Q3 2019 Earnings Call
And placed on mute to prevent any background noise.
After the speaker's remarks, there will be a question and answer period at that time. If you have a question. Please press star one on your Touchtone phone as a reminder, this conference call is being recorded today November 12, 2019 years now my pleasure to turn the floor over time as Lisa Wilson Investor Relations for Eagle Pharmaceuticals. Please go ahead.
Thank you key welcome to Eagle Pharmaceuticals third quarter 2019 earnings call. This is Lisa Wilson Investor Relations for Eagle Pharmaceuticals.
With me on today's call, our Eagle Chief Executive Officer, Scott, Yeah, and Chief Financial Officer P. Myers.
This morning, the company issued a press release detailing financial results for the three months ended September Thirtyth 2019.
This press release any webcast of this call can be accessed through the investor section of the Eagle website Eagle U.S. dotcom.
Before we get started I would like to remind everyone said any statements made on today's conference call todays press belief expectation for injection forecast anticipation or intent regarding future events and the company you should perform it maybe considered forward looking statements as defined by the crime series.
He gave me format.
These forward looking statements are based on information available to Eagle Pharmaceuticals management as of today and involve risks and uncertainties.
Included in those noted in this mornings press release and our filings with the FCC.
Such forward looking statements are not guarantees of future performance actual results may differ materially from those projected anymore like in statement.
Eagle, specifically disclaims any intent or obligation to update these forward looking statements, except as required by law.
And telephone replay will be available shortly after completion of this call.
You'll find the dial in information in today's press release, the archive webcast will be available for one year on our website at Eagle U.S. dotcom.
I'm going to those who maybe listening to the replay or archived webcast.
This call is held and recorded on November 12 2019.
Since then Eagle may have made announcements related to the topics discussed. So please reference the company's most recent press releases in FCC filings and with that I'll turn the call. Those are two eagle CEO , Scott tariff anchor lease and good morning, everyone. If I if I caught my way through the morning, I apologize in advance so all of you.
So we sure it had a busy last few months, let me start off by saying that we continued making significant investments in our pipeline. This quarter is doing now for the last several quarters in Q3, we invested $12 million or 77 cents per share.
Which includes R&D and external legal expense to advance our pipeline 8 million of that was for laser press and Vecsey.
And Exertional heat stroke for which frankly, we believe we're not currently getting appropriate credit from our investors importantly.
As announced earlier, we believe that we are beginning to see positive results from these investments.
This is demonstrated by our news today regarding exertional heat stroke or chess the treatment of brain damaged secondary to nerve agent exposure to plan initiation of our next clinical study of full the strength in the next few weeks in our ongoing optimism about FXC. We believe these late stage products.
Next could provide significant upside for the company going forward, we're confident that the money well spent and ultimately we expect to unlock the intrinsic value of this pipeline. So turning first to the progress with our Ryanodex portfolio, which we're very pleased about I'll start with DHS.
As you May recall, we are investigating ryanodex for the treatment of VHS. In addition to the current standard of care, which is comprised of body cooling in support of measures. There is no currently approved drug product for the treatment of the serious and often fatal condition over the course of the development program, we've met with the FDA multiple times to determine the.
Procreate steps to address the complete response letter we received back in 2017.
As noted in our press release this morning, and as a result of our dialogue with FDA.
Did an additional controlled clinical study of VHS patients during the 2019 Hodge pilgrimage that took place earlier this year from August nine through 14 in Saudi Arabia here to continue evaluating ryanodex.
We enrolled in additional 10, exertional heat stroke patients, bringing the total number of patients recruited in 2015, 18, and 19 now up to 41.
We have submitted a plan to F.D.A. that proposes reviewing the data collectively for all 41 patients if the FDA agrees with this plan, we intend to resubmit the NDA for E. Hs and will provide a further update when we have one to share.
We're also very pleased with the clarity we now have around branded decks for the treatment of brain damage secondary to nerve agent exposure. Following our recent dialogue with FDA is well after the positive results of RG LP study and rodents FDA has recommended that as stated in the animal rule we shouldn't.
Conduct an additional animal study in the second species, we plan to work with FDA expeditiously to come to agreement on the second species in the final design of the study we expect to file to supplement to our current Nd aims second half of next year.
Our redevelopment plans to evaluate ryanodex for the treatment of acute radiation syndrome are also on track.
And we continue to make progress in developing EA 111, low rise or our ryanodine receptor antagonists, new chemical entity to be administered as an I am formulation, although our current product is a low volume IB push we believe that we will create significant advantage.
He is in certain situations by having and I am formulation, which we protect our military and civilian delay in conclusion as it relates to Ryanodex, we remain hopeful that in the near term we will expand the products label to include heatstroke brain damage secondary to nerve each an explosion in acute.
Radiation syndrome, and as discussed previously we are likely to announce two additional indications that we would like to pursue in the near future.
Let me now turn to our oncology pipeline, which were also very excited about.
We are delighted that our Japanese licensing partner Symbio Pharmaceuticals announced the filing of its end da for ready to dilute Bendamustine back in September .
Approval is expected in 2020 next year already at which time, we are entitled to a $5 million milestone payments.
Symbio plans to launch in the first quarter of 21 once approved based on the step up in the royalty rate in cumulative cumulative sales.
Our first launching the 500 ml bag Amendment 50 ml bag, we expect that our royalty and milestones could reach $10 million to $25 million per year. We are pleased that we've been able to continue to successfully monetize this important assets by licensing Bendamustine in Japan now turning to full this.
Brands.
Our profile our program looks highly promising.
The data from an extensive 600 subject clinical trials suggests that our product may allow for significant areas of improvement over currently available breast cancer therapies. Let me walk you through why we believe we may have a more efficacious product.
The mechanism of action of pull this trend hinges on its ability to bind and block estrogen receptors in patients breast cancer cells effectively these tumors that grow in the presence of estrogen about 75% of breast cancers are estrogen receptor positive.
Our novel delivery technology may enhance the blockade of the estrogen receptor in other words blocking off the proliferative estrogen activities.
That strengthens the tumor.
We expect to dose the first subject in our pilot study in December .
Study results will help inform our future pivotal study, which we intend to conduct and postmenopausal estrogen receptor positive cancer patients.
Specifically this trial will aim to determine if eagles unique folds overstrained products will result in greater in the addition of estrogen receptor and better patient outcomes compared to the currently available treatment options. Our expectation is that we could see other market in the first half of 20.
The 22.
Let me now turn to another important oncology asset and the musty.
This continues to be a highly successful franchise for us providing a long term royalty revenue stream likely beyond 2025 importantly on October Onest, our bend them, our bendeka royalty increased from 25% to 30%.
This increase in royalty rate offset the current price compression and should positively impact our top and bottom lines going forward. The royalty rate will continue to increase by one percentage point each year on October one until caps at 32% in 2021 try.
Handed generics are not expected for another three years.
Finally regarding xcede.
We had four days of trial will do and we believe it went well theres a breaking the trial now until December 12 as of today, we expect that we will find some significant value in the asset.
Turning now to base at present.
We remain optimistic about our generic filing on Endos injectable vasopressin product basis strict.
Eagles, the first paragraph four filer on this product the trials scheduled to begin this upcoming may of 2020 already we feel good about our positioning could launch as soon as next October .
We view this as a very attractive market opportunity since days as strict currently generates around $500 million in annual net.
We therefore believe that our investment in our vasopressin product will add significant value.
We hope to have more tangible news to share in each of these projects in the very near term.
Let me conclude by saying that we're very proud of the progress we have made on our near term pipeline. We have always prioritized investing our cash flow back into the company to fund. The research that we believe will lead to best in class in college in critical care products to improve the outcomes of underserved patient applications.
Patient populations and with that I'll turn the call over to Pete to discuss our third quarter financial results Steve.
Thank you Scott.
In the third quarter 2019, total revenue was $41.1 billion compared to $51.3 million in Q3 of 2018.
Product sales during the third quarter decreased by $1.5 million year over year.
Totaling $14.7 million compared to $16.2 million in Q3 2018.
Primarily driven by a $4.6 million decrease in bill reps so sales.
The point $9 million decrease to ran Adec sales.
And the discontinuation of non alcohol Descoteaux docetaxel injection in September 2018.
Those decreases were partially offset by an increase in product sales of Bendeka $4.2 million.
That wraps or product sales were $3.4 million in the third quarter.
Compared to $8 million in Q3 of 2018.
Eagerness recognizes the reps or revenue on shipments by Eagle to wholesalers.
As anticipated third quarter by reps or revenue was down sequentially as a result of the twoq wholesaler stocking associated with the cutover to the brand name in June .
Based on IMS data Eagles market share of vending machine wholesale shipments to end users was 5% of the us bendamustine market in the third quarter.
Third quarter ended IX product sales for $2.6 million compared to $3.5 million in Q3 of 2018.
Manitex market share in the third quarter was 33% and normalize unit terms.
That 55% share of dollars.
What is for Ryanodex are driven primarily by the expertise cycle with very few customers acquired dantrolene less their stock is expiring.
We anticipate that the fourth quarter will also be low and expertise.
With an expected uptick in 2020.
Q3 royalty revenue was $26.5 billion compared to $35.2 million in the prior year quarter.
And decker royalties were $26.2 million.
Compared to $33.8 million in the third quarter of 2018.
Q3, Bendeka royalty revenue was negatively impacted by pricing trends.
As we discussed on our prior earnings call IMS data suggest that since Eagles launch of our Rob So in the second quarter 2018.
And deck as GTN has compressed by approximately 10 points.
At a 25% royalty rate 10 points and GTN translates into approximately $60 per vial and incremental Eagle EBITDA.
However, as you know beginning on October one 2019 Eagles royalty rate on Bendeka increased from 25% to 30%.
Five points, a royalty rate translates into approximately $70 per vial and incremental Eagle EBITDA.
In 2019, we expect I'll wrap so sales to increase year over year, and ryanodex sales to be down year over year.
Due to the expertise cycle.
Gross margin was 64% during the third quarter 2019, as compared to 75% to the third quarter 2018.
The compression in gross margin in the third quarter 2019 were driven by an increase in bendeka product sales to our marketing partner.
On which he Golar is no profit.
And the decrease has been Decca royalty revenue.
On the expense front R&D expenses were $10.2 million for the third quarter compared to $6 million in the prior quarter.
The year over year increases largely attributable to visa precedent focus room.
Excluding stock based compensation and other non cash and nonrecurring items R&D expense during the third quarter was $9 million.
As Scott mentioned upfront in Q3, we invested $12 million to advance our pipeline.
$9 million and non-GAAP research and development expense plus legal expenses of $3.3 million on visa precedents have attractive.
We are reiterating expense guidance with expected 2019, R&D spend on a non-GAAP basis of $32 million to $36 million.
As compared to $38 million in 2018.
Lower fulvestrant spend in the 2019 budget accounts for the expected decrease in year over year expenses offset in part by spending on vasopressin FXC to bring those products to market.
And EA 111, CMC scale up to 90, enabling toxicology costs.
As seen a expenses the third quarter of 2900 increased to $18.5 billion compared to $13.9 billion in the third quarter 2018.
External legal expenses associated with litigation of vaccine vasopressin and higher stock compensation expense account for the year over year increase.
Excluding stock based compensation and other non cash nonrecurring items third quarter 2019, SJ expense was $13.4 million.
We are reiterating expense guidance with expected 2018, SNA spend on a non-GAAP basis of $51 million to $54 million as compared to $43 million in 2018.
The year over year increases largely attributable to increased levels of external legal expense as well as higher sales and marketing payroll.
Net loss for the third quarter was $2.4 million or 17 cents per basic and diluted share.
Compared to net income of $14 million.
Were 94 cents per basic and 91 cents per diluted share in the prior year period.
Due to the factors discussed above.
Adjusted non-GAAP net income for the third quarter 29 team was $3.7 million or 27 cents per basic and 26 cents per diluted share.
Compared to adjusted non-GAAP net income of $18.3 million.
$1.22 per basic and $1.18 per diluted share in the prior year cooler.
For a full reconciliation of non-GAAP net income to the most comparable GAAP financial metrics. Please see the tables at the end of our press release.
Our EBITDA for the third quarter, two and a team was $4 million compared to $23.9 million in the prior year quarter.
For the first nine months of 29 teen EBITDA was $38.3 million compared to $49.3 million in the first nine months of 2018.
For the first nine months of 2019 cash flow from operations, excluding shifts or receivables was $37.5 million compared to $38.9 million in the first nine months of 2018.
For the 12 months ended September 32019, EBITDA was $60.4 million.
Cash flow from operations, excluding shifts or receivables was $63.7 million.
Last week, we executed an amended extend on our senior secured credit facility.
Our prior facility consisted of a 40 million dollar term loan plus a $50 million revolver, which had remain undrawn.
The amended facility consists of a $40 million term loan plus $110 million revolver.
The pricing remains unchanged at LIBOR, plus 225 on the joint component.
And in exchange for removing the senior secured net leverage covenant. The maximum total net leverage covenant decreased slightly from three to five times to 3.25 times.
As of September 32019, the company had $117.2 million in cash and cash equivalents.
$44.8 million and net accounts receivable.
34.4 million of which was due from Teva.
The company at $40 million, an outstanding debt.
Therefore as of September 30 to 40 19, the company had net cash plus receivables of $122 million.
We did not buyback any stock in the quarter.
With that operator. Please go ahead on the line for questions.
And after stock if you'd like to ask your question. Please press star one on your Touchtone phone you can remove yourself from the Q by pressing the pound.
And star and widen on your Touchtone phone.
We'll take our first question from David Amsellem with Piper Jaffray. Please go ahead. Your line is open.
Everyone. This is accenture on for David Thanks for taking my questions. We just had a couple of quick ones on the Bendamustine products here.
First what are we just wanted to sort of pick your brand on your latest thoughts in terms of take share for bell wraps up, particularly after treanda generics enter the market and then similarly for Bendeka.
Also in terms of just.
Your thoughts are.
Share declined once the tree on generics enter the market. Thank you.
Yes, Thanks Act so.
And trended generics ultimately into the market, where we're staying with where we live in that we believe.
The large majority share with our products largely because of the way the.
Reimbursement works and so Bendeka, we believe because of this.
Its value to the marketplace will continue to hold the majority of the market share along the way there's nothing that we've seen to give us any reason to think that our historical view on what's going to happen three years from now is any different than what we've been saying along the way.
Thank you.
Thank you.
And we'll take our next question from Brandon Folkes with Cantor Fitzgerald. Please go ahead.
Hi, Thanks for taking my question.
I just wanted to talk about try on index EA CIS add to you mentioned, you've got 41 patients now that you can it goes to the agency with.
I switched 41 patients post the 28 team trip to the Hodge. So can you just talk about if any patients that have been executed now and if this change in inclusion criteria and was agreed with the agency and then secondly, maybe one for Pete sorry, just to clarify on both.
Perhaps a sales you should a 4.6 million.
ICANN was at year over year. Thank you.
Hey brand and its Scott let me take the first one so we had 31 previously there's no change. So we had 31, we added 10 and now we have the the 41 patient.
And then Pete you want to take the second question, Yes, hybrid and the Bell, Rob So revenue of $3.4 million.
What is as compared to $8 million a year ago.
And maybe one just sorry, just to clarify shape you had it you're saying you hedged 51.
Add dose patients and Ryanodex with Tyco enrolled historic. Thank you, yes, no no. We have everything is very consistent we had 24 coming out of the first time and then seven.
Last year and another 10 this year. So nothing has changed we've been very consistent there haven't been anything.
Dropping out.
It's just the just as we've been speaking about.
Okay. Thank you very much.
And we'll go next to Randall Stanicky with RBC capital markets. Please go ahead.
Great. Thanks, Scott on for a strong if all goes well give a sense of what you would like to pivotal endpoints too.
Look like and could that include any other head to head or comparable data to the brand faslodex.
And then what is it with respect to your formulation that provides improved estrogen blocking in other words, specifically what I'm asking is.
Why wouldn't another company pursuing a final five be to pull the strong also not able to show some.
Improved through differentiated estrogen blocking going to have a follow up yes. Good good questions.
And also the endpoint of this study will ultimately be to show that were actually walking more estrogen or less estrogen will be produce that is the one the primary functions of how we're going to approach things in terms of.
Potential competitors I would tell you is that.
Have a unique.
Technology that we are using and we believe we have proprietary capability that is unique to our particular formulation that allows us to all happen.
And what are we getting good detail on the pilot and whether or I guess timelines around moving forward into the pivotal yes. So the it's all coming into play now as we mentioned.
This morning the.
The pilot study is starting over the next few weeks in the first half at December we'll start dosing.
And we have been committed to a date publicly yet Wendy.
Pivotal study will start though when we map it out we believe that we'll have the product approved in the first half a 22 already.
Yes, we'll provide more information.
On the timelines that we have the other important point is.
And.
Let me just give you a rough date.
See how recruiting goes we won't know for certain but I believe that we'll have tangible meaningful.
Data on the pilot around the April timeframe, and I think it'll be very informative of what the pivotal will look like so I believe come April ish, we'll know a lot about the future success of this project.
Okay and then my last question clearly, there's going to be debate around how much value. The pipeline can deliver I mean, that's not new.
But when we step back I mean, you've generated cash I think.
Pete you have 170 million in cash on the balance sheet right now.
You've got a clean balance sheet, why why not be more aggressive on business development valuations are depressed companies need funding. It just seems to me that the landscape here.
Is primed for for you guys to get a little bit more aggressive either across oncology critical care or or or somewhere else.
Well that's another good question Randall we agree with you.
We are very aggressively evaluating a whole host of opportunities and Fortunately for us to pipeline seems to be coming together really well now we're very interested in using our balance sheet and our cash should we spend a lot of time on it and I believe that.
Ultimately will be will make a transaction or multiple transactions to continue to expand our product offering in a financially and strategically wise way.
So, let's just stay tuned and see how it goes but where we're we're very active at least in evaluating opportunities for the company.
And Scott should we think my last question should we think about the platform now being.
Oncology in critical care and those are the two areas that you guys are our most interested in that that is that the strategic path here for the next three to five years. Thanks, Yes definitely Randall is we spoke over last couple years to the Investor base. When asked that we always said in the past we'd have to see how the pipeline would unfold to know are we in.
In college accompany our critical care company as we sit here today with the conversation we had this morning.
We are under the belief that we're going to have significant success in both sides of our business and so right now we consider ourselves to be both in oncology and critical care company and we'll be going forward and we're looking for assets externally to fit both those legs of the business and then we'll probably announce additional in turn.
I will development candidates that fit.
Both sides of the business and will continue to round out our business and hopefully growth.
Significantly over time.
Okay, great. Thanks, guys.
And as a reminder, it is star in wind on your Touchtone phone for any questions today.
We'll go next to Tim Lugo with William Blair. Please go ahead.
Hi, This is lopping off Tim Thanks for taking the questions. I was just wondering if you can sort of.
Right inside or give us your thoughts on the go up and.
And what do you expect going forward I know we've seen some weakness this year do you expect.
Oh, the weakness next year or.
Yes, that's the current right.
And secondly in terms of Imitrex it.
Sort of commercialization.
Should we be thinking about in terms of the.
National infrastructure, you would need to build out that that is successful.
So it's a commercialization and then.
Sort of what sort of time, which fee.
Bill that out.
Yes. Thank you so let me take the the infrastructure piece first and turn it over to Pete.
Steve.
But as I mentioned, we are expecting to bring the product to the market in.
The first half of 22, we will probably need in terms of sales support somewhere between 70 to 90 people to call on that particular.
Marketplace, you know the difference for us a little bit will be calling on.
Specifically oncologists, we do that now with our bell wrap so product we already have sales rep.
In that category, so we will need to hire some more people, but we think the opportunity for the sale is.
Well warrants the additional headcount in the Salesforce everything else, we do here at Eagle, we already have in place. So we're not going to need a tremendous additional number of people to launch. This is a company that is prepared to add products to the product offering without significant infrastructure demands on it so it will be rather efficient and were.
We're also hoping that we have other oncology products in the portfolio by that as well that could make it even that much more efficient. So I'd say, maybe we need give or take an extra 60 salespeople to run it in some internal people but.
Nothing added the ordinary or that can't be supported by the size of the opportunity.
In peaking would affect the yes. Thanks for the question locker and so on the been seen market.
The data suggest that the unit volume was down 4% year over year in the third quarter.
We'd expect to see a deterioration perhaps another 5% in 2020 the the.
Diminution in our royalty revenue was largely attributed to price not volume.
And so the market is actually hanging in there quite well frankly in the face of some novel therapies approved in syndications, but candidly we have seen some substantial price deterioration on the pricing of Bendeka. Our data sources, the same as yours Laughlin based on Imus.
One would deduce that the the GTN has come in by about 10 points since we launched our or Rob I'll wrap so and that has.
Obviously significantly our royalty in the near term it's important to note of course that.
The royalty step up was just commenced this quarter largely offsets that degradation.
Great. Thank you and I guess one more.
When we should make is that this public information we have.
We have increased the price of our product or whack as has been increased.
Morning.
Total one so that'll that'll help on the Bell, Rob So front, obviously, we cannot comment.
On the pricing of Bendeka since we have no knowledge.
Okay.
Yeah.
Thank you.
Thank you and it does appear we have no further questions I'll return the Florida, Scott tariff for closing remarks, well. Thank you everyone for joining the call and for your ongoing support we're pleased with our decision to continue investing in our pipeline to drive long term growth and remain excited about the opportunities ahead and hope to have more information to share with you in the short term. Thank you again.
This does conclude todays program. Thanks for your participation you may now disconnect.
Yeah.
No.