Q1 2020 Earnings Call

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Time, all participants are in listen only mode.

It is now my pleasure to turn todays program over to Mr., they're pretty small president and CEO Athena Pharmaceuticals. Please go ahead sorry.

Thank you Pasha, good morning, everyone and welcome to <unk> earnings Conference call for the first quarter 2020.

My name is art Rosebel I'm, the CEO and joining me today, the Stephen carry our Chief Financial Officer.

Trick wash and then I Board member, who will be stepping in as interim CEO upon my departure.

Before we begin I want to refer everyone to forward looking statements language in this mornings press release.

I ask each of either and do it carefully as important context for this conference call.

[noise] discussions will also include certain financial measures that were not prepared in accordance with generally accepted accounting principles.

Reconciliation of those non-GAAP financial measures can be found in our earnings release.

Stated today.

And I reported first quarter 2020, net revenues of $49.8 million adjusted non-GAAP EBITDA $17.6 million worth 35% of net revenues.

And adjusted non-GAAP diluted earnings per share of a dollar for.

Our first quarter numbers met our internal expectations and Steve will provide you with additional commentary on our financial results.

In January we closed our acquisition of Americans marketed products and pipeline.

The acquisition increased our commercialize generic product portfolio by nine products from 35 to 44.

Throughout the first quarter, we launched five generic products further expanding our generic product offerings to 49, and our total commercialize offerings, including brands the 60 product families.

In March we filed our prior approval supplement for quarter, often gel and received the PDUFA date of July 20, Threerd 2020.

After that filing as announced we received the refusal to file letter from the FDA and as a result, we will request they type they dealing with the FDIC in order to discuss the deficiencies identified in the refusal to file letter and our plan to address each of them.

As you know Friday as my last day as CEO of Ana I.

I would like to take this opportunity to welcome Pat Walsh, because the interim CEO the at all.

That joined the and I boarding 2018 and has extensive pharmaceutical industry experience.

So as a CEO and that's a board member.

This experience will serve to complement and enhance our commercialization efforts.

Finally, I want to sincerely. Thank my senior staff and all of our employees for their contributions to our success. During my 11 year tenure as CEO.

Together, we have built and I from a small private company to a thriving public specialty pharmaceutical business.

During that timeframe, we have reported record annual net revenues since 2013, increasing revenues from 30 million in 2013 to nearly 207.002 million seats.

At the same time adjusted non-GAAP EBITDA has increased from seven and a half million.

2013 to over 83 million in 2019.

The the solid balance sheet continue to generate positive cash flows while maintaining reasonable leverage levels.

These results are further testament to the team at an eye.

As they were generated against the backdrop, the tough business environment for generic pharmaceuticals.

Finally, we continue to have a compelling portfolio opportunity for quarter often gel.

Still remains transformational for and I.

As I had to park I continue to remain excited about and ice futures.

Ill now turn the conference call over to our Chief Financial Officer, Susan Carey Who'll provide you with more details on our financial results.

Thank you are and good morning to everyone on the call.

The first quarter of 2020 has marked a period of significant activity yet and I.

Throughout the quarter, our team was disease successfully integrating a sizable generic product acquisition.

In March our core trunks and development team filed the SNB eight for core trucks in jail.

And is currently in the process of requesting a type b meeting with the FDA.

To address the deficiencies identified in a recently received refusal to file later.

And in recent months, our dedicated team of over 300 employees have rallied to continue to serve the public health care system in the midst of the covert 19 pandemic.

During this time, we also say goodbye towards a party president and CEO Arthur principle.

Who after leading the growth of and I over the past 11 years. It's the party in the company effect of this Sunday may 10th.

On behalf of the board of Directors Senior management, and all employees of and I I think art for his numerous contribution to the company.

And wish him well in future endeavors.

His legacy is highlighted by the organization has assembled and in such he leaves the company in the hands of the strong management team, who remain tirelessly committed to a and I ended stakeholders.

Our board of Directors is currently conducting the search for arch replacement with Heidrick <unk> struggles.

And in the interim we welcome Patrick watched a member of our board served as interim CEO.

In January of this year, we acquired the U.S. generic product portfolio of American pharmaceuticals for $52.5 million.

We separately purchased $4.3 million of the inventory, resulting in a total day, one consideration of $56.8 million.

The U.S. gas the allocation of purchase price resulted in the capitalization of $45.2 million product related intangible assets.

And $8.4 million of inventory, which include the step up in fair market value of $4.1 million.

As well as a 3.8 billion dollar charge for in process research and development.

During the quarter $2.7 million of the inventory step up was expense the cost of goods sold.

This along with the 3.8 million dollar IP R&D charge had been added back for the purpose of calculating our non-GAAP measures.

Net revenues for the quarter ended March 31st 2020 were $49.8 million down $3.1 million or 6% from prior year levels.

Driven by an 8.4 million dollar reduction in our brand sales.

Sales of our generic product offerings were up $5.9 million or 19% over prior year levels.

Driven by the launch of bank of Myosin oral solution and the addition of the a marriage and portfolio.

These gains were tempered by year over year declines in is that about some of that and yes, and yes to all of which sustained competitive impacts over the past year.

Gross profit adjusted for the 2.7 million dollar impact of the purchase accounting and an 800000 dollar reserve against for till we finished goods inventory was $31.4 million for 63% of net revenues.

As compared to $38.2 million or 72% of net revenues in the year ago period.

The approximate nine point reduction in gross margin was principally the result of negative mix and increased royalties due to profit sharing arrangements on the products acquired from American.

Excluding the after mentioned IP R&D charges in the quarter research and development expense was $2.6 million as compared to 4.4 million in the prior year.

Reflective of a decrease in expense related to the core triumphant project.

As we begin to complete our development efforts.

During the quarter, we've built an additional $4.6 million of cultural fit raw material and apiay inventories to ensure that we have adequate launch quantities in anticipation of enough the approval of our filing.

These amounts were expense to the P., an l. on a GAAP basis and added back for our non-GAAP measures.

[noise] adjusted non-GAAP EBITDA of $17.6 million was down 4.7 million from our prior year, principally due to the reduction in net revenues and corresponding gross profit.

Our first quarter GAAP loss of 59 cents per diluted share includes $6.4 million of the marriage and purchase accounting related charges.

As detailed on table for of this mornings press release, our adjusted non-GAAP diluted earnings per share is one dollar and four cents for the quarter as compared to $1.30 cents in a year ago period.

As of the March 31st balance sheet, they we had $20.4 million avant restricted cash.

This balance is reflective of $55.5 million of cash paid in the quarter to purchase the a marriage and portfolio.

$1.5 million of capital expenditures and $15 million of borrowings under our revolving credit agreement.

During the quarter, we generated $1.7 million of cash from operation.

This figure is lower than a typical quarter for 89 due to the fact that while we had significant initial sales of the of the a marriage and product portfolio.

The lions share of the receivables related to these sales will not be collected until the second quarter.

The 15 million dollar draw down on the revolver, which directly attributable to our purchase of a marriage and.

And we currently anticipate seeing this amount down as the year progressive.

Total net debt on the balance sheet they increase.

$281.2 million as compared to 125.2 million as of December 31st of 2019.

Driven by the use of cash on hand to purchase a marriage and.

This figure represents 2.3 times net leverage on a trailing 12 month thesis.

Looking forward, we continue to expect to reinvest our cash flow from operations in business development opportunities.

In addition, 60 million of the 75 million dollar we bought revolver portion of our credit facility remains Undrawn and provides us with flexibility and continue to pursue further business development transactions in 2020.

Regarding forward looking guidance, we're closely monitoring the impact of the novel Corona virus pandemic on our business.

While we did not incur significant disruptions during the three months ended March 31st 2020.

We are unable to predict the future impacted the cobot 19 pandemic will have on our business financial condition and results of operation due to numerous uncertainties.

These uncertainties include the scope severity and duration of the pandemic. The actions taken became contain the pandemic or mitigate its impact and the direct and indirect economic effects of the pandemic any containment measures among others.

Given these uncertainties, we're suspending financial guidance at this time.

At this point I would like to introduce Patrick Walsh, who currently serves on Annise board of directors and will be stepping in as interim president and CEO Pat.

Thank you Stephen art, well I'm delighted to serve as the interim CEO and the company and having served as an independent director since 2018 I.

Obviously, believing the company's mission and growth objectives.

Will bid on my background my career spans over 35 years and the pharmaceutical industry in a variety of high growth organizations, including CEO roles in five pharma companies and have served as a director in 12 organizations.

In addition to and I are currently served as an independent director for two pharmaceutical businesses. While also serving on a part time basis, it's an operating partner Dan percent capital.

Private equity health care organization.

My summary, buying as outlined in the company's recent filings and I look forward to working with the leadership team during the executive search process for the new CEO the company.

Finally, I'd like to express my personal thanks to our two leading the company through an exceptional growth phase that is as it allows a new leader to inherited stable and well positioned business art I'll turn it over to you for closing remarks.

Thank you Pat Thank you, Steve I'd like to thank all of you for attending our conference call today.

As a continued long term shareholder I look forward and nice continued growth and success.

The next morning.

Right.

Thank you ladies and gentlemen.

Today's conference call.

Exit you now disconnect your lines.

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Ladies and gentleman today's conference call has any you may now disconnect your line.

I see operate as a reminder, today's call has indeed be thank you for your participation and ask that you now disconnect.

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