Q3 2019 Earnings Call

Ladies and gentlemen, thank you for standing by and welcome to the Osmotica third quarter 2019 earnings Conference call. At this time, all participants are no listen only mode.

For the speaker presentation, there will be a question answer session.

Asked the question during this session he will need to press star one on your telephone if you require any further assistance. Please press star zero I would now like to hand, the conference over to your Speaker today, Lisa Wilson Investor Relations as Monica Pharmaceuticals. Please go ahead ma'am.

Thank you operator, welcome to Osmotica Pharmaceuticals, third quarter 2019 business update call.

This is Lisa Wilson Investor Relations for Osmotica.

With me on today's call or osmotic as Chief Executive Officer, Brian markets then.

Chief operating officer JD shot.

And Chief Financial Officer, Andrew Einhorn.

The company issued a press release detailing financial results for the three months ended September Thirtyth 2019 yesterday after the close of market.

This press release and a webcast of this call can be accessed through the investor section I'd be Osmotica web site at as Motyka Dot com.

Before we get started I would like to remind everyone that any statements made on today's conference call that express a belief expectation projection for cat anticipation or intent regarding future statements and the company's future performance, maybe considered forward looking stay.

Men as defined by the private Securities Litigation Reform Act.

These forward looking statements are based on information available to osmotic as management as of today and involve risks and uncertainties, including those noted in yesterday's 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 in the forward looking statements.

Monica, specifically disclaims any intention or obligation to update these forward looking statements, except as required by law.

The archive webcast of this call will be available for 30 days on our website at as Monica Dot com.

For the benefit of those who maybe listening to the replay or archive webcast. This call was held and recorded on November 15th 2019.

Since then Osmotica may have made announcements related to the topics discussed. So please reference the company's most recent press releases and FCC filings.

And with that I'll turn the call over to Osmotica CEO , Brian Markuson. Thank you Lisa good morning, everyone and thank you for joining the call.

I'm very pleased with the progress we were making on many fronts, most notably around or investigational product RBL 12, though one for the treatment of acquired Blucora choices for more commonly known as true pie.

In September we submitted the new drug application for RV L. to the U.S. food and drug administration.

We are engaged in productive communications with the FDA and believe we are on track for an acceptance to file in the fourth quarter. If this year.

Our outreach to potential partners outside of the U.S. has picked up momentum and we remain confident in our ability to enlist a great partner through this effort.

In recent weeks, we've had the opportunity to present phase three efficacy and safety data RV l. in several global high tier conferences, where the feedback from cable wells has been unanimously positive.

We're now planning to build out our medical education strategy for RV L and turning our focus to messaging and pre launch preparation and activity.

We look forward to sharing our progress with you as we progress all of these plans.

Looking ahead to enter a size program. We have recently have productive feedback from the FDA with regard to our backlogs and extended release tablets or late stage therapy for the treatment of spasticity associated with multiple sclerosis.

Based on the promising results from a clinical trials, we remain confident in our backlog and plan to submit an amendment to our and D.A. in the first half of next year fear back we'll sit extended release clinical development program presents the largest most robust dataset in EMEA spasticity in the world the clinical trial.

I'll evidenced strongly demonstrates the efficacy and utility of our back within E R into divided doses.

We're excited about the potential of our backlist, an extended release and believe they can bring meaningful relief to mds patients suffering from specificity.

We also recently welcomed Michael Dibiase to our board of directors last month, Mike's perspectives and expertise, particularly in consumer launches will help guide us as we scale, our commercial infrastructure to support our existing pipeline of promising products.

Our financials are strong and we continue to focus on executing our strategic plans.

Advancing our late stage pipeline and supporting our promoted products.

The company's plan to transition to a specialty pharma company remains firmly on track.

Now I'd like to turn the call over to Andrew Einhorn, who will discuss the Companys financial results. He will be followed by JD Shah our Chief operating officer, who will discuss the company's promoted products in more detail.

Andy.

Thank you Brian .

Total revenues were 65.5 million for the three months ended September 30, 2019, compared to 66.3 million for the three months ended September 32018.

Net product sales decreased by 1.4 million to 64 million for the three months ended September 30, 29 team as compared to 65.4 million for the three months ended September 32018.

Net sales of Methylphenidate E R, including M. 72 decreased 46% during the quarter due to additional competitors entering the market, resulting in significantly lower net selling prices and volumes, partially offset by lower than estimated product returns.

Net sales of venomous vaccine IAR tablets increased 41% during the quarter as a result of higher realized net selling prices due to lower than estimated product returns combined with higher volumes.

Methylphenidate and Fenwal faxing net sales were favorably impacted by approximately 11.6 million in the aggregate primarily related to adjustments of product returns reserves during the quarter based on actual product returns experience.

We expect that additional competition for both methylphenidate and venmo faxing from current competitors as well as additional generic product approvals and launches in the future. If any will continue to negatively affect sales of these products during the remainder of 2019 and in future years.

Favorability arising from adjustments to reserves for product returns and other adjustments if any may not recur in the remainder of 2019 and in future years.

Selling general and administrative expenses increased 7.3 million during the three months ended September 32019 to 24.8 million as compared to 17.5 million in the three months ended September 32018.

The increase in or selling general and administrative expenses reflects addition to salesforce head count and marketing costs associated with the launch of Osmolarity E are in the first quarter of 2019 and severance costs associated with our Salesforce realignment during the third quarter of 2019 together with share.

Station expense and higher costs associated with being a public company.

Research and development expenses decreased by 3.7 million in the three months ended September 32019 to 8.3 million as compared to 12 million in the three months ended September 32018.

The decrease reflects the completion of the phase three clinical trial for our back within the yard during the first quarter of 2019, partially offset by share compensation expense and the cost of manufacturing development batches of ASML acts in the three month period ended September 32018, which costs were not.

Present in 2019.

During the quarter 128.1 million of intangible asset impairment charges were recognized related to the right down to fair value of methylphenidate due to price and volume decreases resulting from competing generic products.

Net loss for the third quarter of 2019 was 112.7 million compared to a net loss of 3.6 million in the third quarter of 2018.

Adjusted EBITDA for the third quarter of 2019 was 22.9 million compared to adjusted EBITDA of 25.8 million in the third quarter of 2018 for a reconciliation of adjusted EBITDA to net income or loss. Please see the tables at the end of our press release.

As of September 32019, Osmotica had cash and cash equivalence of 98 million and borrowing availability under the revolver. A 50 million. We also had debt of 268.1 million net of deferred financing fees.

Now I would like to turn the call over to J.D.

Thanks, Andy.

In the third quarter, we continued to see solid prescription trends from our key promoted brands divulge L. M 72, an awesome Ilecs E R.

Importantly, we completed a national field sales realignment during the third quarter and began full promotion of our key products with a larger unified field team in October .

This has allowed us to significantly expand our promotional efforts behind ASML X.M. 72, while maintaining keep targets and efforts in support of debit Joe.

We believe this realigned structure will drive continued growth while also serving to set the foundation from which we plan to launch RBL. If approved later next year.

Specific to key brands, David Joe continued its sequential quarterly growth this year, plus 1% versus Q2 19 prescriptions.

Total prescriptions have increased by roughly 11% versus the same period in 2018.

M. 72 outperformed the market, which was down about 3% quarter over quarter as a result of seasonal pressure.

And 72 was down a modest 1.5%, while showing robust 300% growth over the same quarter last year.

Moving on to ASML acts through September 321, unique health care providers road or enrolled at least one patient in our access OSBL ex program since launch for a total of 13 on or 44 total prescriptions.

When comparing Q3 to Q2 total prescriptions increased 64%.

As awareness experience have grown over the first nine months. This year, we believe that our expanded promotional footprint beginning in the fourth quarter will further accelerate prescription growth and prescriber adoption for us and Ilecs E. R.

We continue to see good overall access through access awesome elects as well as strong persistency once patients begin therapy.

The ability to sample of product is a strong driver of trial and the once a day osmotic release technology combined with flexible dosing options continue to support ASML Lexie, our as a meaningful treatment option for physicians and their adult patients suffering from Parkinson's disease and drug induced extra perama.

It'll reactions.

Touching briefly on our non promoted products. The Trojan business continues to be an important contributor despite increased competitive dynamics, notably in our key legacy generics Methylphenidate E R and Burke.

We anticipate the competitive dynamic will persist. However, we have built and position this segment with a strong commitment to quality and supply with our key channel partners and believe our investments in osmotic manufacturing platform will continue to support the ongoing contributions from this business.

Lastly, while we focus on growth from existing brands. We're also continuing to advance our strategic launch planning for RV out.

As we previously shared we had a meaningful presence at the fall scientific eyecare meetings, including live podium and poster presentations highlighting our phase three clinical data.

We had discussions with more than 40, K., a wells across high specialties, including Okcular plastics, ophthalmology and optometry, all of which have been overwhelmingly positive.

We remain highly encouraged by the potential opportunity to bring a first in class product to market and look forward to ongoing updates as we progress through and the a review.

With that I'd like to turn the call back to Brian for closing remarks.

Thanks JJ.

Thank you for your time. This morning, we look forward to continuing to update you on our progress in the near future.

With that I'd like to turn the call back over to the operator for questions.

Operator.

Thank you as a reminder, asked the question you need to press Star one on your telephone so which all your question press the pound key please standby, while we've compiled acuity roster.

Our first question comes from Randall Stanicky of RBC capital markets. Your line is now open.

Hi, Good morning. This is last year you off Randall.

So now that RV all has been submitted can you talk a little bit more about commercial preparations for the product.

You guys mentioned recent Salesforce realignment.

Following that how many reps can you kind of any to add to the initial launch party al or how do you think about that commercial built out and can you just talk a little bit about your plans for DTC marketing and dock at reach.

Hi, It's Brian Great question, and thanks, I'll start it off and let let JD.

Basically finish off the answer.

You know really are.

True commercial and medical build out didn't start until after we had the second phase three.

Comparative trial completed and we were very pleased with those results and then also the extended safety study.

And we submitted obviously the NDA.

From that point, we pivoted and we started making ourselves known at a lot of the medical conferences that have already occurred this year.

We had a great presence in most of them with podium time poster presentations at a lot of outreach to kao wells.

And as I mentioned in the prepared remarks, you know all those conversations have gone extremely well.

On the commercial preparation now it'll it'll again focus with our scientific core.

Build out for publication symposia at awareness and then we will begin to focus a little more carefully on the top prescribing base, which is.

Ophthalmology and optometry.

So Jay do you want to take it from there.

Sure.

So I think look Ashley on the.

Your commercial plantings side I would reiterate bryan's point in terms of the foundation being the scientific and medical education.

Is there has been ongoing work, leading up to and through kind of the the initial kao well interactions and outreach throughout the fall eye care Congress schedule and there's a fair amount that we're doing around building the right ptosis disease education.

Getting publications and building that foundation, because it is a condition with a large unmet need and one where the education and awareness needs to continue to grow and I think the way to do that out of the gate is obviously at the eye care profession.

Levels, so that'll be an area that I think as we head through the end of this year and into 2020 that that you'll see continued emphasis and focus in terms of us out there not just that eyecare conferences, but but the internal work streams as well on the commercial side when.

We look at this market and and all of the interactions Weve had thus far.

There's a there's a lot of enthusiasm.

As you might imagine across eyecare specialties.

So whether we're talking to okcular plastics comprehensive or general surgical ophthalmologists.

Optometrists with a range of specialties.

All of them have a unique interest in what ultimately will be a first in class treatment if approved and so I think with that.

The work now is understanding Okay, you know who are the drivers.

Of utilization up front and what type of effort do we need to get there from field Force perspective, I think we're very comfortable with.

The footprint that we have in place today, serving as the foundation for that launch I don't think any meaningful build.

Beyond that footprint is going to be required and any gross of the field would just be a function of the ultimate trajectory and growth of RBL ones commercialize.

Right and we restructured the sales team.

At the very beginning of the fourth quarter of this year, what third quarter and a third quarter last this year.

And that footprint now is designed to match up perfectly with the high prescribers and ophthalmology optometry.

We're now going to begin to expand our digital marketing prep and presence, which we know can have a major influence in this market.

And again Ashley the.

You asked population, we know has leased half of them always go for an annual eye exam and given the high prevalence of ptosis, we're not really too concerned about patients initially coming into the to the office. So our direct to consumer preparation will be staged based upon the upto.

I think we see with the core physician audience.

And the other component that we want to test and digital will help us a lot with this is patient self referral because when we had an opportunity to talk to patients that had been in our clinical trials. They unanimously said that they would refer those two other members of their.

Household or friends and family that might have needed this product for a similar albeit maybe more miles condition. So the DTC will be staged and we'll probably occur after we monitor them uptake with the core physician group.

Got it. Thank you and then just one more can you talk a little bit more on that are about our back office amendment that you're spending in the first half.

Further work to start Intel.

None of that none of the work is really in the clinic.

We recently did receive very good.

And thoughtful advice from the agency.

We're going to be putting that altogether. The one outstanding trial that is yet to finish is our long term safety for the 80 milligrams strengths.

The last patient should be coming in this month and then as soon as that is completed and cleaned and that data process.

We'll be looking to make what we would consider of a rather robust amendment to our already existing then da so were quite enthused about the program. We believe the totality of the evidence is persuasive.

And we we are.

On track to submit in the first half of next year, we're very excited about the program.

Great. Thanks, so much.

Yeah, and again, ladies and gentlemen, if you didn't have a question at this time. Please press Star then one I touched on telephone.

Our next question comes from Jackup He's of Wells Fargo Securities. Your line is now open.

Hey, good morning goes.

Could you provide some additional color on the outlook for medical food A. I mean do you do you think goes started to trough out here.

Well being that the markets are very strong at attractive.

I'm not sure Troughing is the right way to look at it I think JD can give you more color yeah sure good morning.

So I think.

And in our earlier prepared comments you know I alluded to this I think we're well positioned in both of those markets in terms of a customer base the competition.

As obviously increase I think that something that we expected and we're prepared for.

But like any generic markets and those particularly that that our of value.

I think we continue to expect.

That competition to persist.

In those key markets.

We're also.

Again, I think strategically in as good place given the importance of supply in large markets like Matt E. R and venlo vaccine and are comfortable with the existing customer base, where if we see some additional price erosion.

And.

We believe that the volume is going to be able to sustain us through whatever the competitive set looks like.

Okay and then on the.

Brian is there anything you can say the level of interest for partnership outside the U.S., and where geographically where would that be.

Yes in fact, the reason our call is this morning is.

JD and and Nick and I, just literally just got back from Japan.

Where we see robust interest.

You know we've had a lot of companies, reaching out to us now and particularly around to the exposure we generated at the medical conferences.

So we're going to.

Try to our best to pick the right partners for those geographies.

You know, we're not suffering now from lack of outreach our biggest problem is actually.

Trying to consolidate it through a process that we have.

And make sure that we picked the right partner.

But we we know having a partner in those territories will not be a problem for us it's more a matter of taking our time and making sure. We have the right partner that can optimize value for the franchise.

But the reception has been thus far very encouraging.

Okay. Thank you very much.

Correct.

Thank you know and ladies and gentlemen. This does conclude our question answer session I would now like to turn the call back over to Brian Marcus in for any closing remarks.

Thanks, operator, and thanks, everybody for participating in listening in on the call.

We're excited about RBL that I think that comes through clearly in our call. It also the core that we've built with our base business and with our Backlist. Then we look forward to updating all of you on our progress as we make our submission plans for final. Thank you bye.

Oh, ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect.