Q2 2020 Neos Therapeutics Inc Earnings Call

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Morning, and welcome to the Neos Therapeutics second quarter 2020 financial results Conference call.

Today's call is being recorded.

At this time, all participants are in listen only mode.

There will be a question and answer session to follow.

For introductory an opening remarks I'm, turning the call over to Richard I can start to.

Yes, Oh he is true predicts. Please go ahead.

Thank you good morning, everyone and welcome to our second quarter 2020 financial results Conference call. This morning, we issued our financial results in corporate highlights press release, which is available on our website at www Dot Neos, TX <unk> com.

I'm joined on today's call part, Joe Mclachlan see out before we begin I'd like to lead 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 safe Harbor provisions of the clubs treaties Litigation Reform Act up 1995, including statements concerning the impact of the cope with Nike pandemic prescriptions for the company's products and all the company's business revenues result.

Some operations financial condition commercialization of incentive XR entity, Cotempla XR already T. and it's Dennis Youre oral suspension.

Nice results and outlook for our business, including with respect to net revenue per pack script volumes and marketshare intended benefit of our commercial strategy.

Dictation for burned the brand exclusivity for 80, HD products, a patient support program Neos Rx combat the capabilities, where technology at our research development activities, including the timing bloggers silver product candidates, including and T O fiber too.

Future expansion of our product pipeline through business development activities, and our current and future financial possession.

I'll now turn the call over to John.

Thank you rich and good morning, everyone I.

I would like to start today by reflecting on the recent months and paused. The fact the team here at Neos for their hard work dedication and adaptability. During these trying times as we continue to position the company to maximize all potential opportunities for growth.

Following the organizational changes we made in may and with the impact of the Cobot 19 crisis largely behind US we're now looking to the future.

We have a newly align commercial organization that is focused on our most profitable territories and on areas, where we had the highest potential for significant growth.

We believe this realignment.

Coupled with the continued expansion of our best in class patient support program Neo sorry disconnect.

Will facilitate the continued growth over 80, H.T. portfolio, while maximizing the financial contribution of the franchise over the coming years.

These changes to our 80 HD business, coupled with our advancing pipeline candidate NTL five go to provide us with multiple future opportunities to create value for our stakeholders.

Let me start by providing an update on our 80 HD portfolio.

Soon after the Cobot 19 pandemic hit in mid March we removed or Salesforce from the field and rapidly deployed a comprehensive virtual detailing program to enable us to more effectively communicate with our customers starting to lock down phase of the pandemic.

We also spent considerable time training our sales representatives on selling techniques tailored to virtual interactions.

As our customers began to reopen their offices, we developed protocols to ensure that our sales representatives could safely and compliantly reengage with customers as appropriate.

And by early June 100% of our sales representatives have actively return to the field, where they have been employing in person's life calls in most cases and virtual selling mediums to communicate with their customers were in person interactions are not feasible.

Additionally in late June we completed our national sales meeting in a fully virtual that format to prepare our team for the back to school season.

We've been gratified by both the flexibility of our sales team and the receptivity to our customers to engaging with us in this new Norman.

Without a doubt the cobot 19 environment will continue to change and evolve over the next several months.

However, we're confident that we have the team and systems in place to rapidly adopting the future and we're well positioned to engage our customers in a meaningful and value added manner.

This quarter, we reported a blended 5% growth in net revenue per pack compared to the second quarter of 2019 for two core commercial HD products.

NSX already tea and Cotempla XR duty.

We believe that this quarter over quarter growth in net revenue per pack reflects our success in transforming the financial Foundation and the continued improvement in the cash contribution of our 80 HD franchise.

A lot of this success can be attributed to our Neos ARX connect patient support program.

This program continues to be a key value drivers point of differentiation from our competitors within the HD space.

Presents an attractive opportunity to leverage this platform and adjacent therapeutic categories.

During the second quarter of 2020, we continue to expand the number participating pharmacies and our network and we're pleased to report that as of June Thirtyth 2020, we're approaching 900 pharmacies compared to approximately 800 pharmacies at the end of the first quarter.

During the quarter, we added a number of smaller regional chains that are aligned with our salesforce geographical footprint and on the areas with significant opportunities for prescription growth.

Previously we added two large regional grocery store chains, AGP in Texas, and buyer, which spans across key Midwestern states.

Based upon the continued success, we're seeing with these chains, we continue to selectively target additional regional chains for inclusions in the us ARX connect.

We are confident that Neossance connect will continue to play in increasing role in the growth of our 80 HD business.

And speaks to our commitment to providing affordable and predictable access to our H.C. medications for all appropriate patients.

Under the Neo Sox connect program, all commercially insured patients benefit, allowing for affordable monthly co pays and elimination of many of the hassles that deter health care providers for prescribing medications, they consider most appropriate for their patients.

In this way Neos ARX connect effectively simplifies the entirety of the process involved in providing an access medication for both prescribers and patients.

Further neo source connect has been a major value driver during the cobot 19 pandemic.

Through the program, we were able to implement the delivery of Neots 80, HD medications to customers home or place of work, eliminating unnecessary uncomfortable or impossible trips to the pharmacy.

We believe as with many consumer business interactions in the current environment a desire for contact list acquisition of 80, HD prescriptions will increasingly become a preferred means of acquiring medications by patients.

We look forward to leveraging this infrastructure as a means to access our medications throughout and beyond the cobot 19 pandemic error.

During the first quarter earnings call, we discuss the cobot 19 related impact on the HD market, which was rapid and significant beginning in the second half of March March as we look back on the overall market growth entering to covert 19 total market prescriptions for 80, HD medications increased by 6.2% in the first quarter two.

2020, compared to the first quarter 2019.

In the second quarter 2020, total prescriptions decreased by 3.8% compared to the second quarter of 2019.

We're really encouraged to see that when you break down the second quarter prescription numbers by month after a significant kovac related impact to market volume in April and May prescriptions for the month of June of 2020 were 5% higher than totally the HD prescriptions for the month of June in 2019.

We believe there was an early summer effect as the market usually can track heading into the summer before rebounding as parents and students to prepare for the new academic year late summer early fall.

Looking ahead, we believe that the June data coupled with the weekly prescription trends for July suggest that as students returned the school the market will return to a more normal seasonal cycle.

As we head into this upcoming academic year.

Regardless of its a schools live virtual or hybrid model students, we held accountable for achievement and graded accordingly.

This past spring for most students existing grades at the time of stay at home measures carried forward and for many they were not any grades are measures of performance at all.

School District leaders colleges and universities throughout the country have prepared plans to educate and measure performance for students as a return to school for the fall 2020 semester.

With the returned to more rigorous and focused school environment. We believe effective management of 80, HD symptoms will again be paramount for effected students.

While justifiably, we as a society of prioritize the needs of our children with 80 HD. The adult market for 80 HD continues to drive the majority of growth in 80 HD prescriptions.

Approximately a 6% growth in 2019 compared to 2018.

The Koby 19 pandemic has introduced additional challenges for many adults with 80 HD given disruptions in work routines increased anxiety, particularly for those adults with 80, HD, who must manage their work obligations with child care responsibilities.

To this end, we have initiated a marketing strategy leveraging our analytics platform to target prescribers with high potential among adult patients with 80, HD highlighting the benefits of incentives XR ODC.

Now turning to our development pipeline.

We're excited by the potential of our development candidate and T O five Boe to to address a high unmet need for the treatment of chronic silo area or excessive drilling.

It is a common problem and neurological conditions, such as Parkinson's disease, cerebral palsy, LS and mental retardation.

Siberia can lead to significant physical endorse psycho social complications that can create an additional burden for these medically complicated patients.

While approximately 1.4 million patients the United States suffer annually from this condition physicians report that the reserve treatment for only the most severe cases due to treatment limiting side effects and complex dosing regiments associated with currently available treatments.

At Neos, we're encouraged by the promise that NTL fiber to offers as a potential new treatment option that has the opportunity to become a new standard of care to address this significant unmet need with its improved tolerability profile and dosing regimen.

We remain on track to initiate a sad and Mad phase one clinical trial for Ensco five or two in the fourth quarter of 2020.

Which will consist of a multipart study with single ascending a multiple ascending dose cohorts.

Additionally, we are simultaneously continue would seek opportunities where we can leverage our existing commercial model, including Neos Rx connect and our advanced analytics platform.

We remain confident that our models, both applicable and scalable well beyond our HD franchise, and we remain dedicated to our mission and making a difference in the lives of patients with CNS conditions.

In closing with our realign commercial organization, increasing effectiveness and reach of our newest arch connect platform continued improvement net revenue per pack and are expected return to meaningful growth in the overall 80 HD market. We believe the neo Saidi HD portfolio is well positioned to maximize its financial contribution over the.

In years.

This coupled with our advancing pipeline and business development opportunities present strategic options to create value for new stakeholders.

With that I would like to thank you for all your time and interest today, we look forward to updating you on our progress soon.

Rich.

Thank you Gerry.

Total product revenue for the three months ended June through 2020 was $13.1 billion compared to $15.6 million for the same period in 2019.

We believe the decrease was attributable to an early summer seasonal effect, resulting from the corporate 19 pandemic.

PDH the net product revenue was $11.6 million for three months ended June through 2020 compared to $13.9 billion. The same period of 2019.

Blended net revenue per pack was $128 in the second quarter of 2020 as compared to $121 in the second quarter of 2019.

I'll see you next net product revenue for three months ended June 30, 2020 was $1.5 million compared to net product revenue of $1.7 billion for three months ended June Thirtyth 2019.

For the three months ended June Thirtyth 2020, gross profit was $7.3 million compared to $10.5 billion for the same period in 2019 gross.

Gross profit percentage as a 55% was affected by the unabsorbed overhead, resulting from our for a loan production shutdown in April and the first half of my.

R&D expenses for three months ended June cure 2020 were $1.3 million compared to $2 billion for the same period in 2019.

Selling and marketing expenses were $5.2 million for three months ended June curious 2020, including approximately $700000 and costs associated with the reduction in force.

This is compared to $7.3 million for three months ended June Thirtyth 2019.

Gionee expenses for three months ended June Thirtyth, 2020 were $3.6 million compared to $3.7 billion for the same period in 2019.

Loss from operations was $2.9 million for three months ended June 30, 2020, compared to $2.4 million in the second quarter of 2019.

Net loss for three months ended June 30, 2020 was $5.5 million or 11 cents per share compared to $3.8 million or eight cents per share for the same period in 2019.

As of June 3rd 2020, we help $12.7 billion and cash cash equivalents, our cash burn for the second quarter, excluding a $10 million principal payment to Deerfield and may and a net reduction them up outstanding principal on our short term line of credit which was not fully drawn as of June in Korea was approximately 5.1 billion.

Polymers.

As of June Thirtyth 2020, the company had $35 million and principal outstanding with Deerfield, and approximately $4.5 million outstanding under our short term line of credit.

That we'd like to now turn to secure and a portion of the call operator.

We'll now take any questions you might have you have question. Please press star one and you will be put into Q. If he would like to answer your question. Please press star too.

The first question comes from the line of Louise Chen from Cantor. Your line is open.

Hi, Thanks for taking my questions I had a few here.

So first question I had for you as some of the students will return to classes fall others are gonna be remote does this impact the back to school season that we normally see for prescriptions and then second question I had for you with Howard New patient starts relative to pre Cove at levels in June and then last question.

Just on your cash balance and cash runway, how do we think about that in light of all the projects and product that you have thank you.

Yes, let me. Thank you. This is Jerry I'll handle I'll handle the first two.

With regard to back to school, what we're seeing as an eye in my prepared comments I think it talked a little bit about this.

We're confident that it's a much different situation right for children going back to school in the spring. There was an abrupt there was an abrupt end to two schooling in mid March for many and most and most if not all did not go back into the classroom and for majority of students in the power.

The school setting there are there were no grades right. It was passed fail or nothing counted for the rest of the or whether it was elementary and Middle School high.

Hi School.

And what we've seen now is very clearly.

That there is going to be a rigorous academic regimen in the fall weather it starts out as fully virtual hybrid.

Or live and so we're confident that and we're starting to see early signs that the market is returning so for example, when you look at the market was very robust in the first half of the year.

Growth for January of 2020 over to that the same period of 19 was well over 5% approaching 6% February was increased over 7% versus 2019, even March actually was still up versus 2019.

After declines in May April and May in the market, we started see a rebound.

In June was actually 5% higher in June of 2020 versus June nine 2019, and we continue to see early signs as we head into July that.

We see a rebound in the market. So we're confident that the combination of.

Adapting to a new normal and a rigorous academic standard whether you're at the schooling at home or in a hybrid model, we see a return to the market and as far as new patient starts in June.

That is typically a very low period of the year as we enter into summer and we actually saw what was an early summer in this market due to covert 19 that we believe started at the end of March. So it's really June was the bottom of the market in terms of new patient starts, but we begin to see that and we'll have more information on that as we come forward in the coming week.

Some months as the back to school season really kicks in.

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Well at least regarding cash flows we've not given guidance as far as when we become cash flow positive, but I believe the mild to reduce cat for to reach cash flow positive continues to become clearer, we taking significant steps to reduce our cost base and anticipate improvement our revenues and mark.

Yes.

We continue to review our cost of capital in our capital situation overall, which includes the cost of our debt financing and timing of repayment of principal and we're exploring opportunities to improve that situation.

We have been using a line of credit that we put in place about a year ago.

Especially since the cobot 19 pandemic as have most companies.

That's that's where we are with cash at this point Louise.

Okay. Thank you.

Your next question comes from the line of Jason Butler from JMP Securities. Your line is open.

On for Jason Thanks for taking my questions just.

Well I guess you guys anticipate the net revenue per pack.

Blended I guess to be stable through the continued impact from the realignment.

And then what kind of level do you guys expect.

And then as far as far as covert there's been some calls for a new locked down as I guess, you guys aren't really seeing any hints that there might be a reduction or slowing.

Levels in person interactions.

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Okay, So I'll handle that.

Your last question first and then we'll move back and then I'll hand, it over to rich on the net he can provide more detail net revenue per pack. We are in fact, not seeing additional impacts on any lockdowns, we're having increasingly greater access each and every day I think its combination of.

The relationships, we have with our customers and their comfort with new protocols and we've been very very rigorous about.

Having good safety plan in place for both our employees and the offices in which they interact so I think thats good giving greater comfort. In addition, we've actually have been investing very heavily in the virtual selling skills of our salesforce. So we actually have situations where.

If they need to have virtual call, it's getting increasingly more effective and we're having a more better results. So we're ready for anything and everything that may come down, but we're not seeing any indication of a slowdown in access to our physician offices at this point and with regard to net revenue per pack as you know that's been a focus of ours and something we're very proud of in terms of it.

Proving the financial foundation of our 80 HD business.

Going forward, we would expect to see incremental increases.

The heavy lifting was done and as you know that was the focus in 2019, but we were excited to see a 5% quarter over quarter increase here in the second quarter.

But we expect see modest increases in the four in the future alternative and rich for any additional comments.

Yeah, I don't really have too much and I'm sorry.

The.

Net revenue per pack is somewhat seasonal as.

People emerged out of their high deductible seasons and more people are covered by their health plans and that has always been a boost that as Jerry said, we expect that that would any boost we continue to get through the year should be moderate.

Okay, Great and then rich would you.

I guess guidance you made on the one Q calls.

I believe I gave.

Expense guidance and yes, that's still.

That's true.

Okay, great. Thank you.

And I'm showing no further question into queue at this time.

Ladies and gentlemen, thank you for participating in todays conference. This does conclude your program and you may now disconnect everyone have a great day.

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