Q3 2019 Earnings Call
Thank you for holding good morning, and welcome to the Nielsen Therapeutics first quarter 2019 financial results Conference call.
Today's call is being recorded.
At this time all participants are in listen only mode now.
There will be a question answer session to follow.
Introductory and opening remarks, I'm, turning the call over to Richards Eisenstadt CFO of Neos Therapeutics. Please go ahead.
Thank you good morning, everyone and welcome to our third quarter 2019 financial results Conference call. This morning, we issued our financial results from corporate highlights press release, which is available on our website at www Dot Neos T X dot com.
I'm joined on today's call by Jerry Mclachlan or see out before we begin I'd like to read the falling regarding forward looking statements. During this call we'll make statements related to our business that maybe considered forward looking are made pursuant to safe Harbor provision. So private Securities Litigation Reform Act of 1995, including statements concerning the comes.
Personalization of a tennis ex already take complex already tea and agendas E. R. Oral suspension, the financial results and outlook for our business, including with respect to net revenue per pack script volumes and market share intended benefits for commercial strategy, our expectations regarding the brand exclusivity for 88.
Alex.
Patient access program Neos Rx connect the capabilities of our technology, and our research and development activities, including the timing of progress ever product candidates future expansion or product pipeline through business development activities, and our current and future financial position.
Forward looking statements may often be identified with words, such as we'd expect we anticipate upcoming or similar indications of future expectations. These statements reflect our views only as of today and should not be reflected upon as representing our views as of any subsequent date. These statements are subject to a variety of risks and uncertainties that could cause.
Actual results to differ materially from expectations, including but not limited to the inherent risks associated with development commercialization of our products and product candidates that we may not realize in kind of benefits of our new commercialization strategy and a preliminary or early indicators performance may not reflect actual results of operations for any.
Great for a discussion on material risks and other important factors that could affect our actual results. Please refer to those container <unk>. Most recent SEC filings I'll now turn the call over to Jerry.
Thank you rich and good morning, everyone. The team here at Neos has been executing on all fronts and I look forward to highly our accomplishments within our commercial business and our continued progress toward achieving profitability. It's wells are advancing development pipeline and lead candidate and T O five owed to what you're developing for the treatment of chronic salary cuts.
Only refer to as excessive drilling.
Specifically for 80, HD business, we reported growth in net product sales and net revenue per pack for a core two products, it's NSX already team could templates RTT.
Well overall prescription volumes dip slightly this quarter. This is consistent with the change in commercial strategy, we unveiled late last year.
As we continue to push toward our goal of achieving profitability. It's important to note that for the fifth quarter in a row, we reported a reduction in our quarterly net loss, which reflects our focus on generating profitable prescriptions and driving continued gains in operational productivity.
Using our commercial performance analytics platform, we're monitoring assessing our commercial performance on an ongoing basis using real time data.
Throughout 2019, we have been continuing to enhance and refine these analytics, which has enabled better informed and more timely business decisions and tactics.
Oh ultimately were using this information in support of our three key commercial objectives first to grow commercial prescription volumes second to increase our market share prescriptions, among our targeted prescriber base and third to retrieve incremental increases in net revenue per pack.
Let me review, what we're doing to achieve success in these key performance metrics.
We are focused on effective marketing of our products within our target prescriber base for capital X. already T., we remained focused on pediatric and adolescent 80 80 patients between the ages of six to 17.
Tablet clinical data demonstrated a 61% reduction in a range of 80 HD symptoms one hour after dosing with a significant response lasting a full 12 hours, which is very important for all 80, HD patients, but particularly for our target patients who need it 80, HD medication with both the fast onset of efficacy and sustained 12 hour.
Our duration of effect, thus providing coverage during the school day and beyond for homework sports and other activities.
For Dennis ex RTT, we're focused on adults with 80 HD the fastest growing segment of the market. We believe the effective 80, HD symptom management offered by its NSX, RTT, well, particularly resonate with physicians and patients.
We have a specialty sales force of approximately 75 territory specialists that are operating under specific objectives within a prescriber base that has the largest net revenue potential for 80, HD medications and the ability to help as many HD patients as possible.
These efforts are focused squarely on accounts, where we believe we can generate more profitable business.
Additionally, we are and will continue to expand the Neo Sox connect network. This best in class Neo sponsored patient access program operates through a network of pharmacies and offers affordable and predictable co pays to all commercially insured patients regardless of their individual insurance plan.
Neossance disconnect was created in early 2019 based upon extensive researching feedback from health care professionals referred to as Ahgps about their frustrations in prescribing would they believed to be the most appropriate medications for their patients.
Too often medications are not available for patients at the pharmacy or the co pay is widely variable and unpredictable, resulting in patient complaints and call back to their HCP, which leads to frustration as well as additional work in hassle for the HCP in their office staff.
We design Neots Rx connect to focus on addressing three core barriers first provide coverage for all commercially insured patients regardless of their individual insurance plan second establish an affordable monthly co pay that remain stable, allowing its many appropriate patients as possible to benefit from our 80, HD medicines and third eliminated.
Many of the hassles as possible the frustrate the HCP in their office staff and prevent patients from receiving the intended medication.
We believe our Neos ARX connect network truly differentiates both neos and our HD brands from the competition offers tremendous value to our customers and we're very encouraged by both the growth of and the response to this program that we've seen to date.
During the quarter, we substantially expanded the number of participating pharmacies in the Neo SRX connect network also with the addition of a large regional grocery store chain. We expect that were but there will be an excess of 450 pharmacies and in that work at the end of November 2019, representing a 200% increase since the end of the third quarter of 2019.
Furthermore, we expect continued expansion of the network to support our customers and business.
Turning now to the specific commercial performance numbers this quarter.
For its NSX are already T. net revenue per pack was $122, a 13% increase over the same quarter in 2018 Africa Teleflex already Tiet net revenue per pack was $128, a 19% increase over the same quarter one year ago.
This continued growth reflects the significant strides we have made in 2019 to shift to more profitable business channels and market segments.
Aggregate prescriptions for our core commercially DHC products as reported by Q via decreased 6% in the third quarter of 2019 compared to the same quarter 2018, we tremendous declined to our decision at the end of 2018 to move away from a volume based strategy toward profitable growth strategy by better aligning our salesforce and target per se.
Drivers to support long term revenue growth.
As part of this shift when we announced our commercial reorganization in late 2018, one of our key objectives was to increase the productivity Arthur of our Salesforce and overall commercial organization.
We have to date seem very meaningful improvements in this area.
For example, when we look at total Neos HD prescriptions per sales territory, we have realized a 45% increase in the third quarter of 2019 compared to the third quarter of 2018, while at the same time, reducing overall sales and marketing spend by more than one third.
We continue to believe that there's a lot of potential to grow these products into the future and look forward to reporting our progress.
Now turning to our development pipeline.
We believe that NTL five onto our lead development candidate is a tremendous asset with the potential to address a high unmet need for the treatment of chronic salary or a condition where more than one third of patients with neurological conditions, such as Parkinson's disease cerebral palsy, alessa mental retardation exhibit excessive drilling as a result.
Of an inability to sufficiently swallow saliva.
Approximately 1.4 million patients in the United States experiences condition on an annual basis and physicians report that they reserve treatment for only the most severe patients due to the treatment limiting side effects and complex dosing regimens associated with currently available treatments.
This result in too many patients being forced to off into suffer with the social stigma and meaningful clinical issues associated with this condition.
Let's take a moment to focus on the impact of excessive drilling in Parkinson's disease specifically.
Challenges these patients face ranged from mild wedding of the pillow during sleep.
Embarrassing outpouring of saliva during unguarded moments.
As it advances in severity excessive drooling can be an indicator of a more serious difficulty with swaddling notice dysphasia.
You can cause an individual with Parkinson's to choke on food and liquids and can even lead to aspiration pneumonia.
This is clinically important as aspiration ammonia is one of the leading causes of debt and advanced Parkinson's disease patients.
NTL five owed to offers the promise of a new treatment option for these patients. This compound is a new chemical entity and selective muster anik receptor antagonist that based on preclinical data. We believe preferentially engages receptor is in the salivary glands relative to currently available treatments.
We also believe that NTL, five, though too if approved by regulatory authorities in the U.S. and elsewhere.
Offer an important new treatment option to many of the millions of patients and their caregivers with the potential for both an improved tolerability profile and a more acceptable dosing regimen.
We plan to develop NPL, five, though too as an orally administered formulation that is likely to be dose only once or twice daily without the complex titration requirements, commonly seen with currently available treatments.
We are on track to initiate pilot PK work during the first quarter of 2020.
We are committed to advancing this potentially transformative treatment option as rapidly as possible.
We will also seek opportunities where we can to leverage our existing commercial infrastructure with the acquisition of currently marketed products to complement our existing portfolio with a focus on CNS as we believe there is a large opportunity to address symptoms associated with neurological disorders that exacerbate overall disease burden.
In conclusion with 40% year over year revenue growth this quarter strong momentum with our new SRX connect network continued improvements in our quarterly operating net loss and exciting progress in our development pipeline. We believe Neos has a bright future ahead.
We feel it our commercial and corporate strategy makes us well positioned for long term growth and I'm really proud of all the team has accomplished over the last year.
With that I, Thank you and we'd like the car turn the call over to rich. Thank you Jerry.
As of September Thirtyth, 2019, we held $25.3 million and cash and cash equivalents and short term investments as previously announced subsequent to the ended the quarter in early October we put in place the secured credit facility for up to $25 million in loans based on accounts receivable, which provides us with available.
Moving for general working capital needs are investing in some of the initiatives Jerry outlined today.
Total product revenue for three months ended September 32019, or $17.5 billion compared to $12.5 million for the same period in 2018, 40% increase.
Total product revenues for our 80 HD portfolio were $16.2 million for three months ended September Thirtyth 2019, compared to $11.9 million at an 80 HD product revenue in the same period in 2018.
Net product revenues for our generic Tussionex continues to increase reaching $1.3 million in the third quarter of 2019 as compared to 600000 them same period in 2018, a 117% increase.
For three months ended September Thirtyth 2019, gross profit was $11.1 million compared to $5.5 billion for the same period in 2018.
Gross margin as percentage of net product sales were 63% in the three months ended September Thirtyth 2019, as compared to 44% and the three months ended September Thirtyth 2018.
R&D expenses for three months ended September 30 to 2019 were $1.6 million compared to $2 million for the same period in 2018.
Selling and marketing expenses were $7.1 million for three months ended September Thirtyth 2019, compared to $10.4 million for the same period in 2018.
This decrease was primarily as result of the impact that a restructure or sales and marketing organization, which occurred in the fourth quarter 2018.
Gene a expenses for three months ended September Thirtyth, 2019 were $2.8 million compared to $3.5 million for the same period in 2018.
It's from operations was $400000 for three months ended September Thirtyth, 2019, and improvement of $10.1 billion as compared to the 10.5 billion dollar operating loss reported for the same period of 2018.
Net loss for the three months ended September Thirtyth, 2019 was $2.1 million or four cents per share compared to $12.7 million or 43 cents per share for the same period. In 2018. This represents the fifth consecutive quarter, where we've reduced our quarterly net loss.
That we'd like to now turn to the Q and a portion of the call operator.
We will now take any questions. You may have if you have a question press star one and you'll be put into the queue. If you'd like to answer your question. Please press star too.
Our first question comes from the line of Louis Chen from Cantor. Your line is open.
Hi, congratulations on the quarter and thanks for taking my questions here.
So I ask you what do you think will continue to drive uptake of your 88, Steve franchise is obviously done quite well the revenue per pack has improved now how much more room is it for that revenue to improve in the channel distribution, how should we think about the upside here and then on your salary up fraud.
Correct. What is your development strategy can you provide more details here and in the past you said that they were about 1.4 million patients suffer from salary up and what's your expected rate of penetration are there any competitors for your product what's the current standard of care. Thank you.
We thank you very much and I appreciate the questions with regard to our 80 HD business, our focus going forward and we think were the drivers will be it will be an increased volume of prescriptions, increasing our market share in our target prescriber base and and you had mentioned net revenue per pack, we're thrilled with the progress we've made as we go forward.
We look to experience incremental.
Gains in net revenue per pack, but the key drivers for business will be the increase in prescriptions and market share as we looked at the fourth quarter as you know we potentially with the a pullback in net revenue per pack in the fourth quarter, which is standard for this time of the year coming up but we see incremental gains going forward key drivers for our business will be the car.
Annuity now we have in our Salesforce. After the changes we made last year. The strategy, we have for our brands and we believe Neos Rx can act is a really true differentiator and key driver for our business as it addresses.
Some of the large negative forces in the industry around patients getting the appropriate medications right. The lack of affordable copay unstable co pays that are inconsistent and the major hassles that prescriber space in order to get appropriate medications to their patient with the continued expansion of our near starts connect network the increased awareness.
Among prescribers and acceptance and adoption of it we think that we'll continue to be a big driver going forward.
With regard to silo area.
And to you if I go to as time goes all more we'll we'll talk more about the clinical program. We are excited that we're on pace to enter pilot PK studies in the first quarter of 2020, and we will aggressively move the plan forward and share more with you as as as time moves on we're very excited about the opportunity. This is a real we think a jam in that.
Yes patients with very significant neurological disorders that have a real impact on their quality of life and the associated symptom of excessive drooling, just really is an extremely burdensome in an already difficult life and unfortunately today when we talk to physicians is that.
No reserve treatment only for the most of your patience simply because of the fact of and this gets into the other part of your question the existing standard of care older Nonselective Anticoagulant Erdrich agents are really difficult to work with in terms of the dosing frequency and because they're not seeing activity a lot of treatment limiting side effects on the other into the spectrum.
You have a more base of approach with botulinum toxin, but they can be difficult to administer in this population. So really leaves a wide open field to expand the treatment of of silo area. If we can in fact improve the tolerability and improve the dosing dosing regimen for patients are real excited.
About that going forward.
Can I squeeze one more question here, if I could I'm sure.
You had given this guidance before gross margins in the 60 slot low to mid teens R&D. What have you do those older metrics is still hold I didnt see a reaffirmation teenagers. So just wanted to get your thoughts there.
Hey, do we Havent given guidance for next year, yet on our expense, we don't give guidance on the revenue at this point, but.
They do still hold I mean, we had said we'd be in the mid sixtys by the end of this year and we are.
Gross margin is a little bit more variable for our company than lot of companies as you know companies that manufacturer their own products such as ourselves in the summer others out there.
Yeah, and up instead of having a basically a fixed cost per unit of product you buy you have your overheads that some quarters they get absorbed like in our second quarter. This past year. When we were running full out making product for the back to school season, and then when you come off a little bit from that aggressive pace for.
Slower parts of the year, then you don't absorb your inventory or your overhead so there's a little more pressure on gross margins during those quarters, but yes, we thought we'd be in the mid Sixtys. We think that it will continue to increase as our volume increases and as net revenue per pack also increases and we think that at all and you will get into.
The mid to upper Seventys with.
These products.
TV to expand that's probably.
A little ways off yet Louise on expense management.
We're probably for DNA.
Going to continue at the same pace for sales and marketing.
We've with direct sales force now stabilized will probably be able to invest in some digital programs to support that salesforce. So although we've been guiding to the low to mid thirtys for the full fiscal year. We continue to expect going forward Louise that that's sort of the range that will be and.
And then for R&D the one additional expense.
Other than solid Ria program, which is not cost as much money, yet and probably won't even into next year.
One additional expense that we may be incurring is.
Additional cost related to our post marketing commitment studies related to incentive some cotempla.
We've not been spending all that much on that so far in 2019, but that could come back into play as we get 2020 and beyond.
Okay. Thanks very much.
Thank you and our next question comes from the line as Ken touched Cowen and company. Your line is open.
Hey, guys. Good morning, just I don't know if you mentioned this in the prepared remarks, Jerry but how many what percent of prescriptions are going through our Ics connect at this point and as it possibly give us some anecdotal feedback of what.
You experience when a clinician starts utilizing our ex connect I don't know if you have actual metrics are can give us some anecdotal thoughts.
And then lastly, but now that you're establishing Rx connect is there any reason why you'd want to revisit some of the locales that you exited or they just simply have bad coverage uneven establishing Rx connect back in some of those other places just really wouldn't make sense. Thank you Ken. Thank you for the question and I'll pick.
Them off one by one we've increased the percentage our prescriptions through the network through the course of the year were roughly about 20% now that our process through the network.
And to get to and we expect that to continuing increase particularly as youve.
Heard the prepared remarks, we've increased the number of pharmacies in network by over 200% just since October Onest and we would look to continue expand that going forward. So really excited about the addition of a large reputable regional grocery store chain to the to the mix are really help our business and the reason we did a lot of work ahead.
Launching the network, but then over the summer we conducted a number of advisory boards and I can tell you I was out in 10 different territories met with a couple of doesn't physicians.
Both those who would have adopted and those who haven't.
And really the interesting thing is that once once you differentiate newest our disconnect from traditional co pay offers and co pay cards and programs and a physician tries to.
The program.
There is a instant surprise and almost an hour and exceeding of expectation. So we go through it sort of initial trial and then adoption and then advocacy and frankly, we were in advisory boards, those who had moved along the chain of experience with the network become true salads and.
What they say this has fundamentally changed their practice and it gets back to some of what I talked about in the prepared remarks.
The system is broken for them.
They want to prescribe certain medications that they think are clinically appropriate and get the best chance of success for the patient to off in the patient goes to the pharmacy the traditional pharmacy in its not available or are they go into co pay is not what they thought or it's different from one month to the next.
Or co pay programs are now process correctly, those questions and complaints come back to the physician and their office and create an inordinate amount of work and and tension in the office and then also negative feedback for our brand. So what we find as they once folks get on board, they're sold and they become true advocates of the program.
Ramps. So our goal going forward is to increase availability of the network.
Awareness of the network trial and adoption because we know we once we get on there it's really beneficial for the practice and because we bring that value is going to be beneficial for our brands and its terms of geographies, we've already been doing that.
We committed that we would when we made the changes in our target geographies, we constantly look at the metrics the analytics the evolution of our business the evolution of Neo Starks connect and revisit our targeted geographies. We've made slight tweaks I'd say modifications in the middle the year and we will we will probably make a couple of more modifications as we enter next year as.
Well, so we'll continue to look that as as the network evolved in our business evolves.
So much.
Thank you know next question comes on line of Jason Butler with JMP Securities. Your line is open.
Hi, Thanks for taking my questions I'm, just just a quick follow up on Rx connect.
Jerry any any color you or insight you can give us to where that number that greater than 450 number can can go in 2020 or any sense of how those pharmacies are distributed geographically are you still largely concentrated any areas or do you have pretty good coverage.
Across the.
Your your where you have the Salesforce territories right now.
Yes, Jason.
We won't give specific numbers on how large we can see this going forward, but we're confident in our ability to continue increase the number of pharmacies and the network.
As I mentioned earlier, we at we just in the process of adding a large regional grocery store chain. We'll we'll go through that experience and we'll see if theres more opportunities. There there may be other opportunities to take bigger leaps forward in terms of.
The expanding the network, we still keep it pretty concentrated in target geographies, where we compete I mean that that's the that's the goal right is to provide our sales representatives and our targeted health care physicians and patients with as many options within their geographic area.
And the goal over time would be that it's well within reach of dry for patient. The good news is in many of these pharmacies. They do offer free mail order to patient. So they don't have to be in close geographic proximity, but as we all know the more you offer the more of that mortgage the higher quantity of options you have that are closer to their home and or the.
Additions office, that's going to be more toward vantage. So.
We continue to see meaningful growth in this going forward, we don't CNN data that we were very pleased we believe the more the more we add to the network the more opportunity gifts for our brands and for that value for our customers.
Great and then.
Just one question on a five a too can you just.
Because of the the formulation work that you've done since you are you got the product and then what the target profile PK profile, you're looking to achieve and show in this phase one trial as thanks.
Yes, we have been exploring a number of different formulations. We still have work ongoing we have been leveraging Orion resin technology or micro particle technology. We believe the technology can offer some advantages in very predictable clean kinetics as far as it dosing regimen.
We are evaluating whether there's a need right now the dosing regimens or at least three times a day.
So we believe that if it's at a minimum twice a day, we think that will be a competitive advantage insufficient for this market. We're exploring the opportunities in the option to take it to once a day as well so but we believe we have a have a competitive advantage at either once or twice a day.
Great. Thanks for taking the questions.
Thank you and our next question comes from the line as Gary Nachman with BMO capital markets. Please go ahead.
Hi, good morning, it's roughly on for Gary.
On a sequential basis can you help reconcile how sales or at that as Tim increase.
<unk> percent.
So Lee while net revenue was.
Was up low single digit and Rx has declined low single digit.
Yeah.
I think I can help you we don't book off of prescriptions, we book off of what we sell in to be distribution chain. So it's actually true actual true orders.
The Rx growth doesn't necessarily mirror, what the wholesalers do sometimes we've experienced counters.
Nicole movements.
So I will hop sell offs in periods, we think there should be buying.
Hi ends in periods, we think they might be selling but it's really based on wholesaler cells and.
You can back into the number by taking the net revenue per pack.
Into the total revenues see what the units where for each quarter.
Okay. Thanks.
And can you also comment on the impact of any competitive dynamics in the quarter.
Typically a launch buyer insurance product and what impact that add thank you.
Yes. This is Jerry I'll take that question.
We've seen that launch in for the effort. There are several hundred sales representatives of promoting that product we have seen modest uptake in the product.
We believe our product stance could template it competes in the methylphenidate space. So it's mostly direct competitor cut up what we believe our products stands on its own merits of the clinical data what patients want and need and with parents want for their children is a in a medication networks fast and last 12 hours and.
We believe could tablets already really delivers with the market needs with a rapidly acting and sustain a really throughout the day.
We'll see how that progress over time with the competition, but on a per person on a on a per representative basis. We think we're holding our own from a competitive standpoint, and we don't see it as a major threat in the near term.
Thank you.
I'm showing no further questions at this time, ladies and gentlemen, thank you for participating in today's conference. This does conclude your program. You may now disconnect everyone have a great day.