Q3 2020 Neos Therapeutics Inc Earnings Call
This conference call today's call is being recorded at this time.
All participants are not listen only mode. There will be a question answer session to follow French dots tree in opening remarks, I'm, turning the call over to Richard Eisenstadt CFO of Neos Therapeutics. Please go ahead.
Good morning, everyone and welcome to our third quarter 2020 financial results Conference call. This morning, we issued our financial results and corporate highlights press release, which is available on our website at www Dot <unk> Dot com.
I'm joined on today's call by Jerry Mclachlan or C. O 40 begin I'd like to read the following regarding forward looking statements.
During this call will make statements related to our business that may be considered forward looking at are made pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of might be 95.
Including statements concerning the impact of the COVID-19 pandemic on prescriptions for the company's products and on the company's business revenues results of operation and financial condition.
Personalization of the tennis, XR 80, Ti Cotempla, XR 80, Ti and its NFC our oral suspension.
The financial results and outlook for our business, including with respect to net revenue per pack script volumes and market share.
Intended benefits of our commercial strategy, our expectations regarding the brand exclusivity for 80 HD products.
Patient support program nears Rx connect the capabilities of our technology and our research development activities, including the timing and progress of our product candidates, including and T O fiber to do.
Future expansion of our product pipeline through business development activities, and our current and future financial position.
Now I'll turn the call over to Gerry.
Thank you rich and good morning, everyone and thank you for joining us today for our quarterly update.
During the third quarter, we saw neo CDH, the prescription volumes and the overall 80 HD market begin to rebound from the profound impact of the code 90 pandemic in the second quarter of 2020.
We believe the key drivers of this rebound.
Been to continued prescription volume strength for the adult segment and a gradual recovery of the pediatric segment.
We're pleased to see this market rebound and I'm happy to report that compared to the second quarter of 2023rd quarter prescription growth for you guys is 80, HD medications with nearly double that of the overall 80 HD market.
I will go into more detail in a moment, but a large driver of the recent growth is the continued sequential growth of neos commercially at H.C. prescriptions being filled through new York's connect.
Our best in class patient support program.
Let me start with providing some metrics for our newest brands this quarter.
During the third quarter of 2020, the 80 HD market saw sequential growth of 4.1% following the impact experienced as a result of the ongoing koby 19 pandemic, which started during the final weeks of the first quarter and continuing into the third quarter of 2020.
Over the same period Neos brands outperformed the overall market with its NSX, our ODP growing by 9.9% and.
And Cotempla XR, D.T. growing by 6.5% sequentially quarter over quarter.
The adult market Brady H.D. continues to drive the majority of growth in 80 HD prescriptions.
The Cobi 19 pandemic has introduced additional challenges for many adults with H.C. given disruptions in work routines increased anxiety, particularly for those adults with 80 HD too much manage their work obligations with childcare responsibilities.
To this end, we deployed new strategies words, NSX already team focused on adults with 80 HD.
As a result adult prescriptions for its NSX RTT grew sequentially by 10.7%.
Overall 80, HD market adult prescriptions grew by just 4.1% during the same time period.
In fact prescription for a set of sex RTT in the adult 80, 80 patient populations achieved all time highs during the third quarter and we believe that the remains a long term growth potential in the adult segment given the benefits of the advantage X already team and expect to continue growth of this segment.
Next on our commercial strategies.
Our neo sorry connect patients. Unfortunately brand continues to be a key value driver and point of differentiation from our competitors within this 80 HD space at.
Presents an attractive opportunity to leverage this platform and adjacent therapeutic categories.
Underneath sorry disconnect all commercially insured patients benefit, allowing for affordable monthly copays and elimination of many of the hassles that deter health care providers for prescribing branded medications that they may consider most appropriate for their patients.
In this way Neossance disconnects effectively simplifies the entirety of the process involved in providing and accessing medication for both prescribers and patients.
And Furthermore, during the COVID-19 pandemic.
We've been able to deliver neo CDH, the medications, many customers home or place of work, eliminating unnecessary uncomfortable or impossible trip to the pharmacy.
We believe as with many consumer business interactions in the current environment a desire for contact with the acquisition of Sdhc prescriptions will increasingly become a preferred means of acquiring medications by patients.
We look forward to leveraging this infrastructure as a means to access or medications throughout and beyond the cobi 19 pandemic or.
As we continue to expand this program, we selectively added a number of smaller regional change during the quarter that are aligned with our salesforce geographical footprint and our areas with significant opportunities for prescription growth.
During the third quarter of 2020.
Neos commercial eight HD prescriptions filled through the Neos ARX connect pharmacy network grew sequentially by 17.7%.
Now make up more than 40% of total neos commercial prescriptions filled.
We are confident that new starts connects will continue to play an increasing role in the growth over 80, Ohmstede business and speaks to our commitment to providing affordable and predictable access to our 80 HD medications for all appropriate patients.
Regarding our Salesforce we.
We continue to be gratified by both the flexibility of our sales team and the receptivity of our customers to engaging with us in this new normal.
And the mid second quarter, we had made a strategic decision to reduce the salesforce by about 40%.
From 75 territories down to approximately 45.
With this realized commercial organization, we are focused on our most profitable territories and on areas, where we have the highest potential for significant growth.
And despite our smaller Salesforce, we started to see a return to growth over 80 HD business during the third quarter.
We are confident that we have the team and systems in place to rapidly adapt in the future and we are well positioned to engage our customers in a meaningful and value added manner.
And lastly, I want to touch on a development candidate Ensco five go to which we are pursuing to address a high unmet need for the treatment of chronic Siberia for excessive drilling.
We're encouraged by the promise that Ensco five or two offers is a potential new treatment option that has the opportunity to become a new standard of care to address the significant unmet need with its improved tolerability profile and dosing regimen.
Given the impact that probably like to run our business, we temporarily paused the program.
Now plan to initiate a sad that phase one clinical trial friends your fiber to the first half of 2021.
Which consist of a multipart study with single ascending and multiple ascending dose cohorts.
In closing well result of the Cobi 19 pandemic. This remains a challenging business environment. We are encouraged by both the positive signs in the 80 HD market and our business during the third quarter I.
We continue to believe that the neo CDH the portfolio is well positioned to maximize its financial contribution to the company.
With that I will turn the call over to our CFO rich I just that its review of the third quarter financials rich.
Thank you Gerry.
As of September 32020, we held $12.7 million in cash and cash equivalents total product revenue for the three months ended September Thirtyth 2020 was $12.5 million compared to $17.5 million for the same period in 2019 decrease was in part attributable to the continuing impact.
Cope 19 on a year over year basis.
For the three months ended September Thirtyth 2020, gross profit was $7.4 million compared to $11.1 million in the same period in 2019.
Gross profit was negatively impacted by a write off.
Early of short dated smaller bottle size generic tussionex and identity our R&D.
R&D expenses for the three months ended September Thirtyth, 2020 were $1.3 million compared to $1.6 million from the same period in 2019.
Selling and marketing expenses were $4.8 million for the three months ended September Thirtyth 2020, compared to $7.1 million for the same period in 2019. The decrease in expense reflects the reduced head count year over year.
<unk> expenses for the three months and timber Thirtyth 2020 were $4.1 million compared to $2.8 million for the same period in 2019.
Stock compensation, and depreciation and amortization were approximately $1.6 million.
Three months ended September Thirtyth 2020.
Loss from operations was $2.9 billion for three months ended September serious 2020 compared to the $400000 for the same period in 2019.
Net loss for the three months ended September through 2020 was $4.9 million or 10 cents per share compared to $2.1 million or four cents per share for the same period in 2019.
At September Thirtyth 2020, we had $34.4 million in principle debt outstanding with Deerfield and $7.3 million in debt under our short term lending facility within Sina. We currently have $33.8 million in debt outstanding with Deerfield.
With that we'd like to now turn to the Q and a portion of the call operator.
Well now take any questions. You may have if you have a question press star one and you will be put into that Kim if you like the cancer. A question. Please press the pound key I first question comes from Louise Chen of Cantor Fitzgerald. Your line is now open.
Hi, This is Jeff for Kim on for Louise. Thanks, So much for taking my questions I guess I've two questions. The first one is you noted that the adult market grew 4.1% sequentially. I'm wondering do you have the numbers for the market growth in pediatric sequentially and then what did it look like for your franchise in the pediatric population.
And just what you.
I guess your current thinking on on how recovery will play out in the pediatric market and then my second question is could you give a bit more detail on your strategy around targeting adults and how do you think that will play out like what's the remaining opportunity there and what other strategies are you considering as you recover from coated.
Thanks.
Yes, so I'll take those thank you so much for your questions with regard to the adult segment, we're very thrilled to see.
Over the last couple of years. The pediatric segment has been growing on the order of anywhere from flat to 1% to 2% per year, So very modest growth in the pediatric segment and that's those 18 and under.
And the adult segment has been growing 4% to 6% per year. In fact last year. If you look to 2019 versus 2018 it grew by 6%.
Heading into this year, we continued on that pace prior to cobot and held up very nicely through code, but once again, we're back to growth. The pediatric segment, obviously took a big hit a.
Double digit reduction in the second in the second quarter and continues to do.
Well it rebalances regarding a bit slowly and we think about this market in terms of the back to school season.
Which typically ramps up in August and what we've seen is basically about a month to a month and a half delay in the back to school season, and it hasn't been as pronounced so it's been more gradual than and then then steep and but we continue to see it responds, we were particularly hit hard and in the north.
The stuff for example, New York City schools did not fully reengage until until late September early October. So it had been a very much a delayed effect on the back to school season, what we fully expect looking forward. We expect continued growth we expected the adult market to be the long term driver of growth in this market.
That's for a number of reasons, but one just to name one is as this market developed over the last 15 to 20 years you have a lot of patients who are who are advancing into adult.
But and and the radio he is not not has not been eliminated.
Also this tends to be very much a hereditary disease disorder, and often we see as patients are diagnosed and experiencing these symptoms often patient self like adults their parents self identify and that has been a source of growth in the in this segment as well so we're pretty bullish on that going forward I think.
The real focus was yeah I think at the at the launch here in the US there was more of a focus on the the pediatric segment and particularly given that our products are melts I think it was a natural inclination to think of them for people who cannot swallow pills, but.
The reality is the convenience of its and its that's already see offers real benefits for for adults before on the go who have all kind of work schedules for dealing with kids at home and and need to keep their medication with them and take it when they can and fits and into whats there the schedule for their day.
So we were really excited about that doesn't mean that the pediatric segment isn't growing as well we did see sequential to answer your question about the peak quarter over quarter, we saw 4.5% growth in the third quarter versus the second quarter. This year, but with the adult it's really about the convenience of its NSX already t. combined with our best in class basis for pro.
Graham where an adult can confidently get there it's NSX already prescription they know it's going to be available they know what they're going to pay each and every month and it and it will alleviate a lot of the hassles also for for the question. So we think that will be continue to be a big driver going forward.
And that will continue continue to be a focus and the way. We as you know on a go forward basis, we see opportunities with digital marketing, we see opportunities with continued increase call frequency on select prescribers who tend to.
Have a disproportionate share of adults in their in their population so.
We're excited about that as we go forward.
Okay. That's super helpful. I could ask one quick follow up for your franchise what percentage of I guess total sales is made up by the the adult population versus the pediatric.
So its rough it's interesting so the market's roughly you know we are we are the markets typically it's about 70% adult and 30% pediatrics, where the inverse.
We're we're about 30% adult 77, pediatrics it makes sense in some ways because cotempla is indicated for ages six to 17 see we'd expect expect that to be almost exclusively in that population.
However, with it Dennis.
Two years ago, we had 80% of our business was for pediatrics presented six already see despite having both pediatric and adult indication.
We have.
We have actually been able to increase the adult percentage of our business from 20% up to 36% currently and we continue to move in a positive direction. So.
We see when we going forward for our franchise. We think we'll always have a majority of the business compete because of Cotempla, but.
But we see a great growth potential as we go forward with our business and in fact for Dennis it's not only for the overall franchise it 36% adults for Dennis it's actually up to 45% of all so we've made really good progress. It's a good market for us and we see that it continue to move higher in the future.
Okay very helpful. Thanks, guys.
[noise]. Thank you and our next question comes from Jason Butler of JMP Securities. Your line is now open.
Hi, Thanks for taking the questions and congrats on the quarter and I'm just wondering.
The Rx growth you saw in the quarter and the rebound in both pediatric and adult.
Was that in line with where Youre overlap I guess, where the realigned sales force is now focused and I guess in a way.
To what extent are you see growth in white spaces that could justify adding more reps. Thanks.
Yeah, so they that Jason thanks, so much and good to speak with you and thanks for the comment on the quarter because we're we're excited about the rebound there and what we're doing with our execution.
When we when we realigned the Salesforce in May we actually were able to retain 80% of our physician targets and in the key prescribers in white space, we deployed telesales and other means to keep in connection with them. So we have seen rebound both in our prescriber base that we target with our Salesforce, but also in some of the white spaces.
Well and obviously, we're seeing better returns, where we have our representatives. So we really didn't give up much. This was an exercise to go back to our sales force realignment that we talked we've been talking about for the last two years. We've made some changes in our commercial structure, we remain committed to analyzing and adjusting with the market and as we built.
Sorry can act as as a as we remove certain contracts are are are opportunity landscape shifted and so we saw this as an opportunity in 2020 to once again real line too so where the growth potential lies it's it's well aligned with our New York, New SRX connect pharmacies, it's well aligned where there's come.
Marshall headroom and so we're really excited that despite reducing our salesforce we.
We put them in a better position to compete.
Great. Okay, and then just one on Rx connect.
How should we think about the growth of the network in coming quarters or are there any you know substantial expansions that could occur or is it more like just the step wise, adding of certain regional chains. Like you did this quarter and then just from a higher level strategically how.
How are you thinking about potential to leverage this network for for other products.
Either in your pipeline or or view on that.
Yeah, So Jason I would think of as more surgical at this point.
We added we added smaller chains for example in the in the Ohio Valley region. We added a small regional pharmacy chain I think with about 25 pharmacies.
And now what we're doing is we're looking at Where's the headroom from a commercial opportunity perspective, and then what are the change or smaller groups of independence in that area and that's how we're targeting right. So its more surgical now to fill in gaps or enhance.
And I'm sorry, Jason could you repeat your second question in terms of what was it in terms of other products and yeah. We built this.
Our whole commercial infrastructure from an analytics perspective in the us or exclude it was never just about each day phase one work to optimize and and support long term growth and financial contribution of the H.C. franchise, but we built this network now where we can easily easily fold in additional products, whether whether in neurology whether there.
Just like I had three four beyond the network is built.
And so yeah, we can easily add value in fact, we've had we've had incoming from up from multiple companies about wanting to partner with a news article that so we know we've got something that brings value to the industry and we think we can bring disproportionate value to many assets are either in our pipeline or that are on market already by.
Putting them into the fold with neo starts going up.
Okay, great. Thanks, again for taking the questions.
Thanks, Jason Thanks.
Thank you and again, ladies and gentlemen, if you would like to ask a question at this time. Please press Star then one on your Touchtone telephone.
Our next question comes from Gary Nachman of BMO. Your line is now open.
Hey, Good morning, guys, It's Ross say on for Gary.
Congrats on the quarter.
I was hoping you could comment on net revenue per prescription and the corridor I think you said it was a 126 and to Q.
So any color there and how we should think about that trending into 2021.
Sure refer I'll.
Talk about it I'm sorry.
Our net revenue in Q3 for Cotempla, we had a year over year improvement increasing to $133.
Per pack 30 day prescription versus 128, one year ago for.
For incentives. So we took a price increase in July Medicaid Christ penalties and contractual buying obligations with one of our wholesalers.
When we implemented a price increase weight on her exams pricing, which actually decreased in the quarter to $110 per pack. We expect that some of this will work its way through as we get into fourth quarter I think going forward buffet to think about where we're going we're not going to see as we et cetera.
Earlier, the huge improvements.
Improvements, we saw a year ago, we do expect that there's continuing opportunity to incrementally increase but its more on I would say like 5% to 10% range rather than 30%.
Got it thank you.
And I was hoping you could comment on your current cash runway and your flexibility there with respect to operating expenses than any other options you are considering.
Sure we.
We we obviously were hurt by.
Oh, good versus where we were expecting to be.
This year, we believe that we've taken a lot of costs out of our business. We continue to plan to be back on our revenue growth strategy, which will help us. The one thing we're keeping our eye on is the Deerfield debt principle payment that is due in may 2020.
One we have a 50 million dollar payment and as we've indicated on earlier calls we're exploring different solutions for dealing with that payment, including possibly refinancing that debt. So we've been having discussions regarding that and we'll continue to move forward.
Hi, Matt.
Got it. Thank you and then on terrified spirit too I can you comment on your expectations for the development timeline.
And then I know, it's little bit early but any color on how you're seeing that market opportunity would also be helpful.
Yes, Ross this is Jerry I.
With the temporary pause, we see we see a modest delay the market, but we think we can make up some of that time and the development program. So were looking still at 2024 early 2024.
For that product and in terms of the opportunity.
We only get more enthused.
About the issue here and their ability to help patients Oh yeah.
The issue of the robbing of pride for Parkinsons patients, who can no longer you know confidently have lunch with a friend out of fear of drilling over the over their plate the issue around cerebral palsy and apparent or not being able to take the child and not wanting to take them to a.
Playground.
No. It's all got social distancing, it's it's the existing forever for patients with cerebral palsy, and and it's just a heart wrenching the bigger issue really as we started to dig in to the issue of silo react in Parkinsons is that as Parkinsons advances, it's well understood and I think we all know that there's.
There's a difficulty with swallowing theres more neuro muscular issues and so this additional issues with swelling, which can lead to aspiration.
And with the inability to properly clear saliva. It does increase the risk of aspiration, which increases your risk of aspiration pneumonia, which is among the leading causes of death and advanced Parkinson's disease patients. So this is not only a social or psycho social issue. It has meaningful clinical impact, particularly advanced disease and.
The problem today Rafi is that as we uncover there's really it's there's no good options.
There's really no good option.
And there's a trade off that a patient has to make are replenishing and offering a a medication that has deleterious side effects or really an onerous, hey creation and dosing schedule.
As a result, many clinicians will reserve and engaging that conversation unless the either a the patient to patient brings it up or be in Siberia, and the disease state is much more advanced.
We think that's not right for the patients. We think we think that patients who experienced salaries should be able to be helped early and disease.
And we think and we're confident that with a well tolerated and easy to dose formulation.
That more and more patients with mild to moderate disease will be able to be treated and we're confident that and to you. If I go to if it delivers on the product promise could really set a gold standard of care for the treatment of salaries. So we are more excited than ever about the Mach market opportunity. There are at least 1.4 million patients in the United States.
We also have worldwide rights and we remain confident that it's a market that does not require a ton of commercial investment compete pretty narrow audience and there's very little competition. So we were all bodes well we think for a successful.
Successful commercialization for MTO side of it too.
Thank you and then rich I just had two quick follow ups on that how.
How should we think about R&D spend trending S U.
Ramp up the sad Mad trial.
Dan just on gross margin I know you called out a couple of different items of note this quarter.
Should we expect gross margin to sort of return to historical levels going forward. Thank you.
Yeah.
On.
Hi boat to rough we've been running in the you know one of the half to $2 million per quarter, and I don't think that that changes in the near term we.
We expect to continue to not really spend on external Oh.
Or options are programs with five owed to when we do start that study that study about a million and a half dollar program. Some of that's internal cost making of.
The actual.
Samples for testing, but.
That will hit in 2021, probably sometime in first half the year as we are planning for that yeah.
On that I don't expect a big step up in R&D expenses related to apply both to any early with Polyone 2022.
There will be some increase in R&D expense at some point next year as we pick back up on our post marketing commitment studies were done at some cotempla, we've been working with the agency on that.
Regarding modeling rather an actual in person studies.
Get our data so that hopefully will save us a lot of.
Cash resources, we go forward. So I don't expect any increase this year and then next year, maybe just a slight step up in R&D cost nothing.
On gross margin.
We still believe that gross margin will rise into the mid to upper Sixtys. Later this year with the charge, we took pretty out of date inventory in Q3, and actually reduced our gross margin from 64% for the reported 51%. So we were on course re back up in the sixties or earlier this year we had.
So the island effort to keep our employees say meet guidance regarding ongoing up operations.
With our furlough in a production shutdown or unabsorbed overhead of course increase earlier in the year, which led to a lower gross margin. We don't anticipate that that hopefully will repeat itself. So I think going forward, we still believe that as sales increase hopefully adds net revenue per pack increase.
So as we get gross margin ultimately maybe next year, even up into the Seventys.
Clearly towards the back half a year when her revenues are stronger.
Thank you very much for the color.
Thank you.
And I'm showing no further questions in queue at this time.
Ladies and gentlemen, thank you for participating in today's conference. This does conclude your conference call you may now disconnect Oh.
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