Q1 2020 Earnings Call

Good afternoon, and welcome to eat Pharmaceuticals, first quarter 2020 financial and operating results conference call at this time off which is thought to listen only mode.

Following the formal remarks, well open the call for your question.

Please everybody just call it they recorded at the company's request at this time I like to turn the call over to David Crumple, Vice President business development in Pharmaceuticals. Please proceed.

Thank you operator, good afternoon, everyone and welcome to Eaton's first quarter 2020 conference call. This afternoon, we issued a press release that outlines the topics we plan to discuss on todays call. The releases are available on our website Eaton pharma dotcom.

Joining me on our call today, our Sean Bridge Elsner, CEO Wilson Troponin, our CFO and Paul Stickler, our senior Vice President of sales and marketing.

Before we begin I would like to remind everyone that statements made during this call may contain forward looking statements and involve risks and uncertainties that could cause actual results to differ materially from those contained in these forward looking statements. Please see the forward looking statements disclaimer in our earnings release and the risk factors in our company's filings with the FCC.

Now I will turn the call over to our CEO Sean Brynjolfsson.

Thank you David Thank you everyone for joining us today, we're looking forward to providing you with an update on our first quarter results and our expectations for 2020 M. beyond.

First off I'd like to start with the buyouts in commercial launch, which unfortunately has been negatively impacted by cold, but not too because many of you know we watched by orphan in December 2019, and signed a co promotion deal arrangement with excel the a in January of 2020.

We were just beginning to roll out our full commercial launch activities and getting traction with customers and Colbert 19 disrupted the elective surgery market.

This unprecedented decline in surgical procedures are the hospitals across the country has resulted in a meaningful decline into man for injectable federal law firm in general.

Moreover, getting hospitals to change their current operating norms in the midst of a crisis is not optimal for any new product launch.

Secondly, the cobot crisis was interrupted our sales and promotional plans for by orphan for example, hospitals across the country of an active policies limiting and person visits by sales reps. This is clearly hindered our ability to get the face to face meetings with the key decision makers that would drive hospitals to switch to buy orphan.

We also plan to introduce by offering a pharmacist doctors that important industry conferences throughout 2020. These conferences have been canceled due to cope with nine team, which is also eliminated one of the most efficient ways for us to drive promotion and awareness of the product.

However in response to these challenges we have launched targeted digital promotional can't campaigns, which we expect to drive awareness of the product on investing in a vial format, which is also preferred by most caregivers.

I would add that we remain very optimistic that the surgical volumes will start to normalize in the near term and our sales teams will be able to have on site visits soon we know this crisis will Palestinian remains excited about by orphans long term prospects and are targeting of achieving 4 million units annually. The market is there the need is there.

The timing Unfortunately was not optimal for us to launch in Q1, but we we do believe that the uptake Oh and the adoption of by orphan has a value to the community and to the hospitals into the patients and we remain committed to the product into driving the cells.

Turning now to our newest addition to our portfolio L. Candy Sprinkle in March we were very excited announced acquisition of U.S. marketing rights tell candy sprinkle.

We view this acquisition as transformative for our company and we believe L. Candy sprinkle has the potential to be the highest revenue product in our portfolio.

Okay Sprinkle, it's an orphan drug currently under review with the <unk> as a replacement therapy for adrenal insufficiency in pediatric patients. Our partner Journal group has already launch the product in Europe and has seen strong sales and rates of adoption, we're very optimistic about its potential in the U.S. market and have conducted detailed marketing.

Studies to support this enthusiasm.

Eaton is also working hard to prepare for launch activities and we believe and I will be had a good position to launch the product in the fourth quarter of this year. That's approved on its Purdue for date of September 29th, which we fully expect to further support the launch I announced last week political has joined the company as our senior Vice President of sales and marketing.

Paul joins us from Recordati rare diseases, where he successfully commercialize the number of orphan drug products.

He brings the ideal experience to launch a pediatric orphan product like El Candy Sprinkle and is very excited about leading this effort.

The rest of our pipeline has also continued to progress nicely.

Most notably in the quarter, we announced that our cystine hydrochloride, India has been accepted for review by the FDIC and has been confirmed to be among or to be the first paragraph four challenge against the innovator product our development partner has been selling the product in the current form since at least 90 90. So we're very confident that we will be able to over.

Turning to innovators patents, which could allow for us to launch the product as early as next year.

We provided additional detail project updates in the press release, so I won't go into.

Project by project due to all in all of the projects, but in summary, we have to we have four additional new drug application submitted this year, we expect to have four additional new drug application submitted this year and at least two product approvals in the second half of the year.

As you can see we're expecting 2020 to be a big year for our pipeline that continue to believe we will have one of the strongest most attractive pipelines in the pharmaceutical industry with that I would like to turn it over to our CFO Wilson treatment to discuss the financial results.

Thank you Wilson.

Thank you Shannon revenue was zero point $1 million for the first quarter 2020, which resulted from sales of by orphan.

Eaton record sales for by orphaned when the product to ship to wholesalers and distributors as a result reported revenue isn't already not always aligned with end user demand within a given period due to changes in inventory in distribution channel.

Customer demand for by orphaned exceeded Eaton's reported sales in the first quarter of 2020 due to large stocking orders placed by wholesalers in the fourth quarter of 2019.

As previously discussed by orphan sales volume was also adversely impacted by Cobot 19 pandemic.

Even so revenue of 0.5 million in first quarter of 200 2019 resulted from the upfront payment associated with it in 100 asset sale Taposh health in February 2019.

Research and development expenses were $6.3 million that first quarter 2020, compared to 6.5 million for the same period in 2019.

R&D spending for the first quarter 2020 included 4.8 million of onetime licensing payments to acquire the U.S. marketing rights 12 Candy sprinkle.

First quarter of 2019, R&D spending included 3.4 million of licensing payments to acquire the rights of by orphan into two or three and each one of four.

General and made of expenses were 2.6 million for the first quarter of 2020 compared to 1.6 million for the same period of 2019.

The increase was primarily driven by higher marketing and distribution costs for by orphaned commercialization.

Legal expenses associated with Eaton's pellet patent challenge against Accella Pharma Sciences, else's product and higher employee compensation costs.

Reported a net loss for the first quarter of 2020 of 9.0 million compared to a net loss of 7.4 million for the same period of 2019.

As of March 30, Onest, 2028 reported cash and cash equivalents of 12.3 million.

In March Eaton announced a private placement of 7.8 million of common stock in conjunction with the Alcan de sprinkle acquisition.

7.5 million to stack proceeds received in the first quarter. However, zero point Threemillion was received on April 2nd and it was not included in the first quarter cash balance.

Additionally in May the company received 0.4 million of proceeds from a loan through the paycheck protection program under the federal Corona virus, eight relief and economic Security Act.

Eaton currently has two point onemillion available liquidity undrawn from its credit agreement and will be entitled to an additional 3.0 million of capacity upon the approval. So mm 100 and can be sprinkle.

We would now like to open up the call for your questions operator.

Thank you.

This is Dan I'd like to ask questions. Please press Star then one.

Hello.

If your question to answer.

MCU. Please press the capacity please standby, while we could probably.

Our first question comes to answer to double B Riley FBR. Your line is open.

Thank you very much for taking my questions and I'm very glad to hear everybody sounds healthy.

So just to start off with al can be sprinkle.

You mentioned that being a likely the largest offering that you have in your pipeline.

Can you help me understand how you get there just comparing it to the European sales, thus far and then looking over the revenue Covenant that you have a with your co marketing partnership.

Well biowarfare and it just it seems like.

There's maybe some some some Bakken and love math that just need a little bit explaining second better understand the trajectory there.

Sure I'll start off with the by orphaned question and then I'll turn over the L. King the question to all Paul.

So with by orphan is really matter of.

Having our ability to have to launch the product which were hampered at the moment we cannot.

So in one sense, yes, they're not in compliance with the covenant, but it's also not necessarily attributable to their performance.

Part of that transaction was to.

Helps accelerate.

The selling a promotion of the product.

Currently we are not able to get into the hospital were not able to detail the product nor are we able to turn the conference.

Which shows the product is the only ready to use front a lot for in the United States. We know the market is there we know its strong and.

We know that.

Hospitals.

Would would adopt a product, especially if we can.

Forget the freedom to actually promoted.

In the meantime hospitals are sampling they are buying we are seeing it uptick.

In terms of the number the total number of hospitals, but I think we'll be able to get greater traction on that over the next three to four months.

I'm, sorry, I think.

I think you may have.

I would I was just saying it was the the the expectation that you have four by orphaned when examining the covenant is that it would be a very large market. So it's actually saying how does how can be sprinkle a get to more than that.

Then just the co marketing agreement has a covenant that so high and I'm, assuming that's an expectation that you would have that you would like to hit just what the partner right. So basically I was trying to figure out I'll Candy sprinkle.

How does it get to being more than by orphan when we know just with your co marketing partner you have a 42 million dollar.

I'm, sorry, I thought you were asking about by orphan Okay. So am I felt Kent is well with the acuity sprinkle.

We have a royalty agreement with terminal we do the sales in the promotion aspect of it we will be putting in place our own sales team.

I'll, let Paul go ahead and elaborate on your question.

Yes. Good afternoon, Andy This is Paul Steckler.

In reference to the European experience diurnal has had some some good experience thus far and we've been really focused on the rate of adoption and the percentage of patients that have been taking out candy and the adoption rates. We've seen in Europe have actually been very encouraging and so if you extrapolate those adoption rates to account for U.S. population.

Size and expected pricing the implied sales numbers actually quite meaningful.

Further as we've stated before or there is a company stated before we felt that market size is a little north of $100 million. If you include all the diagnosed patients.

So as such we believed that our candy will be in a strong position to achieve significant portion of the market opportunity.

At this point so we're very excited about the prospects for meaningful ill candy sales.

Okay, great. Thank you for that.

And then I was just curious you mentioned as it relates to buy orphan.

The number of surgeries declined obviously, that's true architecture from elective standpoint I thought.

Phenylephrine was primarily used and C sections.

And I know that isn't what that is one of the uses correct, but that's not the primary use believe it or not the primary use is an elective surgeries because it's all elective surgeries.

If you need operations or could be a variety of things.

Certainly at Ken and his used and labor and delivery and so.

Part of the market is still there.

Yes, it's the conversion process of being able to get into the hospitals that has hampered us when we have a small inside sales team are calling on the hospitals to try to get that mass conversion is what the challenges and tell you. The truth when we're in a crisis situation like we are hospitals don't want to.

They are focused on cold weather not focused on new products or enhancements at this point.

We know that ultimately the conversion will occur it's just the ramp rate on which that will occur hospitals that have bought by orphan.

We're seeing reorders of that product.

From a loss from the majority of those who buy buy orphan will then reorder it.

We would expect once we converted from the amp to the vial of that will significantly grown we expect to have that filing and before the end of year.

Okay that makes a lot of sense actually.

And I get it.

Very quick channel checks it does seem like.

The compound versions of found laughing are still being utilized.

I understand covert 19, obviously.

Great creates a lot of just logistical issues, but.

Is there a way to expedite.

The the restrictions from Compounders since your your product.

You mentioned meets that criteria or while this is going I'll cover 19 is it just it too much of a disruption to health systems for it to be viable.

I think both points are valid.

First point, we had a meeting with the agency with the FDIC they fully agree that.

Ready to use compounded copies of by orphan.

It should not and are not allowed to be sold.

That doesn't mean that they aren't.

You've got doctors, who really many of them don't even know the difference between a hefty approved product in a compounded product and what I mean by that is they don't always know when they received the product whether it was compounded or ft approved I don't mean, they don't know the difference I mean, when they receive it they may not fully under appreciate that it's a compounded product.

They are using so you need to do show identified that at the pharmacy level because the pharmacists are the ones that are doing the ordering and beyond that.

You really should go to the administration with hospital to communicate that.

There is an FDA approved version of a funnel upfront that to make copies is not in compliance with the rags.

And drive conversion not just from the pharmacy level, but from the administration level and we're doing both of those as well as working with the agency, which fully supports our position.

We're also.

Monitoring the.

The rate of enforcement of that the agency is is exercising their not exercising as much enforcement. The these days against Compounders due to co bid, but we would expect that situation the change.

Thank you Thats good color just one point I wanted to ask about your response, you said that.

The.

FDA would allow that kind of a cease and desist with the same formulation as bipolar thing or are there. Other phenylephrine formulations that are different than by orphan that are being created by compounds that are sold and if so with those fall outside of that.

Exemption.

Well that would that depends on who you ask us. So if if somebody is tweaking a formula. So they can say, it's different but doesn't really have a clinical difference, which they don't.

That's an issue that's really the copy of the rule is called the essential coffee rule. They use the word essential and that it may not be an exact copy but is distribute it's essentially a copy. So if you make a product that has a 10% less potency or 10% more potent where you add some sort of excipient in there for all intensive.

Purposes that has the same clinical effect and therapeutic effect, you're making a copy of the product.

It's just it's really trying to game the system, which the agency is well aware of that compounders utilize that tactic.

They've been sued by other companies as well certainly you know about the base a pressing case, which.

Which was one by the pharmaceutical company against Compounders, We don't really see this is any different.

We think will.

Companies are out there components are out there making copies of their bypassing the FDA approval process other undermining the approval process and they're encouraging.

More of that type of behavior.

Okay. No that's great color. Thank you very much and stay healthy and best of luck going forward.

Thanks, a lot.

Our next question comes from Ram Selvaraju of H.C. Wainwright. Your line is open.

Hello. This is Mike speaking on behalf of crops abroad.

So my question.

Just one outstanding question.

Have you ask contain how much you must come on exists with the al can be sprinkle product.

If so could you provide some granularity in additional color on this.

Sure the.

Patient population is right now our estimate is five to 6000 patients.

And we know that that could segmented and so by that I mean, those who are 17 years and younger.

Would be approximately the range it actually could be higher than that so thats I am just providing an estimate on it.

We're going to be pricing it less than a lot of orphan drug products, but.

Consistent in that range.

So that's sort of how we come up with our market estimate.

Thank you best of luck.

Sure.

Thank you again, ladies and gentlemen, select asked a question. Please press Star then one when you touched on Telecom. Our next question comes from break Taconite of Lake Street Capital market. Your line is open.

Hey, guys. Thanks for taking the questions just a couple of for you here today, hoping you could give us a little background and update around the different commercial activities for your respective products right now, we got by or from a big Neely.

Welcome to onboard for can be and I was curious it slam on what's going to extend our if the thought process is to keep flamel in house with.

Paul onboard now or if there's a different thought process. So just looking for an updated commercial organization top process.

Sure. So Paul why don't you all first address L. candy and Lamar Trudging as well you know the neurology overall, the neurology franchise and what our plans are for that sure. Thanks, Sean So with regard to L. candy.

What were what we're looking at.

Working towards would be an organization is small efficient organization to support.

Ill candy sales dedicated to calling on pediatric endocrinologist. It's a it's relatively small group less than 1000 physicians, we anticipate calling on and we would anticipate somewhere between five and seven sales Representatives. In addition to that we have pipeline that we will be preparing for early.

The next year, and we anticipate a separate sales organization dedicated to calling on pediatric.

Neurologists focusing on epilepsy.

Got it and then this little bit more color on the I was hoping to give us some different puts and takes you.

Seen in the European market that are going to.

These are translate or not translate into the U.S market in regards to the adoption curve just trying to get a field for I feel bump that market and how it's going to kind of draw on adoption curve for the U.S. market.

Sure, Let me take about and then I'll turn it over to Paul for any additional commentary.

So two points we.

We ran an initial marketing study before we.

Did the transaction Onno Candy that study you gave us certain number of results.

So there was actually largely run by directional using a us marketing company.

Before we.

Consummated that transaction, we separately got a different marketing company to run a study without any visibility to the first marketing study and by a large that came into the same results, which is a all the product isn't demand physicians want the product they can't understand why there werent this product doesn't bid on the market in the past.

I'll be the payers have indicated a willingness to pay at the different price points that we were looking at it was also payer study and then see just the whole.

Patient benefit as well as the perspective from some of the.

Let's have patience themselves. So that was that really confirmed some of our assumptions going into the deal now looking at Europe or when the product launch the rate of adoption and especially the younger population was extremely high.

Well in excess of 50% and you're talking about a few months into a launch of the the docs converted to a quickly in Europe their price price controls there's different mechanisms. So you can't really look at it from a dollar standpoint, but when you look at the actual patient penetration rate.

It was fast and it was quick and we're seeing that same.

Positive indication right now for the U.S. market, So I want to stop there and let Paul it any additional comments I think you're spot on Sean there seems to be consistent signals that have been received from both sides of the pond.

Both in terms of diurnal early response with the product in the market as well as market research that we've seen here in the U.S. and and some initial outreach that's taken place on our two key constituents in that community at this point so it seems pretty consistent in terms of the clinical need.

Got it and then just last one from me, it's nice to see a cash balance hanging in there.

That's on the rates and putting the money to work just hoping two parts. One if you could talk about business development and if you've seen any impacts from cobot 19, presenting some more attractive opportunities and then to how you feel your 12 or so million dollar cash balance.

Looks as far as a cash runway.

Sure.

Sure so.

On the cash balance question that should get us through the approval of all candy that includes putting in the marketing team and the sales of promotional efforts. We also have several milestones that would result in drawn a credit line, if we wanted to or chose to as well.

As milestone one is coming in from our licensing deal with the 100.

So there are no plans at the moment to do any additional raise as we look at the adoption and rate of sales by orphan and the initial launch sales of al Candy will make a decision.

Again, I typically would only do a raise and we did raise a small raise recently to fund that can be transaction, which we think is money ensures well spent.

We do have.

Several deals that look attractive and by by that I mean, our products, which are either filed or can be filed in the next few months.

All in the rare disease space, So I would expect to see us two types of transactions and the rare disease space.

Most most of the focus will be in the pediatrics in neurology endocrinology and.

In a lot of these.

Disease States, which have all unmet needs.

Got it thanks, taking my questions and congrats on progress.

You are closure.

Thank you.

No further questions at this time I'll turn the call back over to Sean for any closing remarks.

Thank you thanks to everybody that joined US today, we're excited about the second half of 2020, we have several product launches coming up over the next few months and I look forward to or next call and providing additional updates.

As always please feel free to reach out and we.

As we expand our team will have more news and as we get a deals on the table and we look forward to adding to our pipeline.

Thanks, again and stay safe.

Ladies and gentlemen, this concludes todays conference. Thank you participating you may all disconnect have a great day.

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