Q1 2020 Earnings Call

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Thank you for holding and good afternoon, and welcome to the Neos Therapeutics first quarter 2020 financial results Conference call. Today's call. This be recorded at this time. All participants are you know listen only mode there'd be a question answer session to follow.

Introductory in <unk> opening remarks, I am turning the call over to Richard It's the site.

So if neos therapeutics. Please go ahead.

Thank you good afternoon, everyone and welcome to our first quarter 2020 financial results Conference call.

Good afternoon, we issued our financial results from corporate highlights press release, which is available on our website at www Dot Neos T X dotcom.

I'm joined on today's call by Jerry Mclachlan or C. O 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 the 95, including statements concerning the impact of the Coven 19 pandemic on prescriptions for the company's products and on the company's business revenues results of operations since.

Financial condition.

Commercialization of its EMS X are already T., cotempla, XR already t. and incentives youre oral suspension.

Financial results up and outlook for our business, including with respect to net revenue per pack script volumes and market share.

Attendant benefits of our commercial strategy, including the result respect, including <unk> with respect to reduction enforce announced today our expectations regarding the brand exclusivity for 80, HD products or patient support program. The S. Rx connect the capabilities of our technology sleep and our research development activities, including the timing and.

Progress of our product candidates, including 85 Boe too.

Future expansion of our 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 expect we anticipate upcoming or similar indications future expectations.

These statements reflect our views only as of today, it's 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 the intended benefits for a new commercialization strategy.

That's a preliminary or early indicators performance may not reflect the actual results of operations for any period.

For discussion of material risks and other important factors that could affect our actual results. Please refer to those container. Most recent SEC filings I don't I'll turn the call over the Gerry.

Thank you rich and welcome everyone.

We'd like to start our call today by discussing the reduction in force, we announced in conjunction with our first quarter 2020 earnings this afternoon.

This was a very difficult, but also necessary decisions for our organization to better streamline costs throughout our business and further strengthen our long term outlook, while accelerating our path to operational profitability.

The reduction in force affects approximately 50 employees are 25% of the company's workforce.

Following these changes the company will have approximately 45 of the previous 75 sales territories.

Which represent approximately 80% of the current prescriber base for 80 HD business.

Additionally, we plan to deploy alternative sales and marketing efforts, including telesales and non personal promotion toward many of the remaining 20% of current prescribers.

We acknowledge this decision impacts many talented employees and we'd like to personally thank them for their contributions to new yes.

Over the past year and a half we've worked to better position deal was for long term profitability and growth.

This reduction in force and the resulting new Neos organization creates efficiencies in our operation that we believe allow us to maximize the financial return for 80 HD franchise over the next several years and focused on or other corporate objectives, which include advancing NT OPI, though too.

Pursuing product opportunities to expand our portfolio of marketed products.

And like many of our peers, we're facing unprecedented challenges presented by Kobe 19.

Unfortunately, despite a strong start to 2024 80 HD business.

As the covert 19 pandemic started to spread in the U.S. and shelter in place restrictions began in mid March.

The situation began to negatively impact prescriptions for the entire 80, HD market and for our 80 HD prescription volumes as well.

During the week ending March six we had a new 52 week high on total prescriptions for 80, HD medications as reported by acute yet.

In the subsequent three week periods through the weekend in March 20 Sevens.

In the impacted the pandemic became pronounced.

We saw total prescriptions for 80, HD products declined by more than 22%.

Since the end of March through the weekend. It may 1st total weekly prescriptions for our 80 HD products are slightly lower but still relatively consistent with the last week of March.

Well, we believe this data reflects the relative stabilization of the market.

We continue to operate in a very fluid situation.

Our sales and marketing organization continues to adapt to this new environment by preparing for near term potential longer term needs for a blend of virtual and lie face to face selling and marketing of our products.

Throughout the covert 19 crisis, we had been able to fully maintain our supply chain and we've continued to suit substantially expand the number of participating pharmacies and the Neos ARX connect network.

Late in the first quarter, we added and went live with an additional 250 pharmacies through another large regional pharmacy chain Meyer and as of May 1st we exceeded the totaled 800 pharmacies in our network.

Furthermore, we expect to reach 1000 pharmacies during the second quarter of 2020.

Doubled the number pharmacies with that we had at the end of 2019.

It remains clear to us that Neos ARX connect is a key value driver and point of differentiation and creation from our competitors.

It is our mission with Neos Rx connect to ensure that patients have access to where 80 HD medications by providing greater confidence about the availability and affordability of their 80 HD medications.

We created the Neo succinic program to provide coverage for all commercially insured patients.

Stabbed bills affordable monthly co pays that remain stable and eliminate the hassles and uncertainties that frustrate health care professionals and prevent patients from receiving their medication.

Furthermore, for many of our physicians and patients during the stayed home period of the covert 19 pandemic.

The ability of our near US ARX connect pharmacies many of them to provide delivery of Neos 80, HD medications to a customer's home or place of work has proved to be a tremendous value add but potentially eliminating unnecessary trip to the pharmacy.

As we've talked about during past calls.

We use net revenue per pack is a key commercial performance metric and a measure of the overall quality of the prescription volume we generate.

We have continued to make positive strides this quarter in this area.

Our blended net revenue per pack for a two core 80, HD products, Dennis ex already and Cotempla XR RTT was $128, a 21% increase over the same quarter in 2019.

These numbers reflect the continued and successful execution against our strategy to shift our 80, HD business towards more profitable business channels and market segments.

Now turning to our development pipeline.

We believe that our lead development candidate and T O five owed to is a tremendous asset.

With the potential to address a high unmet need for the treatment of chronic salary.

A condition, where more than one third of the patients with neurological conditions, such as Parkinson's disease, cerebral palsy, unless and mental retardation exhibit excessive drooling due to an inability to sufficiently swallow saliva.

Approximately 1.4 million patients in the United States experienced this condition on an annual basis.

Physicians report that they currently reserve treatment for only the most severe patients due to treatment limiting side effects and complex dosing regimens associated with currently available treatments.

This resulted in too many patients being left to suffer with the challenges associated with this condition, both medically and socially.

We believe that Ensco five go to offer some promising new treatment option to address this enormous normal unmet need by means of providing both an improved tolerability profile and dosing regimen.

In April we were pleased to announce that United States patent and trademark office issued a patent directed to methods of treating Silenor you buy administering and that's at the ethanol attributes in the active pharmaceutical agreement in Ensco five owed to.

This is the patent we licensed from nor acts in 2018.

And the patent is not expected to expire before November of 2032.

We plan to develop NTL five owed to us an orally administered formulation.

That is likely to be dosed, only once or twice daily.

The next step for this program is to initiate a phase one single and multiple ascending dose clinical trial.

We continue to expect that the phase one ascending dose study of MTO five owed to will be initiating the second half of 2020.

And we will provide an update at this time line is impacted by Cobot 19.

And lastly.

Our organization remains committed.

To continue to seek opportunities, where we can leverage our existing commercial model with additional near the market or on market product opportunities. As we are confident that news ARX connect and our commercial analytics platform have applicability well beyond our 80 HD franchise.

We believe the decision we made today.

And progress we've made since the end of 2018, one shore and accelerate our path to profitability.

Enable further investment in NTL five owed to for the treatment aside Maria.

And strengthen our ability to license or acquire product opportunities to leverage our commercial organization.

We remain confident in the ability of our team as we execute on our vision to deliberate accessible medicines to patients in need but simultaneously working to bring forward new products that significantly improve lives in daily living.

Thanks for your time and interest today, and we look forward to updating you on our progress soon.

I'll now turn it over to rich.

Thank you Gerry.

On May six we announced the amendment of our agreement with Deerfield on deferred $5 billion of principal otherwise there today.

Well now be required to make payments and eight equal monthly installments beginning on September 11th through April 11th 2021.

As of March 30, Onest 2020, we held $31.9 million and cash cash equivalents and short term investments cash burns for the first quarter of 2020 was approximately $1.6 million.

The product revenue for the three months ended March 31st 2020 was $14.5 million compared to $14.6 million for the same period and 29 team.

The decrease was attributable to one fewer selling week in 2019 as compared to 28 team I'm, sorry, 2020, as compared to 29 team and to a substantial reduction wholesaler inventory to below historical levels.

And we believe that revenue may have been negatively affected by decreased utilization of or products that we experienced late in the first quarters all of the covert 19 pandemic.

For the three months ended March 31st 2020, gross profit was $8.1 million compared to $8.2 million for the same period in 2019.

R&D expenses for the three months ended March 31st 2020 were $2 million compared to $3.2 million for the same period in 2019.

Selling and marketing expenses were $7.6 million for three months ended March 30, Onest 2020, compared to $7.1 billion for the same period and 29 team.

Jay Benet expenses for three months ended March 31st 2020 were $4.4 million compared to $3.8 million for the same period in 2019.

Stock compensation, and depreciation and amortization were approximately $1.8 million and the three months ended March 30, Onest 2020.

Loss from operations was $5.9 million for three months ended March 31st 2020, compared to the 5.8 million dollar operating loss reported for the same period in 2019.

Net loss for the three months ended March 31st 2020 was $8 million were 16 cents per share compared to $7.6 million or 15 cents per share for the same period in 2019.

Following the organizational changes, which Jerry discussed earlier, we are updating or expense guidance R&D expenses are anticipated to be $7 million to $9 million for the full calendar year 2020.

Selling and marketing expenses are protected now run in the $20 million to $25 million range for all of 2020.

Gina expenses are expected to be approximately $15 million for the full year.

In addition to these costs there will be approximately $1.2 million in severance and related expenses incurred nicely in the second quarter.

Due to the temporary furlough the manufacturing facility, we expect that gross margin percentage will continue to run in the mid to upper 50% range before returning to the mid Sixtys and the second half of the year.

With that we'd like to now turn to the Q1, a portion of the call operator.

Ladies and gentlemen, we will now take any questions. You may have you have a question press star one you will be put into the queue. If you would like to cancel your question. Please press star too.

First question comes from a line of Louise Chen from Cantor Fitzgerald.

Hi, Thanks, Thanks for taking my question. This is John Kim on for the need. My first question is just on the performance very attentive and content.

The trends that we saw in the first quarter and cannot be attributed to covert 19 are we seeing are you seeing cannibalization from a sense the could template and how do you see those two products growing over the next few quarters and be on 2020 and then my second question is just on entities are finally too.

Hi can you reiterate your level of confidence that initiation of phase one trial.

Whether or not that might be impacted by a little bit 19. Thank you.

Yeah. Thanks, Jim Thanks, so much for the question and good afternoon, and appreciate being on the call.

With regard to performance. So we were very pleased with our first quarter performance and as I mentioned in the prepared remarks, we had posted 52 week high in weekly prescriptions in early March so things are moving into right direction and very little cannibalization from incentives to could temple or vice versa. We were pleased with both products.

And going forward, we don't give guidance on the future growth of the products whoever were enthused by what we've seen as new SRX connect patient support program has hit critical mass. So early in the are we saw a really good results with the first large regional grocery store chain we brought on.

Right as the pandemic him to stay at home measures were put in place is when we admire another 250 stores across the greater Midwest and so we're real excited about that as well. So we think we have an opportunity to continue to bring value to patients, particularly those with a commercially insured patients through near SRX connect and the fact that our program.

With no sorry disconnect really solves a lot of the big issues in hassles that physicians phase and on top of that we have great products, we were well on our on pace to have a sequential quarter with a greater number of prescriptions in one Q of 20 versus.

For Q of 2019, if not for the impacting the in the second half of March from the pandemic. So we're real real bullish going forward and.

Leveraging our analytics platform along with no sorry disconnect to continue to drive growth.

As for your question on MTO, five or too.

We remain on track given a lot of the work now is internal work and working on protocols.

And and leading up to the initiation of the trial. So we remain on track for the second half that said.

We have to continue assess that with any koby 19 related impacts and we'll keep the well keep you update on on that if things change, but for now we remain on track to initiate that trial and the second half of the year.

Hi, Thanks, so much.

Next question comes on the line of Jason Butler JMP Securities.

Hi, Thanks for taking the questions they had to personal can you.

He was any insight to what you're hearing from from doll.

Right now in terms of how they're thinking about new patient starts patient switches et cetera during.

The 19 on the second question can you maybe talk a little bit more about the virtual strategies that you're putting in place or you think about here peer education and then how you think about getting the field force back out you know.

As restriction start cookies later this year.

Yeah, Hey, Jason will thanks for joining thanks for the question.

It's a little across the board right in the in India. It HD market you have to dominate dominated specialty bases psychiatrists and pediatricians.

With the psychiatrists they seem to readily adapt and move quickly to tele medicine and in the adult segment. The market. We saw very little impact early on the pediatric segment with stay at home and with schools being canceled we saw was a bit of a bit of what we think of this early summer with a lot of.

He answered patients going off medication and one of the big challenges during the early days of the pandemic and we'll see how this plays out.

Not a lot of well visits or routine visits where you might you might have an initial discussion in dialogue of 80 H D. A those were down precipitously in this category.

In the weeks is so far the pandemic remains to be seen we hear from from pediatricians across the country that as things open up they are concerned about how busy they will be so.

It's you really can't predict the future, but we know there was an early and and precipitous impact on the H D market. It happened within a three week period. There were some significant reduction since we believe it's approaching stabilization and going forward, it's unclear but.

We have here all kinds of concerns from pediatricians that will be overwhelmed with the patient visits here once the summer comes once things open up.

As for the marketing and Salesforce and how we're engaging a were entirely virtual right now.

We intend to Reengage and in the coming weeks.

Now, we Jason we likely it will be it won't be a sort of an opening day, where every sales representatives add on territory, we will follow local and state and local guidelines and we also will respect the wishes of our customers. So at the same time, we're advancing our education in in retrain.

King and advancing training for our sales representatives, who are and customs and experienced with live selling techniques. We are now training them on the virtual platform and how to articulate over the phone as well and so that becomes a key part and as we go forward. We want a salesforce that has the flexibility to ebb and flow between virtual.

And life selling going forward.

Okay, Great. That's helpful. Thanks for taking the questions sure.

Next question comes from them I know, Gary Nachman from BMO capital market.

Hi, good that good evening, it's Rob pay on for Gary.

Good evening, how should we how should we think about the trend for net revenue per prescription or the rest of the year, especially compared to the cadence last year.

You anticipating any headwinds from just a broader economic crane.

And then secondly, I on the balance sheet say it grew about 9 million on a short term line of credit.

What are the terms of facility and how quickly what do you have to repay that thank you.

Yeah. So I can speak to the first part and then rich can can talk about the line of credit typically the first quarter is our is the lowest quarter over the year for net revenue per pack.

Aside from co bid, we would anticipate that we would see modest increases in net revenue impact throughout the year.

Not the market increases that we experienced last year 2019 that was a primary focus was to increase our net revenue per pack. We think we've gained a majority of that that said, we can we made we expected it could see modest and.

Increasing that throughout the year, but we have taken a large portion of that.

It remains to be seen the impact of covert 19, how that may impact if at all on net revenue per pack going forward rich.

Sure.

And I might add one more thing on.

It is uncertain what happens with Cove and of course of folks leaves insurance you know there there could be an impact there, but I'm still remains to be saying what happens on the short term that its with and seen a our.

In short our interest rate based on.

30 day, LIBOR plus 450, so we're paying in the 6% range for that that it's a revolver I'm not in the true sense, but it is secured with accounts receivable, where you draw off when we hap sales and issue receivables and that gets paid back as receivables are collected so.

We're always I'm, drawing and repaying that so it doesn't have a specific timeline to be repaid we had been very conservative about drawing and the path, but given that.

And dynamic has been going on we wanted to make sure we maintain access to as much cash as we could as most companies are doing today.

Got it. Thank you and then you had mentioned that inventory level at wholesale areas were below or goal at the end up one Q.

You expect that inventory will stay around that level or could there be some restocking and the second or third quarter.

Yeah. It remains to be saying, we're not I'm sure as to why the inventory levels they've come down it could be it was right in the midst of the pandemic.

Yes, Sir you have that breaking out and it could be at the wholesalers were cautious.

Historically, our wholesalers have generally maintain between 21 and 45 days of inventory a little bit more at year end, when our factory and Threepl, usually shutdown for winter holiday in fiscal inventory.

It varies from wholesale a wholesaler at the end of Q1.

The wholesalers for each of our two main products incentive and Cotempla, XR, odcs, where fewer than two weeks of inventory. So we.

We don't know whether they will continue to maintain those skinny levels or they'll build those inventories back up so.

Thank you and then lastly, with respect to business development, what kind of opportunities are you currently seeing in the marketplace.

And what kind of timeframe are you targeting for potential transaction.

Yes, I'll take that we're looking a variety of opportunity some opportunistic right that may or may not complement our existing salesforce.

We are not a ruling out we're not limiting ourselves to psychiatry or PD pediatric so that would be a benefit.

We believe we've built a very strongly and system with Neos ARX connect and we have the ability to leverage that well outside 80, H.D. So we mainly look for on market products, where we think we can bring disproportionate value to it or near term opportunities that do not yet have a commercial partner.

And we like the neurology space, but once again, we're not not limited to that.

Great. Thanks, so much.

Our last question comes on line George <unk>.

No problem.

Kelly.

Hi, guys. Thank you so what you're taking my question. So my first question is with the sales force reduction can you walk us through your strategy more deeply engaging with the remaining prescribers.

And do you expect this leaner and targeted strategy to be permanent and also if you could provide us with emission on the coal some additional details on the alternatives tells in marketing efforts to those 20% of prescribers.

The won't have access to it to your sales force.

Yeah, that's right. So I think they kind of blended together your questions, but but on the Salesforce. We constantly we've we've been doing this over the last year and a half assess our current structure assess our market environment access to assess the profitability of our business.

And what we believe we've done here is it has allowed us to have very workable territories and still maintain coverage of 80% of our top prescribers and so we're real pleased with how this the structuring of the Salesforce has laid out and it gives us the a great opportunity to maximize the financial country.

Fusion of rate HD franchise over the next several years that said in our new White space. There are still a condray of physicians, who are existing prescribers and good prescribers of our medications and so we will expand we that we have expanded our telesales.

As group, we've had to telesales group in place for sometime now.

We will do expand that is as well as in addition to them we will use non personal promotion whether it be in the form of emails endured <unk> old fashioned direct mail.

To maintain a frequency among these prescribers and so we think that can be real effective in maintaining business. In addition, we keep close personal contact with many of these top prescribers across the country. So that will be a it avenue as well so real confident in our ability to continue to maintain that much of that business going going forward.

One thing that's interesting and I think many companies have seen this ur cobot 19 pandemic has in fact forced us to it to adapt and expand our skill sets as commercial organizations.

And we're real proud of how our sales and marketing teams have embraced.

This concept of virtual selling and so we are advancing our training on the ability to virtual so one could envision out of preparation for how the environment may continue to evolve this year and even next year and beyond that we have the capability to have a blend of a sales representatives, who can executing against a blend of virtual selling.

In in live a face to face knowing and we think there's opportunity there to gain efficiencies and increase the frequency of interactions with our customers going forward. So we think this will become more than the norm of how we train our salesforce going forward.

Thank you. This is very helpful and just some Rx connect a personal congratulation on the progress.

Do you could you provide us with any details on the percent of prescriptions that are going through the program and going forward for the rest of year do have.

Ascent goal for the number of pharmacies to you would like to having the program by the end thier.

Yeah, So we have internal <unk>.

Talk first about the presented the business, it's now in excess of 30%.

Of our prescriptions are adjudicated through Neos ARX connect pharmacies. So we're on track and that continues to grow over time, we're very excited and not only with the independent pharmacies, who are network, but these highly reputable strong brands regional regional pharmacy chains, they give us great coverage in the areas.

Requires it or more provides additional opportunity. So we'll can do we expect to continue we continue to see incremental growth and the percent of our business. Its run through near surface connect we think that to our advantage and we will selectively look to add additional pharmacies and or additional regional chains that overlap with our areas of greatest opportunity.

Thank you. This is very helpful. Thank you for taking my questions.

And I'm showing no further questions in the queue at this time.

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