in class multipurpose veggie not P.S. regulator for almost free birth control that is managed by the woman.
You may see owns the slides.
They are free primary factors that give us confidence nickel famous regulatory approach to getting ft approval falling for for the prevention of pregnancy.
First the face free on poet trial was designed to exceed the required numbers of women and cycled agreed to with the FDA [noise].
Trial achieved strong clinical results like clearly made the studies pre specified primary endpoint and not for I was well tolerated was favorable safety profile.
Second.
Hey, babies, receiving expert regulatory direction from Formula of D.A. Director Dr. leads our Eric was years of experience in the review and approval of a productive products.
Dr already read brings a highly valuable perspective to cfds regulatory pathway for contraceptives into both of them for us and defining.
And third as evidenced by discussion at the recent idea Advisory Board meeting advisors repeatedly highlighted the need for additional contraceptive options.
Turning to slide eight as I mentioned it also has a number of key near term catalyst with the potential to drive its valuation.
Among these are a read out of topline data from the phase to be I'm, Prefunds trial, which is expected.
The M. prevents trial is evaluating them for the prevention of chlamydia.
With the secondary endpoint of prevention of gonorrhea.
These clinical provide program provides a potential opportunity to expand them for us label to include Sci prevention.
You have a proven for I would meet an important unmet need for the prevention of chlamydia.
As discussed everything remains on track to resubmit incentive for the prevention of pregnancy by the end of this year Weve ft approval anticipated 2020 and the U.S. commercial launch soon thereafter.
Turning now to Noden pharma, we have stabilized our U.S. market share with branded Tekturna and our authorized generic of picture and I tried to the holding an approximate 73% share at the end of the third quarter collectively unchanged from the end of June 29 team.
We reduced our cost structure by eliminating our domestic sales organization following the generic launch.
Without the short term impact of a provision in our supply agreement. No then would have been profitable for the quarter.
Year to date, no dance operations have been profitable generating net income of $3.2 million.
Turning to slide nine P.D.S. continues to have a strong and liquid balance sheet with $294 million and cash along with why don't you ride for Dow valued at $314 million and I expect it to generate $465 million in cash flow through 2026.
As mentioned, we completed of Oh 100 million share repurchase program.
On the your to do to date basis. This buyback program has been our largest single investment and represent our continued attention to capital allocation and dedication to serving all shareholders.
Last month, we took advantage of the strength of the capital not markets to extend the maturity date of $86 million of are comfortable day to December 2024.
And as a final topic, we were very pleased with a summary judgment announced in September by the Supreme Court of New York litigation related to loan default by wish that diagnostics.
These loans were made by PDL pursuant to an agreement in August 2013.
We expect to seek recovery for the full amount due under the terms of the alone including the principal accumulated interest further advances and fees.
With that I'd like to turn the call over to 18, probably to discuss our financial results Ed.
Thank you dominate please turn to our income statement slide 10.
Total revenues for the third 2019 $44.2 million and included $20.3 million in product revenue in $23.9 million in revenue from royalty rights change in fair value.
Product revenue from lens are laser system increased 22% to $8.1 million from the prior year period.
9% from the second quarter 2019.
Direct revenue from Noden pharma was $12.2 million compared with $17.8 billion in the prior year period.
But the revenue split equally between the U.S. and Russell the world at $6.1 million.
You asked market share for branded Tekturna, and our authorized generic of Tekturna with 73%.
Typically unchanged from the second quarter of 2019.
Net royalty payments from acquired royalty rights and change in fair value for royalty rights assets was $23.9 million compared with $42.2 million in the prior year period. The decrease was primarily related to the increase in fair value in the prior year period that resulted from our equity.
Question of additional too and that's a royalty rights from Syria.
We received $25.6 million in net cash royalties from all of royalty rights in the third quarter 2019.
This is up from $19.1 million from a year ago corridor.
Turning to operating expenses for the third quarter of 2019 total operating expenses were $34.7 million compared with $31.2 million for the prior year period.
Increase in operating expenses was the result of higher R&D expenses, which represented an investment inlands, our product development and patent licensing.
And an increasing cost a product revenue related to a termination provision and known supply agreement amended in June 2019 involving end of contract fees.
Most of which were incurred in the third quarter of 2019.
This provision will have a modest impact in the fourth quarter.
The increase was partially offset by lower Jay in a expenses, primarily due to lower professional fees and a decrease in sales and marketing expenses, reflecting the cost savings from the change in the marketing strategy for the Noden products.
For three months ended September 32019, net loss was $17.8 million or 16 cents per share compared with net income of $25.6 million or 18 cents per share for the prior year period.
Moving onto our year to date results on the same slide.
Total revenues for the first nine months of 2019 for $60.6 million and included $64.9 million in product revenue in a negative $4.3 million in revenue from 40 rights change in fair value.
Product revenue from lender R $22.2 million up 27% from the prior year period.
LENSAR procedure for the first nine months of 2019 increased 28% from the prior year period.
Product revenue from Noden pharma was $42.6 million compared with $62 million for the prior year period.
Sales for the first nine months of 2019 were comprised of $21 million in the U.S. and $21.6 million and the rest of the world.
And with $30.6 million in $31.4 million, respectively in the prior year period.
The decline in sales a branded tekturna in the U.S. is primarily.
You didn't launch of an authorized generic uptick turn in the U.S. and the launch of a third party generic aliskiren late in the first quarter of 2019.
The decline in sales and the rest of the world is due to lower sales volume of Raza as in certain territories in part, reflecting additional measures to maximize profits profitability.
Revenue from royalty rights change in fair value was negative $4.3 million for the first nine months of 2019 compared with $66.1 million for the prior year period.
The decrease is primarily related to a noncash adjustment to the accelerates.
He asked at fair value of $60 million in the second quarter of 2019.
We received $58.3 million in net cash royalties from our royalty right in the first nine months of 2019.
Interest revenue decreased by $2.3 million from the prior year period.
Due to modifications in our to our agreement with care view communications, which deferred interest payments for the first nine months of 2019.
Royalties from PDL was licensees to the Queen et al patents were minimal for the first nine months of 2019 compared with $4.5 million for the prior year period, reflecting the run out of the royalties on sales of Tysabri.
Operating expenses for the nine months ended September 32019 decreased by 62% to $90.6 million compared with $237.1 million for the prior year period. This decrease primarily resulted from the impairment of the known and products intangible asset.
Of $152.3 million in Q2 2018.
The decline in gene, a primarily due to lower professional and asset management fees.
And lower sales and marketing expenses, reflecting the cost savings from the change in our marketing strategy for Noden products.
These decreases were partially offset by an increase in R&D associated with our investment in product development and patent licensing for LENSAR.
For the nine months ended September 32019, net loss was $15.5 million or 13 cents per share compared with a net loss of $85.1 million were 58 cents per share for the prior year period.
Turning to our non-GAAP financial results on slide 11.
We adjusted our Q3 2019, GAAP net loss of $17.8 million for the Mark to market changes in fair value amortization of intangible assets and other non cash items.
This result in non-GAAP net income of $10.4 million for the third quarter of 2019, which compares or $13.1 million for the prior year period.
Year to date, we adjusted our GAAP net loss of $15.5 million for the first nine months of 2019 with the same adjustments as a third quarter, which resulted in non-GAAP net income of $34.9 million. This compares with non-GAAP net income of $44.2 million for the prior year period.
Turning to our balance sheet on slide 12, we had cash and cash equivalents of $294 million as of September 32019, compared with $395 million as of December 31, 2018.
The reduction in cash as result of $75.9 million used for our stock repurchase program $60 million use for our investment Nivo fan.
Cost incurred in exchange of convertible debt of $11.1 million and net cash used in our operations at $13.3 million, partially offset by the proceeds from royalty rights.
Oh.
$58.1 million and cash proceeds from the sale of intangible assets of $5 million.
As far as our investment in evil from goes the accounting impact is driven by Eva from stock price in volatility as mark to market adjustments are based on the quarter end stock price and warrant valuation.
Changes in fair value are booked under non operating income or loss as a change in fair value to an equity affiliate.
In a total value of the investment will be reflected on our balance sheet as an investment in an equity affiliate.
Turning to slide 13, we are on track to exceed our prior overall 2019 guidance to reflect our strong performance.
We are affirming our expectation for noden product revenue to be in a range of $50 million to $55 million.
For LENSAR, we are revising our expectations upward, we now expect 2019 or sales exceed 20 $929 million up from our prior guidance of $27 million to $29 million.
And likewise, we now expect cash flows from our royalty assets to exceed our prior guidance $60 million to $65 million.
With that we're ready to open the call for questions.
Operator.
Ladies and gentlemen, if you wish to register for a question for today's question and answer session. You any day Press Star then the number one on your telephone.
If your question has to answer any with wish to withdraw. Your question you may do so by pressing the town key.
If you are using a speakerphone please pick up your hands that before entering your request.
One moment please for the first question.
While were waiting for the first question I'd like to mention our participation in two upcoming investment conferences, we will be at the Jefferies 2019 long done health care conference being held November Twentyth and 21st and we will also be added Piper Jaffray Healthcare conference being held December 3rd through the fifth.
In New York, We would also be meeting with investors during the annual JP Morgan Healthcare conference in San Francisco in January if you're interested me team. Please contact our investor relations firm ha at a.
310, 6917 100.
Okay, operator, we're ready for the first question.
Your first question comes from the line of Kenneth Atkins with Cowen and company.
Hi, Thanks for taking my questions. You mentioned that you have ongoing efforts to reduce opex could you provide us with some more detail on what exactly that entails and highlight any recent success you've had there.
Well I think as you know a significant part of our Opex actually is driven too.
To our diligence efforts. So what we are doing here is trying to focus increasingly I think we appeal to a strong competency in the targets the app Uri as which we all are most interested in including in women's health and I think that background, frankly is helping us to drive the efficient.
C is moving forward.
The other part two and significant part of Opex was also in legal fees and a you know we add litigation as you know in particular, we've well established is definitely not fully behind us, but we are the point, we believe we have.
We ended positions to be extracting some some savings from these two areas.
Great. Thanks that makes sense.
Also could you just outline for us what's your overall strategy is for the of some investment would you consider an outright acquisition at some point or how would you decide when would be good time to exit that investment if that were an option available to you just any detail you could provide there will be helpful.
Well you know it is as you can imagine I cannot discuss in details what oh.
Our strategy is going to be an hour currency depends in part on the needs of vivo Fame.
And it is we have a very active discussions we've said we've booked the leadership and the border vivo Fame on this and we will see.
How these things move forward, but thats, what I want to say is our investment in vivo Fame was not speculative it was strategic and so from that perspective, we are looking really at a pontoon Winnebago fame to make sure that they unsuccessful in launching on four because we believe in the potential of that asset.
Okay. Thanks.
Your next question comes from the line at Max Jacobs with Edison Great.
Hi, guys. Thanks for taking my question. So just first I wanted to ask about the Gen. Two system from ones are I was just wondering what's the current stage of development for that product.
It is the you know actually one on I since we have the benefit in privileged to have nicotine on the phone at Nic do you want to give as a brief a high level of a view of the development of the Gen. Two.
Sure. So we are.
Presently working with and industrial design on our now what the product is actually going to going to look like here, we've been working with the bread boards. So we've been testing both the optical system as well as the laser that were that we're going to be using our understanding that since we already have a gen. One.
Product that has a lot of advancement in technology, and particularly about the way that the hardware and software interact and many upgrades through software on the actual development risk on this device is really not mirror as great as one might think because we already have an established technology.
So.
We have read boards.
We're working on the optical system, we are doing laser testing and we would expect to have.
A prototype of the device the way the commercial device is going to look like sometime towards the goal latter part of the second quarter next year.
Hi, Thanks, Makena and let me add at Max that Nick and his team have been working on that that some exciting development for a number of reasons, we briefly touched on.
We decided to start having a discussion on those developments because we prove we we believe it's a sign of the expiration of Linzess kind of continued.
Innovation in the field and but we waited until we had an opportunity to and achieve a significant IP position in that field for the combination of a FICO and the end Femto systems, and we think we embed position now hands you know all.
Our desire to to start speak talking about what Nick and his team are doing which frankly I find to be extremely exciting and again is.
Essentially riding a number of development in the marketplace, which would.
Make it very attractive in terms of market potential.
Great now that the that's helpful and so I'm assuming since this is a kind of like almost like a natural evolution from Gen. One that this will be Oh, just a regular five 10-K submission not a de novo.
That's correct.
And.
What sort of trial will you have to running trials like what kind of data you're gonna have to provide the FDA.
So that's a really good question we always.
Run trials most of that the data related to product improved product approvals.
With with these type of devices is related to taking a device that already approved that you compare to so in this case, we're not developing a brand new frankly, most location system that we're going to be integrating so we'll be.
Using a comparative that is.
Like like FICO devices that are already approved number one and number two on the laser side, the predicate device would be our own our own LENSAR laser system to begin with so primarily for FDA approval youre going to provide.
A safety.
Safety data, but not really efficacy data as to the performance of the the lasers itself, we will run.
Some clinical studies as it relates to the efficacy of the laser so that we do have some data available should the FDA required.
Great that's very helpful.
And then just wondering about.
You in terms of the strategic review for the company I'm just I know you probably can't tell me any exact timeline, but just around about one do you think that might be completed or will that at least when do you think you'll be able to communicate something to the market.
You know we have been committed to a specific timeframe and for good reason because it's a it's an important assessment and so we want to make sure but our partners an opportunity you actually saw advise as an opportunity to conducted.
You don't but we are moving expeditiously and we certainly all.
Very motivated about being a discussions we think it's an important one and I for quick for reasons that I've mentioned clearly you know our strategy involves.
Supporting nurturing helping to grow organization that.
Already significantly de risk, but still by the sheer fag the beyond the bio pharma space.
It was under certain investment risk. So we wanted to to make sure that we had a new independent viewpoint on very so I'm not going to be committing to to a timeline views, but we will then.
We will keep you abreast of.
Of what's going on.
Okay, great well, that's all for me thanks for answering my question.
Thank you thank you Max.
Thank you, ladies and gentlemen, I like to turn the call back over to dominate money.
Thank you very much.
Thank you all very much again for joining US today, we are excited about our transformation the PDL as we'd be able to focus portfolio of of quality companies with promising product as we have mentioned we are moving in a very discipline and.
And.
A thoughtful way in doing this.
We look forward to updating you on our progress when we report fourth quarter and food you a 2019 results in March in the meantime, we wish you a wonderful end of your day.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
Okay.
Yes.
Okay.