Q4 2019 Earnings Call
Ladies and gentlemen, please standby today's conference is scheduled to begin shortly I can thank you for your patience and please standby.
[music].
Thank you for holding.
Good morning, and welcome to the Neos Therapeutics fourth quarter and full year 2019 financial results Conference call today's call is being recorded.
At this time, all participants ARNA listen only mode.
There'll be a question and answer session to follow.
For introductory and opening remarks, I'm, turning the call over to Richard Eisenstadt CFO Neos Therapeutics. Please go ahead.
Thank you good morning, everyone and welcome to our fourth quarter and for your 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 RC.
Before we begin I'd like to read the following regarding forward looking statements. During this call will make statements related to our business that maybe considered forward looking at are made pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act like 95.
These statements concerning the commercialization of its NSX or would you say cotempla XR 80 to 80 and incentives.
Our oral suspension.
<unk> financial results and outlook for our business.
And with respect to the net revenue per pack script volumes and market share the intended benefits of our commercial strategy or expectations regarding the brand exclusivity for 80, HP products or patient support program Neos Rx connect the capabilities of our technology and our research development activities, including autonomy progress over.
Product candidate future expansion or product pipeline through business development activities, and our current and future financial position.
Forward looking statements may often be indicator with words, such as we'd expect we anticipate upcoming for a 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 for our right if risks and uncertainties that could cause actual results could differ materially from expectations, including but not limited to the inherent risk associated with development commercialization or products and product candidates. So we may not realize the intended benefits for a new commercialization strategy.
The preliminary or early indicators and performance may not reflect actual results of operations for any period.
For a discussion of the material risks another important factors that could affect our actual results. Please refer to those contained in our most recent SEC filings.
Now I'll turn the call over the Gerry.
Thank you rich and welcome everyone.
2019 was transformative for Neos, we entered the year with the new commercial strategy focused on increasing net revenue per pack improving patient access to our multi brand 80 HD portfolio all with the goal of driving the company closer operating profitability.
At the same time, we were optimize our commercial strategy in organization. We will also committed to advancing N C. O five owed to our lead development program and met our goal of filing an eye, Andy as well as commencing a phase one pilot PK study in 2019.
For our commercial business I'm. So proud of what we were able to achieve what this means for the future of Neos.
First we improved our net revenue per pack by approximately 28% compared to 2018 and reduced sales and marketing expenses by 16 million compared to 2018.
Were key drivers in our ability to realize at more than 33 million dollar improvement in our operating loss in 2019 compared to 2018.
Second we were able to build an entirely new best in class patient support program Neos Rx connect and by the ended the year. We had approximately 500 pharmacies in the network and as of today I'm pleased to report we've now reached 750 pharmacies.
Third despite a smaller salesforce and significantly lower sales and marketing expenses, we were able to successfully increased net sales of our products in 2019 by 29% compared to 2018.
And finally, we were able to hold total prescriptions for 80 HD products in 2019 constant with 2018.
This is a tremendous achievement, considering our smaller salesforce and decision to abandon unprofitable programs and contracts that drove a meaningful portion of our 2018 prescriptions.
These accomplishments have set a strong financial foundation for any of US as we entered 2020.
We continue to believe and are now seeing evidence that Neos Rx connect is and can be a significant driver for our business.
This best in class Neo sponsored patient support program is designed to create greater predictability and the lowest possible co pay for commercially insured patients regardless of their individual insurance plan.
Needless ARX connect was created in early 2019 falling in depth researching feedback from health care professionals, otherwise known as a cps about their frustrations and prescribing would they believed to be the most appropriate medications for their patients.
Two off and medications are not available for patients at the pharmacy or the co pay is widely variable and unpredictable.
Resulting in patient complaints and call backs to their HCP, which leads to frustration as well that additional work and hassle for the HCP and their office staff.
These reasons, we created new starts connect and they rapidly scaling it up throughout the year.
We believe me sorry disconnect truly differentiates both neos and our 88 key brands from the competition represents a high barrier for others to replicate.
Most importantly, we believe this program offers tremendous value in convenience to our customers.
We are committed to continuing to invest in this program and recently added an internal regional account manager team that is dedicated to supporting our efforts to expand an increase adoption of Neossance can act by working both pharmacist and with our sales field testing.
As I mentioned at the end of 2019, there were approximately 500 pharmacies into that work, including Agb regional grocery and pharmacy chain in key areas across Texas with an unsurpassed reputation for customer service and loyalty and more than 270 stores that have a pharmacy.
Agb became active within the Neots Rx connect network in mid December and the early results from this partnership are promising.
In January 2020, Dios 80, HD prescriptions grew 4.2% nationwide over December 2019, however, in the state of Texas Neos prescriptions in January more than doubled our national growth percentage, increasing 10.2% over December 2019.
More recently, we finalized the partnership with another regional pharmacy chain that is just increase the total number pharmacies in the neossance disconnect network by 50%. This week to the addition of these 250 pharmacies that are spread across key markets across the mid western region in United States.
In fact, the pharmacies went live just this week and we'd how the launch meeting with our Salesforce yesterday.
Finally, we are in various stages of discussions with additional regional chains that align with our salesforce for corporate footprint and expect to continue to expand the U.S. Rx connect throughout 2020.
These early results far Agb relationship and the addition of an interest from additional regional chains bolster our belief that needless Rx connect give you an engine of growth for our business.
As many of you know we have deployed a specialty sales force of approximately 75 territory specialists that are operating with enhanced targeting tools and resources with a focus on accounts, where we believe we can continue to increase the breadth and depth prescribing.
We use net revenue per pack as a key commercial performance metric at a measure of the overall quality of the prescription volume we generate.
Presented sex already net revenue per pack for the fourth quarter of 2019 was $128 a 32% increase over the same quarter in 2018.
Africa tablet ex already net revenue per pack was $126, a 33% increase over the same quarter one year ago.
This continued growth reflects the significant strides we made in 2019 to shift our business toward operational profitability.
As we saw net revenue per pack increased by approximately 28% from $95 in 2018 to $120 in 2019.
Turning now to our development pipeline, we believe that NTL five owed to our lead development candidate is a tremendous asset with a potential to address a high unmet need for the treatment of chronic salary a condition where more than a third of the patients with neurological conditions, such as Parkinson's disease, cerebral palsy, LS and mental retardation.
Exhibit excessive drooling do an inability to sufficient makes all saliva.
Approximately 1.4 million patients in the United States experienced this condition on annual basis and physician report that are your reserve treatment for only the most severe patients due to treatment limiting side effects and complex dosing regimen associated with currently available treatments.
This results in too many patients being left to suffer with the challenges associated with this condition, but medically and socially.
NPL five owed to offers the promise of a new treatment option to many of these millions of patients and their caregivers with the potential for both an improved tolerability profile and dosing regimen.
In our phase one pilot study evaluating the pharmacokinetic profile of multiple formulations of Ensco five though too in 30 healthy adult volunteers. We met all of this study objectives and the Anto five Boe to formulations. We tested successfully demonstrated the key product attributes that give us the confidence to advance ensco five attuned to further clinical development.
We plan to develop NPL five two as eight orally administered formulation that is likely we dosed only once or twice daily.
The next step for this program.
To initiate a phase one clinical trial in the second half of 2020.
The phase one study will enroll normal healthy volunteers. This multipart study will include single ascending and multiple ascending dose cohorts and allow us to compare oral bioavailability plasma concentrations to the parent compound.
In addition, we also continue to seek opportunities, where we can leverage our existing commercial model with additional product opportunities. As we are confident that newest Rx connect and our Vance analytics platform as applicability well beyond our 80 HD franchise.
These opportunities would 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.
Before my closing remarks, I wanted to take a moment to discuss the ongoing corona virus or covert 19th threat.
We are like everyone actively monitoring what is obviously a very fluid situation.
We have examining all aspects of our business from supply chain to our manufacturing plant to our field sales force to understand and plan for as best as possible for further deterioration of the situation.
At this time, we believe based upon an audit of our suppliers as well as theirs that we have a reliable supply chain.
From an inventory inventory standpoint, we believe that we have on average approximately four month on hand with additional inventory that is located wholesalers and in the retail chain.
We are seeking to further build our inventory levels to help protect against future disruption.
With respect to our field based salesforce to health and safety of our employees our customers and their patients is of highest concern.
We aren't striping, our sales representatives to monitor understand and respect the policies our customers and local government health authorities.
Ultimately in some geographies. This may result in restrictions to customer access for our representatives for some period of time.
In conclusion before I turn it over rich.
I wanted to touch on our vision here it needs that neos.
With a focus on patients we want to ensure that our current products as well as future treatments are readily accessible to not only the patients that may benefit from them, but also healthcare professional seeking to improve the lives of their patients.
We were off to a great start with our 80 HIV business in 2020, and Ensco five go to its poised to advance to the next stage clinical development.
Thank you for your time and interest today, and we look forward to updating you on our progress soon.
Turn it over to rich Thank you Gerry.
As of December 30, Onest 2019, we help $24.9 billion and cash cash equivalents and short term investments we had no draw on our $25 million a our credit line as of December 30, Onest 2019.
Total product revenues were $64.6 million for year ended December 30, Onest 2019 up from 50 million for 2018 and $27.1 million for 2017.
Total product revenues for the three months ended December 30, Onest 2019 were $16.8 million compared to $15.4 million for the same period in 2018.
Total product revenues for 80, HD portfolio for fiscal year, 2019 was $57.7 million compared to $45.6 million fiscal year 2018.
Total 80, HD portfolio product revenues were $14.9 million for three months ended December 30, Onest 2019, compared to $14.2 million in 80, HD product revenue in the same period in 2018.
Full year net product revenues for our generic tussionex were $7 million as compared to fiscal year 2018 product revenues of $4.4 million.
Net product revenue continued to increase reaching $1.9 billion in the fourth quarter of 2019 as compared to $1.4 million in the same period in 2018, 40% increase.
Gross profit for the year ended December 30, Onest 2019 was $39.5 million compared to $23.1 million for the same period in 2018.
For the three months ended December 30, Onest 2019, gross profit was $9.7 million compared to $7.6 million for the same period in 2018.
Gross margin as a percentage net product sales was 57% in the three months ended December 31st 2019, as compared to 50% in the three months ended December 31 2018.
R&D expenses for the fiscal year ended December 31, 2019 were $8.6 million compared to $8.5 million for the year ended December 30, Onest 2018.
R&D expenses for three months ended December 30, Onest 2019 were $1.8 million compared to $2.4 million for the same period in 2018.
Selling and marketing expenses for the year ended December 30, Onest 2019 were $28.1 million compared to $44.1 million for fiscal year 2018.
Selling and marketing expenses were $6.7 million for three months ended December 30, Onest 2019.
Fair to $9.1 million for the same period in 2018.
The reduction was primarily attributed to the smaller Salesforce, we deployed in January 20000 2019.
Gina expenses were $13.2 million for the year ended December 30, Onest 2019, as compared to $13.9 million in the year end Summer 30, Onest 2018.
DNA expenses for three months ended December 30, Onest 2019 were $2.9 billion compared to $3.3 million for the same period in 2018.
Loss from operations was $1.7 million for three months ended December 31st 2019, and improvement of five and a half million dollars compared to $7.2 million operating loss report for the same period last year.
For the full year 2019, we brought down operating loss by $33.1 million to $10.4 million versus $43.5 million for 2018.
For the 2019 fiscal year, our net loss was $16.9 million were 34 cents per share compared to $51.7 billion or $1.60 per share for 2018.
Net loss for three months ended 2030.
Super 30, Onest 2019.
Was $3.5 million.07 per share compared to $9.3 million were 23 cents per share for the same period in 2018.
With that we'd like to now turn the Q and a portion of the call operator.
We will now take any questions. You may have if you have a question prostar, Ron and we'll be putting barbecue.
If you would like to cancel your question. Please press pound.
The first question comes from Louise Chen from Cantor. Please go ahead.
Hi, Thanks for taking my questions here I had a few questions. So first one here is how do we think about the net revenue per pack throughout the remainder of 2020.
And I know you Didnt give sales guidance and but I'm just curious how we should think about the progression into 2020 from 2019.
And then when should we expect the sad Mad phase one data for anti IL five owed to and basically how did you choose these doses that you're going to explore going forward and what are those if you're willing to disclose thank you.
Louise I'll take number one number three and all are never pack and enrich can comment on revenue and then can handle the fiber to question on net revenue per pack as we've discussed in the past that was a major initiative for us heading into 2019.
Really focused on driving increase on the quality of our prescriptions right and trying to remove and.
It out of programs and contracts that were creating negative revenue and you saw the substantial increase year over year in net revenue per pack.
As we go forward, we could see some incremental increases net revenue per pack, but that is not the primary focus we believe like we've achieved the lion share of that as we move forward through 2020, it's about getting back to prescription growth at these much higher net revenue for pack. So hopefully that address your question, there and then which could talk about revenue.
I think taking that forward Louise we really havent provided guidance for 2020, but most of our growth last year in 2019 for 2018 was due to the significant growth in our net revenue per pack, which we don't expect to repeat that this coming year. It will be as Terry said more incremental we will return.
And to ever expect will return to prescription growth were last year, there is pretty flat year over year. So we expect that that will be more of a contributor to growth. We did grow our revenues by over 29% in 2019, I don't think it's realistic to expect to continue to see that repeat.
Since it was driven so much by our pricing changes and lead your question about NTL five owed to we expect this AD mad results in the first half of 2021.
We're confident based upon the modeling work and the pilot PK results that we can add down a path, we're not ready to discuss final dosing.
That as time goes on we'll give more clarity on dosing, but we're very confident that we have at least the twice a day and potentially a once a day formulation and what the ultimate decision may actually be driven by the market and what the market desires.
Okay, great. Thank you.
The next question comes from Ken Cacciatore from Cowen and company. Please go ahead.
Hey, guys just a few questions just wondering what's the percentage of prescriptions now that are going through Neos connect and looking for you to just talk about is it's driving more profitability per prescription or is it just a smoother product experience a smoother experience for both the clinician then the.
Caregiver Keith can you just talked about.
Anecdotally and maybe quality quantitatively difference and where do we think.
We're going to end the year in terms of potential pharmacies and then second question is obviously the salesforce could could probably use another product. So wondering from a co promotion standpoint, we close the putting another product in the bag for your Salesforce. It just seems we're right on the tipping point again getting a lot of leverage.
So just wondering there.
Then also on Corona demand, obviously folks like you're probably right at the tip of the spear in terms of these closures of of both schools. Just wondering if we're going to see a little bit of Corona demand driven issues as we as we work through these next few months. Thanks, so much.
Hi, Ken Thanks for your questions that I'll handle the the ARX connect question than the BD question on product opportunities and increment of Iris.
With the SRX connect we continue to grow a percent of our business that's being followed through new York's ARX today, we're now about 30% and with the addition of a new pharmacy chain. This week, it's my or in the Midwest, We decided that 250 more more pharmacies.
They just went live yesterday on the SRX connect dotcom. So we expect to see that number increase we don't we don't we're not giving the guidance or have a final prediction I will tell you, though we're in active discussions with multiple additional regional chains that would give us coverage over our target geographies and those are in various stages discussions on more advanced than others.
Others, but we're confident that we'll be able to add continue to add throughout 2020 to the network and in my prepared remarks, you heard we're very excited about the early results with ATP. The growth just in the first month in Texas, both through the network and outside the network just overall volume in Texas grew more than double the nation. So we're very excited about it we think it's the.
He strategic driver now as far as the economics in some cases, we actually have better economics in some cases, we have slightly worse economics, Sony and it's pretty much a watch but.
Really what this is it's to your point about this creates and facilitates a much easier transaction for both the healthcare professional including their staff and the patient with the confidence products going to be there, they're going to be able to get it. The claim is going to be adjudicated correctly, and they're going to have a predictable and affordable copay, that's never going to be more than $35 even.
During high deductible season, which we living through right now and I can data towards we get back it's almost unbelievable that during high deductible that they're able to only pay $35 for their prescriptions, we hear time and time again that generics.
During the high deductible season can be 100 150 during $200 per prescription. So we think this what can be a driver it's going to get kicked can you get larger and we'll keep you up to date as we add additional regional chains now with Richard with regard to business development part of our strategy our commercial strategy building the infrastructure building Needless ARX connect building an advance.
Analytics platform is to build the commercial engine, where we can readily add additional product. So we're actively looking for product opportunities to to fit into quarter quoted to our bag and while we call on primarily pediatricians and Sykes.
We may be willing to go a little feel to that because once again, we believe the big value driver and the competitive advantage that we have is through neo starks connect so those at those discussions are ongoing Ken. It is a goal of ours has stated goal.
And so some are in various stages as you know these can move faster slow and we'll continue to keep you updated on that.
With regard to Corona virus, we think we're really good shape here in our plant.
With the supply we have on hand, and with our materials. We conducted a very intense audit as most companies have done to understand if there were any vulnerabilities and we don't see any right now now with regard to our Salesforce. The sure there maybe there's some disruption and we're revising our salesforce that in areas of the country with local government.
Or even if its state if they issue guidance mitigation strategies to avoid contact we will apply to those it's the right thing to do right now as far as predicting any interruption to our business.
Thats pretty unclear, but again much now is this week, we just with the weekly data came out today, we had our highest weak and prescription since mid February 2019.
And during that time in 19 were still unwinding some of the unfavorable contracts that we still had some poor.
Negative revenue generating prescriptions in the system. So we're really confident in most recent performance as we move along here in 2020, but I can only speculate and grow we don't really have a good handle it will be an impact at all due to current a virus.
Thanks, so much.
The next question comes from Jason Butler from JMP Securities. Please go ahead.
Hi, Thanks for taking my question just.
Terms this deal for us for size.
Any thoughts on potential either increases or additional decreases that you could make this year and and then just broadly how you think about investing in the field force size versus continuing to build.
The Rx can that Matt.
Thanks.
Yes, Jason the two or are inextricably linked right. So we constantly exam, we have approximately 75 territory specialists, we constantly evaluate opportunities to tinker with size structure up a couple down a couple of depending upon business opportunity. That's been the focus of ours and we'll continue to strategically look at our salesforce and where and how they're deployed.
OID and the why say they are inextricably linked we've seen such a good early response with a TV in Texas and now to admire and Midwest those additions kind of can help shape, how we view our business opportunity. So we'll continue to look at that both with the existing partnerships, we have and as we add additional partnerships with regional chains going.
Forward. So it's something we've talked about since we made the first initial change and we'll continue to examine this going forward.
Okay, great. Thanks for taking my question.
The next question comes from Gary Nachman with BMO capital markets. Please go ahead.
Hi, good morning, its say on for Gary.
Can you comment on some of the insight that you've gotten from your performance analytics platform and how the sales force is leveraging that data.
And then second what percentage of commercial lives are currently covered or is there any changes in coverage starting in 2020.
And lastly, how should we be thinking about operating expenses for 2020.
90.
Thank you.
Yes, I'll handle that I'll handle the insights and adopters today of on the analytics.
And then any changes to coverage and talk about coverage.
So the insights for analytics, what we're able to do is gave our territory specialists.
Realty to segregate to two segment their physician database and what it does is allows them to quickly follow up on physician to show propensity to adopt it shows quick follow up on physician to add signet ample headroom since making us much more efficient with our where we deploy our the fixed resource of sales.
Representatives time, so, making the choice of where to spend spend the business spend the time with which accounts to drive the business. So this has done that they represent us get this on a daily basis.
Weekly basis, they have access to our head of sales operation to educate them on how and where to target. There's a real focused now on increasing our number of our adopters, which is having a means of meaningful impact on our business. We believe and we as we look at the data there is significant headroom, it's about being focused and and and really keep an eye on understanding how the data can drive.
Your business going forward.
Now as far as reimbursement coverage.
This neossance disconnect basically is coverage to 100% of commercially insured patients regardless of your plan of physician can prescriber product at a patient regardless of coverage will pay no more than $35.
We believe we have sufficient coverage each calendar year, they're always some changes and we had a modest change in I believe one or two plants that had it really we think diminimus effect on our overall business. So going forward, though it's really we focus on for the commercially insured patients we provide coverage for all of them.
Regarding expense guidance, so we're expecting our gross margins to continue to increase.
Leave that in 2020 that will be in the mid to upper Sixtys It could hit 70.
The thing, but mid to upper Sixtys were fairly comfortable with it does move up and down quarter to quarter, depending on our utilization in the factory as well as.
It does trend of course, according to our net revenue per pack.
For operating expenses, we expect that overall, well stay relatively flat year over year. So R&D, we expect it's going to continue in the $8 million to $10 million range.
Sales and marketing expenses in the mid to upper Twentys and DNA in the mid teens I do want to remind you that approximately $6 million to $7 million of these costs are noncash expenses.
And one last comment on on how we use their analytics I think is telling signal, despite reducing our sales and marketing expense by 36%, including an approximately 40% reduction in Salesforce. When you look at the fourth quarter of 2019 versus the fourth quarter of 2018, we only had a 1.8% drop in the total number of prescribers and we.
They'll have a close to 11000 prescribers in the fourth quarter of 2019, and it really points back these analytics, helping our territory specials, helping the regional sales managers really build a business plan around where and how to target and with what frequency.
Great. Thank you.
And I'm showing no further questions in the queue at this time.
Ladies and gentlemen, thank you for participating in today's conference. This does conclude your program and you may now disconnect everyone have a great thing.
[music].