Q3 2019 Earnings Call

Greetings and welcome to the Rps Pharmaceuticals third quarter 2019 earnings Conference call.

At this time, all participants are in a listen I need right.

Great question and answer session will follow the formal presentation.

If anyone should require operator assistance during the cold Frank Please press Star Zero would your telephone keypad.

As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host.

<unk> General Counsel I P. Infancies cool. Thank you assign you may begin.

Thank you operator, and thank you all for joining US. This afternoon on the call today are Opn CEO , Chief Executive Officer, Dr., Roger Crystal and Chief Financial Officer, David tool. This afternoon Opiate issued a press release announcing financial results in providing a corporate update for the third quarter.

Need on September 32019.

Please note that certain information disclosed skews, we discussed on the call today is covered under the Safe Harbor provision another private Securities Litigation Reform Act, we caution listeners that during this call will be it means well be making forward looking statements.

Actual results could differ materially from those stated or implied by these forward looking statements due to risks and uncertainties associated with the company's business.

These forward looking statements are qualified by the cautionary statements containing opiates news releases and that's the SEC filings, including our annual report on Form 10-K for the year ended December 31, 2018 and subsequent filings.

This conference call also contains time sensitive information that is accurate only as of the date of this lie brought broadcast November 12, 2019, albeit undertakes no obligation to revise or update any forward looking statements to reflect events or circumstances. After the date of this conference call now I'd like to turn the call over to Rob.

Sure.

Thank you Rick.

Thank you everyone for joining us this afternoon.

Before I provide you with the operational update I'd like to begin with a discussion of opioid addiction and overdose in the United States.

Said before opioid crisis has evolved into a fence no crisis and provisional CDC data for 2018 indicates a 20% increase in opioid overdose deaths that contain fence know when compared to 2017.

The more had been multiple news reports over the past several months involving fund.

Many state, citing the funds note that so on the right in that community.

I have been many large scale sees is illegal.

For example in October more than 40 pounds, a sudden no fees in Ohio.

State officials said this was enough to kill the entire population of the highest many times I hope that.

In addition last month in Southern California, 18 pounds, and that's to create 4 million lethal doses with seized in Orange County.

Clearly this is a critical grabbing public health crisis in the U.S.

Okay, well position to address the challenge.

<unk> access to naloxone is critical to save lives a substantial need exhibit strong got longer acting opioid agonist due to the rapid increase in smelt related everyday.

We are developing Opn C series, there are three nasal now mifid to help address this issue.

I saw recently R&D day, we highlighted why we believe nasal now mifid, maybe better suited to treat fentanyl related overdose it looks like.

Although naloxone is effective again opioids.

According to multiple recently published papers successful rescue all over the victims may require more naloxone, but is also available access to respond.

For example, I study published in 2017 evaluated a cobalt because 18 patients.

<unk> I'll try to line Xanax laced with friends.

Despite the receiving an alongside administered access responded that those who survived.

I'm show additional naloxone, what's required and administered arrivals to the E R.

Many of these VIX and also needed a continuous intravenous naloxone infusion for over 24 hours.

Because of its potency and rapid onset of action a fentanyl overdose, it's far more likely to result in a eight how betsy as compared to over they said that arise from Harry win and prescription opioid.

Now moving pharmacological properties makes it better suited to feet to treat spend snow related everyday.

We believe that high affinity of now Mifid at me you opioid receptor is allowing for potency five times greater than that naloxone combined with a rapid absorption on long haul flights I PNC. There is every three increases the probability of a successful rescue while reducing the probability of a read Knox.

Hi, they shouldn't that making it particularly well suited to treat OPU. David This is caused by sense no unrelated synthetic opioids.

With that let me now provide you with an update on out there there are three development program.

We had initially targeted that said courses to complete the PK study well now aiming to initiate the study this quarter.

No. The this is a two to three weeks study in healthy volunteers and I'm pleased to report that we now have I ought be approval to conduct the study.

While we now expect PK data to be available in that quarter 2020 . We remain on track to file then de <unk> next yeah.

From a commercial standpoint, we remain on schedule.

As a reminder, the F.D.A. previously comps in the five they tried to be to regulate treat weight PNC. There. There are three similar to that right could knock on nasal spray.

In addition, Oh PNC. There is every three has been validated by the U.S. government through 7.4 million dollar grant from nine to Hyundai contracts for up to 4.6 million from BARDA to accelerate the development as a medical countermeasure and the event as offensive chemical attack.

In addition to government funding our programs are well funded with a revenue stream quiet royalties from net sales of knock on nasal spray.

We license knock on to adopt pharma in 2014, which was subsequently acquired by emergent biosolutions or <unk>.

The $735 million last year, highlighting the value not can nasal spray.

Under this licensing agreement based on E. V. S is achievements isn't that knock on sale in excess of $200 million, which they recently announced.

Yes, and then a onetime gross payments of $13.5 million.

David will provide further details shortly but we obviously pleased with this milestone payment.

Yes is updated full year 2019 sales guidance of $275 million to $285 million for knock on nasal spray further validates the significance addressable market opportunity.

Sure David Dykstra vessel agent.

Moving on I'd like to discuss drew in about Oh, PMT there there it for acute cannabinoid overdose truck program or <unk>.

As a reminder, we in licensed during the balance to the treatments of <unk> from Sanofi in December 2018, and subsequently expanded our relationship with them to include it manufacturing.

I see a is most often linked to the ingestion of edible containing large quantities of T.H.C. and synthetic cannabinoids, such as Kate to and Spice.

As a reminder of the opportunity here.

Got it resulted in approximately 1.3 emergency department visits in the United States in 2016, the latest yet which dates are available.

A number of reported emergency room visits to 2017, and 2018 is expected to rise with the increasing legalization of kinda based in North America.

As the legalization of kind of his increases we anticipate a potential kind of this crisis for which society it not per pad.

Importantly, though no currently approved treatments for a C O.

Unaware of other that's currently in development.

This increasing need ratio treatment has is excited about opn tees there there for development program.

During the event has been shown to be safe well tolerated when taken orally.

In phase one phase two studies conducted by Sanofi more than 700 volunteers and patients receive oral granite bands for up to 24 weeks.

In addition in a study establishing proof of principle 36 touch subjects with given all children event, and then inhale THC.

Thanks to subjective and objective effects of T.H.C. block.

Opiods will reformulated through an event as an injection. So it can rapidly reverse the symptoms are they see a in an emergency room setting.

We intend to initiate formulation development study shortly.

And those activities in 2020 .

Moving on to Opn sees there there are two nasal now tricks and which we are developing for alcohol use disorder or eight you D.

I do selections study has been completed on the day to have allowed us to select the seats booked those for the phase two clinical trial.

We expect to initiate patient recruitment for the phase two study later this year and completed patient enrollment within 12 months.

The trial will be conducted in a number of countries in Europe , and the UK with enrollment targeted at 300 patients.

Finally, I'd like to welcome these multi walla, our new Chief commercial Officer Unreason Thompson as on your General Counsel.

These is critical in helping us determine our commercial strategy.

Has more than 20 years of leadership experience and that by pharmaceutical industry across all areas of commercialization.

Prior to joining open these with senior Vice President and head of commercial Avenue Pharmacy School.

We also spent over 10 years at Olive garden.

Yes on will be responsible for all equaled aspects of corporate strategy intellectual property transactions compliance and regulatory matters.

He most recently served as vice President of law for how the on which was acquired by JNJ $30 billion.

That I will now David to discuss all financial result savings.

Thank you Roger before I review, our financial results I'd like to highlight the onetime 13.5 million dollar pain milestone payment, we a burn based on net sales of Narcan nasal spray exceeding 200 million through the third quarter two on 2019.

This milestone payment will significantly strengthen our balance sheet.

Though as you may recall pursuant to opiates license agreement with deep yes.

Yes will reduce the amount payable dopey and by the remaining 2.7 million of the license fees payable.

Therefore, the net amount we will receive in the fourth quarter of 2019 will be 10.8 million.

Further discuss our balance sheet in a moment.

First though a brief discussion of the results for the third quarter ended September Thirtyth 2019.

We recognized 20.6 million in revenue during the three months ended September Thirtyth 2019, compared to 4.4 million and the corresponding period of 2018.

For the third quarter, we recognized approximately 20.5 million a revenue from the license agreement with the be us for the sale of New York and nasal spray.

Fair to approximately 4.2 million in the comparable period of 2018.

Well 13.5 million of this 20.5 million is related to the onetime milestone payment. The remaining increase of 7 million in royalty revenue right Barry represent an increase of 67% year over year and was driven by higher net mark and sales of approximately 75 million in that.

Third quarter of 2019 as reported by you'd be us.

<unk> expenses were 3.2 million and 2.9 million for three months ended September Thirtyth 2019 in September Thirtyth 2018, respectively.

The increase was primarily due to a 400000 dollar increase in personnel and related expense a 300000 dollar increase in royalty expense and a 100000 dollar increase in consulting fees.

Partially offset by a 500000 dollar decrease in stock based compensation expense.

R&D expenses were essentially flat at 1.8 million for three months ended September Thirtyth 2019 in September Thirtyth 2018.

Sales and marketing expense for the three months ended September Thirtyth 2019 were approximately 840000.

Parents, none in the comparable period of 2018.

The increase was primarily due to compensation expense.

Royalty expense for the three months ended September Thirtyth 2018 was approximately 4.9 million compared to approximately.

5 million in the comparable period in 2018.

The increase was primarily due to a 3.1 million increase in payments due to net profit partners for the royalties and sales milestone earned from the net sales of New York and nasal spray and one point Threemillion, where payments made to buy out the net profit interest in nasal now mckean held by investors who had initially some.

Boarded the develop the development of New York and nasal spray.

Net income for the three months ended September Thirtyth 2019 was approximately 10.7 million.

Our $2.64 per basic and a dollar and 97 cents per diluted share compared to a net loss of approximately 49 million or a loss of 32 cents per basic and diluted share in the comparable period of 2018.

Now, let's focus on the results for the nine months ended September Thirtyth 2019.

We recognize 32.9 million in revenue during the nine months ended September Thirtyth 2019, compared to 9.2 million and the corresponding period of 2018.

For the nine months ended September Thirtyth 2019, we recognized 30.4 million of revenue from the agreement between us and he'd be us as compared to 8.9 million in the comparable period of 2018.

As discussed previously 13.5 million of the revenue of 30.4 million Israel related to the one times milestone earned.

In the third quarter of 2019.

The remaining increase of 16.9 million in royalty revenue represents an IND crease of 90% year over year and was driven.

Hi, higher net New York and sales of approximately 213.5 million in the nine months ended September Thirtyth 2019 as reported by you'd yes.

<unk> expenses were 9.4 million and 8.7 million for the nine months ended September Thirtyth 2019 at September Thirtyth 2018, respectively.

The increase was primarily due to a 700000 dollar increase in royalty expense 700000 dollar increase in legal and professional fees and a 700000 dollar increase and personal and related expense, including recruiting offset by a 1.4 million decrease in stock based compensation.

Pets.

R&D expenses for the nine months ended September Thirtyth 2019 were approximately 7 million compared to approximately 5.9 million in the comparable period of 2018.

The increase was primarily attributable to 1.5 million increase in third party expenses.

So shaded with opiates research and development programs.

400000 dollar increase in employee related compensation expense.

Partially offset by 400000 dollar decrease in stock based compensation expense.

Sales and marketing expense for the nine months ended September Thirtyth.

Were approximately 140000 compared to non in the comparable period of 2018.

Again, the increase was primarily due to compensation expense.

Royalty expense for the nine month ended September Thirtyth 2019 was approximately 6.1 million compared to approximately <unk> point 5 million in the comparable period in 2018.

The increase was primarily due to a 4.3 million increase in payments to the net.

Often partners for the royalties in sale sales milestone earned from the net sales of New York and nasal spray and the 1.3 million dollar payment made to buy out the net profit interest in nasal now on the being held by investors would initially supported the development of New York and nasal spray.

There were no license fees recorded for the nine months ended September Thirtyth 2019.

We recorded 5.6 million in license fees during the nine months ended September Thirtyth 2018.

These third party license fees related to our obligation under license agreement with the be us for a certain payments made by you'd be us to third parties.

Net income for the nine months ended September Thirtyth, 2019 was approximately 10.5 million or $2.64 per basic and $1.98 per diluted share compared to a net loss of approximately 11.7 million or loss of $4 in 32 cents per basic and diluted share where the comps.

Terrible period.

2018.

As of September Thirtyth, 2019, we had cash and cash equivalence of 23.2 million compared to approximately 24.6 million at December 30, Onest 2018.

The cash balance at September Thirtyth 2018 does not include the net payments of 10.8 billion due to Opn Rami B.S. based on net sales of non again exceeding 2 million through the third quarter of 2019.

In addition, the current cash balance does not include the full impact of the night, a grand of approximately 7.4 million, where the BARDA contract of approximately 4.6 million.

Based on our updated outlook for the remainder of the year, including the net payment of 10.8 million due to up yet in the fourth quarter.

We now project the cash balance in the range of 28 million to 30 million at the end of 2019 versus our prior estimate of 17 million to 20 million.

We are in a strong financial position as we head into 2020 and a unique situation of having are advancing pipeline funded through multiple government sources and a growing revenue stream your royalties from net sales of non again.

With that I'd like to turn the call back to Roger.

For closing remarks.

Thank you David.

I'm excited about the growth of our company and our strong financial position, which allows us to continue to address particularly in the U.S. continued addiction and drug overdose crisis, which has taken countless of lives already.

In conclusion.

Having late stage pipeline and expanding royalty revenue base and a solid balance sheet opioids is well positioned operationally and financially to enhance longtime shareholder value.

I will not ask the operator lets open up the call for questions operator.

Thank you.

We will now be conducting a question and answer session.

If you would like to ask the question. Please press star one well into telephone keypad.

Well consummation tiny indicate your line is and the question Keith.

You May press Star tree, if he would like your made real question from the key.

Call participants eating speaker equipment, it may be necessary to pick up you had said before placing the keys.

Your first question today comes from Brandon Folkes with Cantor Fitzgerald. Please go ahead.

Hey, this is Brian on for Brendan can you talk about the drivers and you see the market for a longer lasting opioid overdose medication given how the opioid crisis has done very much effect at all crisis and how that could do all the overall market. Thanks.

Thank you. This is Roger site festival, we see the overall market expanding <unk> opioid overdose reversal agent.

Ticket or that's being driven by the rise.

And fentanyl and related compounds the big heavily involved in these overdoses now so fentanyl.

Super post in Tokyo, He's 50 times stronger than heroin.

And it can be fair, the derivatized unchanged themes, and even more potent compound such as tall offense and old Soufuns no et cetera.

And these are far more dangerous they are much more potent as I said that results in a far more rapid overdose, we talk about the window of intervention for a heroin overdose big minutes to tens of minutes, whereas a fence no related over dies just for anymore.

Tens of seconds, it's not less.

So it really is a different paradigm.

And because of the long that action of compounds, such as fence and though.

We need to counteract that longer acting opioid antagonist as well to make sure that someone doesnt fall back into an overdose situation.

And that's why we think this product was nasal nominal fee and is particularly well suited because it has greater potency in actual essentially greater ability to offset compounds that says fencing, though.

Has a much longer half life. So again, preventing what we described is really not to tie station, where a lot phone has worn off but that's still a high levels of funds now around in patients.

Great and then one more if I can can you provide some color around the development program for opioid use euro for upper cannabinoid overdose thoughts in terms of timing of data, we can make he and how should we think about your addressable market for that product then.

Yes, the development program I mean, we've yet to meet with the FDA on this to consume exactly what they would buy into <unk> I will say that we have a lot of encouraging data already in terms of compounds safety Tolerability certainly an oral compound and also there has been extension phase one phase two studies and.

700 subjects.

Only four months.

That really give us that encouragement combined weighed on this proof of principle I mentioned, the coal where we could.

<unk> well simply we can you just comment as shown already to prevent people getting high if you take it already.

What we need to do that make it better suited for use in the emergency Department, which will then talked about in terms of the addressable market and so to make it better suited for the emergency Department, we need to convert this from an oral compound into an injectable compound the typical patient he's overdosed on cannabinoids, whether it's from edible.

It was all these they can be synthetic and kind of annoyed such as K two in spice. They end up in the off hallucinating. They are extremely well, they're not gonna willingly take an oral compound so it needs to be given parental eats a an injectable is the desired modality.

Treat them.

And so we need to reformulate did not work is.

Is underway and we will be announcing next year the progress well not re formulation that we don't see this being a hugely.

Interest difficult task is just work to be done. We would then look to go into clinical studies, because although we have the proof of principle to show we can prevent I feel like any.

Someone getting high from T.H.C., what we need to do is with the Injectables vision.

With that so if someone's already high from T.H.C.

And we bring them back down again with the injection so that would be that an important proof of principle. So it's Dave key features that we can expect next year will too that will I think really set this program out for success and then determine exactly what.

Registration studies, we didn't need to be doing how high the because this is an acute use compound rather than a chronic use the duration of clinical studies.

Two long, we're very encouraged with the dates this out there already.

I intend to the addressable market. This is and this is it. This is an E off play initially saw this would be administered by E off physician, depending on who they suspect has undergone a acute kind of been or whatever does.

Also at the from what we can tell about the mechanism of action.

We don't necessarily see being an issue if someone <unk> overdose.

Cannabinoid, but I'm not situation it would actually be useful diagnostic as well do you suspect someone's overdosed on the cannabinoid.

You try and reverse it with the reversal agent and they remain the same is getting benbow lightly that might be something else instead.

And there's a few thousand.

Departments in this country side.

No nothing Crazy high number if we're looking at potential avenues self commercialization as well.

Great. Thanks.

Thank you.

Once again, if you wish to ask a question. Please press star one or your telephone keypad.

Your next question comes from David at both with Zacks. Please go ahead.

Hey, good afternoon guys.

So my first question is about the IP position for O three and it's the same intellectual property that covers and dark and nasal spray as well or is that separate.

It is a separate I'm there is IP related to the excipient that we have licensed from.

The company age Therapeutics, which has now been acquired by new rather less.

And the <unk>.

It's called intra avail, so that there's I'd say around that and then as quite a lot of the additional IP on file as well.

So that that's not the position that.

Okay, and a follow up on Oh for I'm curious.

What would a an outcome and a clinical trial for that drug look like how do you quantitate that the drug works the way that you want to too well that subjective and objective measurements of THC intoxication said, while we haven't met with the FDA on sends a.

Endpoints and this would be to says.

Compound of is.

Class too.

Well be won't be approved if we're successful I'm. So the point would be to sit down with the FDA and.

Sits in certain objective subjective measures as CAC intoxication, and those would be the endpoints that we would just you for example, the objective measurements such as changing body temperature through to self reported.

Measurements of house feeding and a whole range of these would be well suited. So we haven't said exactly what we're looking to do yet.

I'm confident that doesn't have any forward.

Okay, Great I appreciate you taking the questions.

Thank you.

Your next question comes from call. It binds with Northland Securities. Please go ahead.

Oh, Thank you and congratulations on the quarter.

Well, let you characterize or quantify the gross growth in demand for New York him, a mandatory co prescribing United States and public programs in first for spotters, how might we kind of look at this high hierarchy and how might you expect that to sort of continue going forward. Thanks.

So in terms if I just re contract you question, perhaps call then.

If I'm wrong, but you're looking at really how the addressable market for knock on nasal spray and how do how should we think about that.

Hi.

And your question that's right Yeah, Yeah, I mean, when we look at the addressable market.

Or any ocular David Dykstra vessel agents and there's two main areas that.

We see and appears to be consistent with how yes also talk about it being institutional on than prescription based so the institutional segment.

<unk> Federal government based.

Use is.

Particularly that police departments, yeah mass departments fire departments.

And there's other organizations as well that.

Public interest groups I think is how they characterized that who are needing knock on nasal spray currently but in general I viewed over the extra visible agents available wherever that may be an opioid overdose.

I'm not market.

What we learn from <unk>, it's about 50% of.

As the market.

And.

And then there's a prescription market, which we look at in terms of.

Patients with addictions, who are high risk given opioid overdose, because whether that's still abusing or whether they are in full treatment alongside on people, who are receiving prescriptions for opioid pain medication, you aren't necessarily abusing but.

So determined to be a higher risk of an opioid overdose.

For example, if that also taking benzodiazepine medication, which appears to be a the most recent dates are I'm aware of the percentage of people taking opioids are also taking benzodiazepine medication items being co prescribing alongside and first situation like bass is appropriate.

And in fact as nine states to have some form of co prescribing legislation.

This thing leave at the most recent state to come on line is new Mexico appears to have the most stringent coax describing laws whereby if you're on an opioid five days a longer than you ought to be co prescribed loxa.

The the other areas addressable market, which we think.

Sticky well suited for nasal nama feed.

Is the chemical chemical attack.

Somebody by saying, it but essentially that the consent of the U.S. government digest around the use of fentanyl and chemical attacks. It happened in the past in Russia.

And for that reason developing a suitable countermeasure in case, there is a chemicals tack on U.S. soil.

And that reflects the $4.6 million BARDA contract, we have 'cause that interested in how they can support our nasal nonmachine development.

With a potential this could be a nasal nominating type of medication stockpiled in these hot spots might be considered vulnerable.

No offense no chemical attacks.

Great. Thanks much.

Thank you.

There were no further questions at this time I would like to tend to pull back over to adopt a launch a crystal for closing comments.

Thank you operator.

To summarize we are very excited about the prospects for our pipeline under significant market opportunities. We have perceiving. Moreover, R&D plans are well supported by our financial resources. Most importantly, we truly believe that the medicines. We are developing have the potential to impact thousands of lives and we're excited to continue advantage.

I think each in the clinic.

As we further develop our pipeline and execute on hockey near term catalysts, including topline data from Opn Tees. There's there are three initiation of the trial opiates easy or is there a cheap you D and continued royalties from knock on nasal spray you anticipate additional value creation.

Thank you for joining us today and for your interest in <unk>.

We look forward to keeping you updated on our progress in the coming months enjoy the rest of your day.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

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