Q1 2020 Earnings Call
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Thank you say.
Good evening, everyone and thank you for joining us.
With me on the call today, Dr. Cheryl Blanchard.
With recently appointed President and Chief Executive Officer of Annika.
I fucked or Cheryl for almost two years and closely alongside her over the past several months during that's highly unusual time externally and internally.
I looked for it to continuing to work with her and the rest of our management team to deliver progress towards our strategic plan.
Drink today's call show and I will review, our first quarter Twentytwenty financial results and keep it says highlights which were summarized in our earnings released issue today.
Copy of the earnings release is available on the Investor Relations section of our website at Annika Therapeutics Dot com.
In addition, slide presentation, it's posted on our website and investors relations section under the event some presentations tap.
<unk> by year to take a moment now to open the file and follow the presentation along with us.
Please turn to slide number two.
Before we begin please remember that certain statements made during this conference call constitutes forward looking statements as defined in the Securities exchange active 1934.
These statements are based on our current beliefs and expectations, including statements with respect to impacts of the code at 19 pen damage on Annika.
These statements so subject to certain risks and uncertainties.
The company's actual results could differ materially from any anticipate it future results performance or achievements.
Please also C.R.S.C.C. filing for more information about factors that could affect our results.
Certain financial measurements, we will discuss on this call our nongaap financial measures.
We believe that by providing these measures helps investors gain a more complete understanding of our results.
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It's consistent with how management views our financial performance.
A reconciliation beast non gaps natural results to the most comparable gap measurement calculated and present it in accordance with U.S. gap is available in the Investor Relations stuff.
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Finally, due to circumstances and disruptions related to the cold at 19 pandemic.
We have estimated the amounts relate it to go well impairment a reduction to the fair value of contingent consideration.
[laughter] relate it to the article surface and park as medical acquisitions.
These non cash amount should be considered provisional subject to the completion of relief accounting work.
Specifically in order to a short accurate and transparent according to our stake holders. The company with his advisors is determining the impact of the evolving cobot 19 situation on these amounts as they relate to the recent acquisitions complete it during the first quarter.
The amount associated with these Q.S. gap measures are reasonable estimates based on the information available.
In our assumptions and judgment to date.
Due to the fluidity of the situation final results could differ from those presented today.
Annika does not expect changes with respect to other reported results except as a result of changes that maybe makes two to the provisional amounts.
With respect to the financial results presented on this call that are not related to good well or fair value of contingent consideration. We do not expect any material changes less result are impacted by events between today and the date, we submit R.S.C.C. form 10, q. for the first quarter.
We intend to use the extra time provide it by the recent cobot 19, S.B.C. filing release measures to determine these acquisition accounting matters.
We plan to file our foreign 10 Q.
On or before May 22nd 2020, but no later than June 25th which is 45 days from the form 10 cues original filing due date of may 11th.
For additional information please see the section captioned clarifying note about financial results in our earnings Pressrelease, We issued this afternoon.
Oh now trying to call over to our C. O Dr. Cheryl Blanchard.
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Thank you Sylvia and good evening.
We hope that everyone joining us on this call remain safe and in good health during this difficult and unprecedented time.
Whether at home or in the workplace, we have all been impacted by the effects of the covert 19 pandemic and our Hearts go out to everyone, who has suffered personal hardship or law.
<unk> also go out to the health care workers around the world who are on the front lines Selflessly fighting this global pandemic.
This is my first quarterly calls and being named President and see no I would like to thank the board of directors for their support during the last several months and for their confidence in my we are ship.
As the board member and then is interim C.E.O.
I realize that I had a unique opportunity to leverage my past experiences to help guide annika through its continued evolution.
[noise] I've successfully led operational and commercial businesses through periods of significant growth scaling.
Integration and even disruption.
I'm very excited and humble to have been chosen to continue working with the Annika leadership team to drive the company's momentum and growth.
As I consider taking on the C.E.O. role permanently I thought about and it goes tremendous opportunity accompany with product that address true on that patient and market needs and the commercial engine to deliver significant value and attractive segments of the orthopedic market.
I thought about Annika strong culture of innovation operational excellence and financial discipline.
I also thought about the recent transformative acquisitions of carcass and Arthur surface and the tremendous growth opportunities they present.
In short over the last several months I have come to appreciate that Annika presents an exceptional opportunity.
Annika has a strong leadership team as well as talented and passionate employees and I had the benefit having already work decide this team long enough to see what is possible as we continue to identify new opportunities to create value for patients and shareholders.
I look forward to getting to know anikas analysts and investors better in the coming weeks and months as we attend virtual and then hopefully soon in person investor events.
Before diving into our first quarter result business update and outlook I'd like to discuss how annika has been navigating the evolving coded 19 environment.
Please turn to slide number three.
First and foremost we have taken the necessary step to safeguard the health and wellbeing of our employees our communities and the patience we serve.
All Annika employees, who are able to work remote we have been doing so since the middle of March we continue to closely monitor and follow guidance from the C.D.C. The World Health organization and state and local authorities in the U.S. and abroad.
I'd like to thank our employees their families and our partners for all of their extraordinary efforts and commitment while adjusting to the new normal of remote work and social distancing.
Our manufacturing operations and supply chain have continued with minimal disruption and employees in those areas are falling best practices and guidance from public health authorities to keep state.
Our team and distribution partners have coordinated closely with medical facilities and surgery centres to ensure locations have uninterrupted access to the treatments in implants they need.
At this time, we do not anticipate disruption to the supply of our therapies for patients due to cope with 19 and are actively monitoring and adjusting manufacturing operations to respond to the temporary changes in customer ordering patterns.
We've been working with the clinical trials sites and other partners to safely continue ongoing studies, while at the same time determining the impact of covert 19 on those studies.
Goals are to maintain patient safety and minimize disruption.
[laughter] to ongoing clinical trials, so that we can accelerate our activities when the code the impact lessons.
We'll discuss those efforts in more detail shortly.
We have also worked with industry partners to donate supplies to meet the urgent needs of health care providers. This includes the donation and delivery of personal protective equipment to local clinics and health care workers on the front lines.
And lastly, we have taken swift an important steps to strengthen our liquidity and ensure that we are best positioned to successfully navigate through the uncertainty of covert 19 and are ready for a strong recovery.
Internally, we have implemented short term expense controls to maintain our healthy balance sheet.
We have also prioritized he business initial.
[laughter] should have to help line expenditures with near term need and to balance longer turn opportunities where possible.
Now I'd like to turn to progress Annika made in the first quarter and highlight some of our recent achievements.
We delivered a decidedly strong total revenue growth of 43% year over year in the quarter driven by double digit growth in our legacy joint pain management portfolio and a strong contribution from our joint preservation and restoration surgical portfolios. Following the recent acquisitions of Parkison Arthur surface.
International Joint Pain management therapies group, 36% year over year horrible thing go revenue close to double year over year.
We continue to expand our geographic penetration of single and recently received marketing approval in Australia.
We ended the quarter with $92 million cash and investment on our balance sheet.
As I noted earlier during the quarter, we close the park is that Arthur surface acquisitions in late January and early February respectively.
We also appointed David color into the newly created position of Executive Vice President General Counsel and corporate Secretary.
These achievements strengthen our ability to successfully executed on our five year strategic plan.
And achieve leadership position in joint preservation and restoration.
Well, we are pleased with our first quarter results and business progress.
19 has impacted our ability to forecast our results for the rest of this year as elective procedures are being temporarily suspended or postponed in countries worldwide.
As a result, we are with.
Destroying our full year 2020 financial guidance, which we issued in February prior to the covert 19 situation impacting the business.
We intend to reinstate our guidance practices when visibility into our future revenue trends improves.
The big question that many including Annika are working to address is how long it will take for elective procedures to recover back to pre covert volumes.
In the U.S. Cobin 19, policymaking is being handled largely on a state by state and even city by city basis. The international outlook as similar as countries are taking varying approaches to combating the pandemic and returning to create covert operations.
The pace of recovery will be phased and regionally determined based on local orders and the overall impact of covert 19.
Well elective procedures have been significantly impacted.
We are continuing to fulfill purchase orders for Orthovisc amount of this.
This revenue is expected to help offset some of the near term impact from procedure delays affecting the legacy Park S. and Arthur surface products and reflects the resiliency of Anikas diversified portfolio.
We are closely monitoring procedure volumes and analyzing trends as we manager inventory, it's important to remember that many of these procedures are postponed not canceled.
Our top priority is taking the necessary steps, so we will be ready to support our customers and the patient space or when these procedures return and making sure. We are positioned to continue our strong growth trajectory post Cove at 19.
Now I'd like to discuss their strategy for the road ahead, let's start with what we know today.
And it goes commercial products and innovative therapies addressed significant and painful orthopedic conditions deliver both as emergency an elective procedures in surgical in our office bass settings at the same time demands on the healthcare system and prioritization.
[laughter] covert 19 cases have resulted in elective and schedule procedures being suspended and delayed.
Because of the importance of the treatments we offer we expect a robust recovery and both in office and surgical procedures once restrictions lift and volumes return to normal levels.
We are actively tracking the situation through multiple channels with the goal of quickly returning to full commercial activity as soon as we can.
We are monitoring leading indicators, including hospital surgery Center, an office based activity and we are in regular direct contact with our customers and distributors.
Painting frequent and productive dialog with commercial and business partners around the globe to determine how regional authorities are planning to safely phase in normal surgical activities.
We are overlaying the data we analyzed with our directed partnered commercial and clinical support team to optimize activity in early moving regions first followed by those areas where impacts will remain for longer periods.
And we are closely monitoring competitive activities across our global network in order to understand and react to developments that might represent an opportunity or challenge to our return to pull activity.
Our ability to continue implementing vigilant analysis, while maintaining readiness and flexibility will be the key to our success.
Our new hybrid commercial model in the U.S. also contribute to the success by enabling us to scale expenses more efficiently, particularly during this period of uncertainty and respond more rapidly as regional procedural volumes gradually returned to normal level.
Please turn to slide for.
With respect to clinical trials, we have adopted a policy of safely maintaining existing programs with a focus on safety and responsibility to the patience and health care professionals at the clinical trials sites.
Consistent with recent F.D.A. guidelines, we are fully engaging all key stakeholders in the clinical trial ecosystem, including investigators patients facilities and service providers where applicable.
For ongoing trials, we were leveraging virtual communication tool and delaying in person visit.
Additionally, we have differed new patient enrollment and new trial site initiation due to cope with 19 related challenges.
Because of these factors, we no longer expect to begin the single pilot study in the first half of this year.
Fortunately the pilot study was at a relatively convenient point for a temporary pause and activity as preenrollment activities are substantially complete and we have not initiated patient enrollment.
We are eager to begin enrolling clinical sites and patience as we continue to closely monitor the situation, we intend to commence the pilot study as soon as we can safely do so.
Enrollment in the Hyalofast phase three trial was also impacted in the first quarter and was temporarily pause in April as a result, we no longer expect to complete patient enrollment by the end of this year.
Are actively managing the trial activities to minimize disruption.
Prior to covert 19, we made efforts to improve the pace of trial enrollment by expanding new sites in several countries outside of the U.S.
We have identified and completed much of the pre initiation site activities at clinical psych locations in Mexico, Indonesia in the Philippines.
That are well qualified to complete initiation and begin enrollment as soon as it is safe to move forward.
On the product development fronts, we previously anticipated submitting if I can k. application to the F.D.A. for our rotator cuff repair therapy in early 2021.
In light of covert 19, we are withdrawing this expectation at this time.
We will provide any more definitive timeframe for the single Hyalofast and rotator cuff development programs. When we are able to restart normal trial and development activities and have more visibility on the length and regional impacts of the covert 19 pandemic.
Turning to slide number five.
Provided an update on the ongoing integration activities associated with our recent acquisitions of purpose and Arthur surface.
In February shortly after completing both transactions, we held our first national sales meeting with the combined commercial teams.
Wasn't exciting high energy gathering of direct sales team key partners and executive.
All armed with a common vision of well defined goal necessary tools and the road map to achieve them.
The result was in energized team creative ideas for cross showing opportunity and encouraging momentum as we look to grow the business from a larger and more diverse product base.
In recent weeks, we've had daily product cross training sessions to educate the global commercial team on the newly combined product portfolio.
Since early April we have also continued to engage with the surgeon community through our Annika virtual medical education program.
He's our virtual sessions, focusing on surgeon peer to peer training on our products.
We expect medical facilities to start reopening for elective surgical procedures around mid year with the pace a procedural volume's potentially accelerating in the second half of the year.
We are taking all the necessary steps to ensure our commercial team is ready to hit the ground running as soon as it safely possible.
It's very exciting to see three teams, becoming one particularly in light of this global crisis.
This is field, a passion across or organization to fully leverage our innovative product portfolio to help patients in need our team is aligning and his energized as we look to the future and this and next important chapter in in a good story.
I will now turn the call over to Sylvia to review, our first quarter 2020 financial results.
Yeah.
Thank your Cheryl.
Please turn to sign number six.
I'd like to begin by revealing are three new product categories for which were reporting revenue following the expansion of our product portfolio into therapy for joint preservation and restoration.
First is the joint pain management family, which includes the human and animal fiscal supplement products, including Monovisc single and Orthovisc.
Second as the orthopedic drunk preservation and restoration family, including <unk>.
Fast and sports medicine surgical products from pockets and uncle surface.
And lastly, the other category, which includes legacy products such as ophthalmology.
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<unk> sheep record Q1 revenue despite the cold at 19, pandemic, which n. packet our first quarter of results.
Total revenue for the first quarter of Twentytwenty increased 43% year over year.
For 35.4 million compared to 24.7 million and apply year.
Revenue growth for the quarter, what's driven primarily by orthopedic joint preservation and restoration products due to the acquisitions of Parkison article surface, which contributed a combined $6.8 million of revenue during the quarter.
Further our joint pain management for folio delivered worldwide gross of 12% here over here.
Domestic joint pain management revenue increase 7% year over year for the quarter and international joint Pain management revenue increase 36% here over here for the quarter.
Cost of <unk> revenue, R., and D.S.G.N.A. expenses, and a quarter for 34.7 million compared to 19.2 million and the first quarter of 2019.
Costs applauded revenue increase 6.9 million due to robust top line Grove <unk>.
Include at $3 million of acquisition related amortization expense.
Selling general and administrative expenses increased 6.8 million, which reflected 4.2 million of acquisition related expenses in the first quarter.
In addition.
G.N.A. expenses also included increased selling and marketing expenses related to the to newly acquired companies Parkison Arthur surface that brought expand it sails.
Marshall infrastructure to Annika.
As I noted earlier for consulting with our external advisers to determine the impact of the evolving covert 19 situation on the impairment of the goodwill.
And reduction to their fair value of contingent consideration associated with the recent acquisitions of park as an article surface.
The estimate the impact of the cold at 19 pandemic on recently acquired companies resulted in a provisional $20 million of noncash could well impairment charge.
Total operating expenses for the first quarter of 2020 also included 24.3 million of reduction and fair value relate it to acquisition contingent consideration liabilities.
Which was recorded as a benefit and a first quarter.
The amounts discussed are provisional in nature.
We believe these estimates are reasonable based on the information available and judgments mate to date and are subject to potential changes.
Based on these provisional estimates net income for the quarter with $3.5 million for 24 cents per diluted share.
Parents to 4.5 million or 31 cents per diluted share in the first quarter or 2019.
Nongaap adjusted net income for the first quarter of 2020 increased by $2 million year over year, two 6.5 million or 45 cents per diluted share.
Adjust to eat the dog was 9.5 million for the quarter compared to 8.3 million for the first quarter of last year.
The increase in adjusted EBITDA was primarily due to total revenue growth, partially offset by increasing cost a product revenue and selling a marketing expenses.
Adjusted EBITDA is defined by the company as U.S. gap net income, excluding depreciation and amortization interest in other income or expense.
Income taxes sharebased compensation expense.
Acquisition related expenses.
Cash charge related to good well impairment and change and fair value of contingent consideration associated with our recent acquisitions as a result at the code at 19 pandemic.
And 2020.
Acquisition related expenses consisted of professional service fees as well as amortization expenses associated with the parkers anarcho surface transactions.
These are cost that the company would not have incurred except at the direct result of the acquisition.
And the first quarter, we used $93 million from existing cash on our balance sheet to funky upfront payments pretty acquisitions of park as an article surface.
We ended the quarter with a solid $92 million in cash and investments on our balance sheet.
In April drew down $50 million on our existing credit facility to strengthen liquidity in light of covert 19.
We have also implemented a number of short term expense controls and are prioritizing business initiatives to conserve cash flow and continue selected investments in critical strategic initiatives for future growth.
The credit facility maturity in October 2022, and we can make prepayments without penalty.
The clickable initial interest rate is approximately 2% for the 50 million dollar draw down.
The credit facility also has a 50 million dollar accordion, which is a feature that we could potentially access in the future.
Sharyl mentioned were withdrawing our financial guidance for the full year 2020.
Until our visibility into revenue trends in purse.
Importantly for long term fundamentals of our business remain strong and Annika is well positioned to successfully navigate this period of uncertainty.
For now ready to take her question. Thank you.
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Cheryl will turn a call over to you for closing remarks.
Great. Thanks Sylvia.
As you heard today and from nearly all companies in recent weeks. This is certainly not a business as usual moment in time.
There's simply no playbook for how to emerge safely and effectively from a global pandemic.
However, I can assure you that annika its position very well, the whether the impact and emerge stronger than before with renewed purpose and vision and then enhanced organizational structure that will enable us to deliver meaningful therapies to patients and they'll you to shareholders.
Thank you for your time today, we look forward to updating you as we continue to deliver progress on our strategic initiatives.
Oh, great evening and to me stay well.
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