Q3 2020 Osmotica Pharmaceuticals PLC Earnings Call
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Ladies and gentlemen, thank you for standing by and welcome to the Osmotica.
Pharmaceuticals third quarter 2020 business update call at this time all participants are in a listen only mode. After the speakers presentations will be a question and answer session Todd.
Ask a question during the session you'll need to press star one on your telephone. Please be advised that today's conference maybe recorded if you require any further assistance. Please press star zero I would now like to hand, the conference over to your speaker today Ms., Lisa Wilson Investor Relations for Osmotica. Please go ahead ma'am.
Thank you operator, welcome to Osmotica Pharmaceuticals, third quarter 2020 business update call.
This is Lisa Wilson Investor Relations for Latika with me on today's call Osmotica, Chief Executive Officer, Brian market then.
Chief operating officer, JD, Saab and Chief Financial Officer, Andrew on hard disk.
Good afternoon, the company issued a press release detailing financial results for the three months ended September Thirtyth 2020.
This press release and a webcast of this call can be accessed through the investor section of the Osmotica website and out as Monica Dot com.
Before we get started I would like to remind everyone that any statements made on today's conference call that express a belief expectation projection forecast anticipation or intent regarding future events and the company's future performance, maybe considered forward looking statements as defined by the pool.
Securities Litigation Reform Act.
These forward looking statements are based on information available to us modicum of management as of today and involve risks and uncertainties, including those noted in this afternoon's press release and our filings with the FCC such.
Such forward looking statements are not guarantees of future performance actual results may differ materially from those projected in the forward looking statements.
Osmotica, specifically disclaims any intent or obligation to update these forward looking statements, except as required by law.
During this call we refer to non-GAAP measures such as adjusted EBITDA for a reconciliation of adjusted EBITDA to net income or loss. Please see the tables at the end of our press release.
The archived webcast of this call will be available for 30 days on our website Osmotica dotcom.
For the benefit of those who maybe listening to the replay or archived webcast. This call was held and recorded on November 10th 2020.
Since then Osmotica may have made announcements related to the topics discussed. So please reference the company's most recent press releases and SEC filings and with that I will turn the call over to Osmotica CEO, Brian markets. It.
Thanks, Lisa and thank you for joining our call today.
The third quarter for Osmotica has been exciting.
We received early empty approval for a neat.
Finalized or partnership with Santen has started to commercialize up need after labor day.
Along the way we've also been engaged with the F.D.A.
On the review of the ore back listen to N.D.A., which has picked up considerably over the past few months.
We are truly on our way to realizing the strategy that we set out at the IPO to become a branded growth company.
On our last earnings call, we described or early experience program with Seventyk, where we targeted sales.
850, leading eye care practices with our team of 65 sales representatives.
Early physician and patient responses to the program and more importantly, the products have exceeded our expectations and.
Fact over the first nine weeks many of the physicians that have been sampled have already begun to write prescriptions no.
No matter the specialty like care up Nick has been embraced by those we have called on with many of our customers try and get on themselves actually for the first time Likewise patient feedback has been terrific with 85% of patients surveyed likely to continue treatment after going through.
There were initial supply from the early experience program.
And a little over two months, we have gained a great deal of insight into this first of a kind treatment for chose to sort of to be island.
We have a good measure of sales force effectiveness and the additional tactics that need to be rolled out in order to drive growth.
In fact, our announcement in the press release about the Irish takeover rule 2.4 is all about clearing the runway for up need can possibly or back listen.
I'll turn the call over in the art in Hong will discuss the Companys financial results, Andy will be followed by JD sharp, our chief operating officer, who will share additional insights into the early commercialization of up Nick Andy. Thank.
Thank you Brian.
Total revenues for the three months ended September Thirtyth were 57.2 million compared to 65.5 million for the three months ended September Thirtyth 2019, primarily due to a decrease in net product sales offset by higher licensing and contract revenue.
Net product sales decreased by 32.8 million to 31.2 million for the three months ended September Thirtyth 2020, as compared to 64 million for the three months ended September Thirtyth 2019.
This decrease reflects continued price and volume erosion on our existing product portfolio stemming from additional generic competition.
Licensing and contract revenue increased 25.5 million, reflecting the receipt of milestone payments under the license agreement with Santander pharmaceutical.
Selling general and administrative expenses decreased $1.3 million. During the three months ended September Thirtyth 2020 to 23, and a half million compared to $24.8 million in the three months ended September Thirtyth 2019.
This decrease reflects sales force reductions in the first quarter of 2020 offset by higher costs related to the launch of up need and costs associated with the San Tan license transaction.
Research and development expenses decreased by 4.6 million in the three months ended September 32020 to 3.7 million as compared to $8.3 million in the three months ended September 32019. The decrease primarily reflects the completion of clinical studies related to our backlog for New York.
Our anda filing fees for up knee, which were incurred in the third quarter of 2019.
During the third quarter of 2020, we recognized intangible asset impairment charges of 19, and a half million, reflecting write down of product rights as compared to impairment charges of $128.1 million for the third quarter of 2019.
Our net loss for the third quarter of 2020 was $8.6 million compared to a net loss of $112.7 million in the third quarter of 2019.
Adjusted EBITDA for the third quarter of 2020 was $26.1 million compared to adjusted EBITDA of 22.9 million for the third quarter of 2019.
As of September Thirtyth, we had cash and cash equivalents of $126.1 million and borrowing capacity under our revolving credit facility of $50 million.
As of September Thirtyth 2020, we also had 221.4 million aggregate principle amount borrowed under our term loans following the pre payment of $50 million of term loans during the quarter.
I'll now turn the call over to JV.
Thanks, Andy.
As Bryan stated upfront. This has been a truly exciting time for our organization with the launch of up Nick and the potential for FDA approval of our backlog been before year and further accelerating our transition to a specialty branded pharmaceutical company.
Today I'll update you on some early highlights from our controlled rollout of up Nick and share additional details on the continuing expansion of those efforts.
In early September we launched up needs through our new operating subsidiary RBL Pharmaceuticals, supported largely by samples and a dedicated 65 person sales team.
The first phase of our controlled launch was designed to provide seamless trial and generate meaningful real world insights to inform and further shape the expanded rollout.
Initially we launched the uncovering ptosis or up early experience program targeting approximately 650 eye care practitioners throughout the country.
Approximately nine weeks later, we quickly expanded the number of participating pcps to over 2500, which still represents less than 5% of the total sep target audience.
The core of this early experience has been an aggressive sampling effort, providing an opportunity for more than 10000 patients to trial up meek through a combination of samples and or 14 day up early experience kits in these offices.
By all accounts, we have seen a tremendous promotional response and feedback from patients and clinicians has been overwhelmingly positive.
The product works and we're just starting to scratch the surface importantly, our access strategy has mitigated many of the traditional prescriber challenges with new product launches, notably payer coverage and availability as evidenced by more than 1100 Sep is having.
Already moved from trial to prescribing of the product.
Further our pharmacy has also given us the unique ability to capture feedback at the point of sale.
Specifically, 65% of prescriptions submitted and build thus far have been for 90 days, a strong indication of patient intend to use and physician confidence in the efficacy and safety.
This early feedback and data validates what we have always believed as an outsize commercial opportunity.
In a short time since launch we have generated significant momentum within just a small fraction of both the prescriber and potential patient population.
We remain focused on reaching an increased number of targets from our existing sales footprint about 6500 total while continuing to establish up Nick as a part of our Sep partners scaling protocols and routines.
Moving forward, we are preparing for an expanded launch increasing our corresponding investments in sales marketing and medical to further accelerate the growth of this unique asset no.
Notably, we expect to expand our sales team from 65 to about 100 by the end of the first quarter 2021, allowing us to broaden our reach to over 15000 Sep targets.
Additionally, we recently welcomed a new head of marketing Sanjay malleable, who joins with a wealth of eye care experience.
As we look ahead, we see a drug that has an almost immediate positive effect on patient and his promotion only sensitive with.
With this foundation, we will be layering in a meaningful marketing and medical spend starting to create consumer awareness and further elevating awareness and education within the targeted DCT community.
Continuing to expand our target audiences and beginning to put in place our loyalty program.
We look forward to updating you on our progress as we move further through the early launch phase with that I'd like to turn the call back to Brian.
Thanks, Jay date, and that concludes the prepared portion of our remarks and what I'd like to do now is turn the call back to the operator, so we can field questions operator.
Thank you.
As a reminder to ask a question you'll need to press star one on your telephone to withdraw your question. Please press the pound key please standby, while we compile the kunaev roster again Thats star one to ask a question.
And our first question comes from Randall Stanicky with RBC capital markets. Your line is open.
Great. Thanks, Brian I may have missed this but just looking at the press release and the commentary around structure.
The strategic review process can you just comment on that to the extent that you can.
Mark the timing it if thats related to the Irish takeover law, maybe just expand to help us understand the the profit from that and I have a couple of follow ups.
Yes, Thanks, Randall and good afternoon, and well number one under the Irish we are an Irish domiciled company, so under the Irish takeover rules.
We have to be fairly specific in this type of disclosure and what really sparked all of this is we've seen through a fairly short time with a peak on the market.
We believe this drug is a winner.
And as you know, we're a fairly diversified company right now.
And we really want to focus on.
As I've said earlier clearing the runway for investing enough need can growing that brand, which we think can has huge upside for us.
And shareholders and then.
Should our backlist and get approved as well by the end of the year, we're very bullish on that product.
And we just want to make sure that we're letting folks know that we are willing to consider a lot of options in our portfolio in order to drive the best outcome for up leak in our backlog.
And then you talked about.
Being having a generic base that generates cash flow you talked about you are transitioning to a specialty company using that cash flow to invest in the growth of specialty over time and at some point generic that generic business dilute said specialty growth and you're kind of bad debt.
Collection plate right now is that part of the thinking in terms of splitting the business and then the other part of the question I mean in terms of Irish law.
Two spurred this disclosure.
Do you need to be certainly certainly along in the process or is this just give you more flexibility to pursue.
Possible.
Strategic changes.
We are at the infancy of the process, we really quite frankly are kicking that off with this release. So this is really ultimately for flexibility as you stated and also with our generic business.
We have a lot of pride in it and we continue to do so when we clearly are going to be reliant upon the manufacturing facility.
For our back within in for another pipeline product that we have which is fairly far along.
At the same time, if we can.
Monetize different portions of the company to free up investing enough need we're wide open to that.
Understood and then just one question on the it's early in the launch I understand but do you have the senses to how it's being used yet.
Is it use daily intermittently any feedback you've received from.
Physicians I think it's probably too early to get a sense of script refilled, but anything you could give us a sense from that perspective in terms of how sticky do you think use will be overtime.
Yeah. So Randall great question, and we know exactly how it's being used right, now, which which fuels our confidence but.
Ill start it out and JV will will add more more detail but.
The population Thats getting our drug right now is exactly the population base from our clinical trials, which is.
Roughly a median age of 65, so it's a little older.
Then we would expect as we get further out in time, it's the more severely tata patient not the mild to moderate.
But it's not surprising because those are the patients that were really sitting there and I care right now easily identified so I think JV was that relatively similar.
We'll move to add yes, I think Randall and good afternoon. The the only thing I'd add to Brian's comments and you touched on it it's too early for insights around refills, but I think.
One of the comments that that we did made which I think is important here is two thirds of of prescriptions early are for 90 days and I think.
The reason that's important is number one.
90 days is really a commitment to use the product on behalf of the patient and so when you. When you asked about power patients using it what are we seeing what is the stickiness I think that speaks to the underlying trends that were excited about upfront patients are using this every day and they are committed.
To using it based upon what in reality is a chance to use it and see it take effect and know what that effect is going to be each and everyday within the first five to 15 minutes of Trialing the drop and so thats all very encouraging through eight nine weeks here.
Got it thanks guys.
Thanks Randall.
Thank you and our next question comes from David Steinberg with Jefferies. Your line is open.
Okay. Thanks.
So just to parts and that's really really just parse.
The types of patients more.
So it's.
It's largely being prescribed.
To those older patients who would be considered for surgery.
Who have the more severe tests or I know that you.
You are hopeful that over time.
The appeal to the more broader.
Group of patients is there any evidence that that sort of the scripture, you're going towards sort of that younger.
That's something that would be the fit is great.
Lets much.
The red.
Okay. You also indicated you're going to you're increasing your sales reps.
By 35 in the first quarter and you can increase your medical spend could you give us a general sense of what type of increases in spending.
Youre going to see into sort of a housekeeping issues. The third question.
Your mate matters Kris.
Okay.
David We lost you on the back end of that question could you.
Give us the last part of it please.
All right, what I think while we're.
Waiting for David to get back why do we JD, let's answer the beginning of this question.
And then we can see the can reconnect or get onto a cleaner line and.
David If if you do.
Feel free to expand ethic.
All of the questions were a little bit in and out so I want to make sure we capture and answer but I think the first one was around patient types in a little bit more of what we're seeing so.
Maybe expanding a little bit upon look certainly the clinical trial patient profile.
But it's it's in real world and so they're making a choice to go on therapy here I think it's skewing female not not entirely unexpected and I think while the bolus is what I would consider that patient profile that reflects what we saw.
On the clinical study may be more moderate to severe.
Potential surgery or doesn't want to go through with surgery. The reality is we're actually seeing a lot of different views overall and while it's not the same as the upfront bolus. It does give us that confidence here that we are working with a drug that has untapped potential.
Well and as we go the opportunity to build out all of those segments and really extract and optimize.
What we're doing I think the other piece is the investments themselves and I think brian's going to add a little bit more depth to this but there hasn't been a lot of patient.
Focused awareness up front and that certainly is one of those levers that I think we're keen on beginning to roll out and even accelerate as we move through next year.
To bring in more educated consumer across the spectrum of age group and demographic into these offices.
All right. So let's see David do do we have you back.
HM.
So.
Let's see in the.
In the spirit of keeping this going with the second question.
In terms of the increase in our spend basically for 2021 behind up Nick.
I think the addition of our sales force that JD mentioned it we're looking at roughly.
In the total scheme of things around a 30% increase to the selling effort in the footprint.
I think our marketing expenditure year over year, we'll double.
At a minimum depending upon.
A number of early experiments, we plan to field in the early goings of next year and the end of this year around promotional responsiveness.
Particularly the digital footprint and direct to consumer and then I think on the R&D side, our expenditure base, who will remain relatively even with this year, but we are shifting internally most of our available and fungible resources to up need so we will have.
A fairly dedicated up need medical affairs plan and budget, which will include a number of investigator sponsored studies.
Because the outreach, particularly among the aesthetic community.
Has been pretty expensive so.
Stop there and see if David is back if not operator, we can always come back to him Hey.
Just as a reminder, press star one to re queue.
Okay. Our next up here is David your line is open.
Oh, Hi, sorry, sorry about that my signal.
Yeah, just a I was just I don't think its the last question about gross margin I think you indicated further erosion of generic Concerta and Bert.
You've done a nice job managing gross margin, where do you see things bottoming out in terms of the profile.
Yeah.
We would like to think that we've seen the lion's share of the erosion of the base business, David and so yes, weve taken weve taken a number of steps to try to reduce costs cost of goods and some of that you are seeing right.
Reflected in the quarter.
Quarter Pan out as we as we shift.
As the sales mix shifts.
Adam Neate becomes more prominent we note that the ne gross margin is at a higher rate than.
Some of the existing base business lines that are accomplishing most of the.
Most of the gross margin.
Today, So we would expect.
As a peak sales begin to take off some gross margin improvement there.
Thank you and our next question comes from Ami Fadia with Leerink. Your line is open.
Hi, good evening, thanks for the question.
Firstly, just with regard to the announcement.
And there's going to be an issue now.
Can you help me think about.
Why the announcement of prime.
Primarily around me can then why not.
Gone to maybe exploring the divestiture of.
The generics business so some of the legacy product so.
So how do you think about kind of why you think technique and that's the one because it is still in kind of that early launch phase.
Secondly can.
Can you talk about how many staff has been concluded.
In the market for me and can you talk about the mix of.
Can you give us a sense of the total volume of prescriptions that you've seen so far and when things started to come.
And then lastly, just with regards to the expansion in your sales and marketing effort.
Can you give us more color around the shift.
Well were you, adding that but in terms of the type of physicians you might be focusing on thank you. Okay.
Okay, Thanks, Ami and I'll take the beginning of it and turn it to JV for the second half and we have some fairly.
I think good information for you but.
With regard to the Irish takeover law, one of the very very clear that.
We are basically exploring all available options available to the company.
In order to maximize the assets. So for example should our back within get approved.
We would consider any range of partnership divestiture co promote with our back with them. We're quite open to that should someone want to acquire our generics business, we would be open to that so.
So if someone want to acquire the whole company naturally we are publicly traded so.
Thats pretty much a no brainer, but.
What we're really seeing today is a tremendous upside with up Nick and we're going to face that issue as well should our backlist and get approved and quite frankly, given the erosion in the base business. We don't have the bandwidth to maximize both of those assets at the same time.
So we need to look at refinancing our capital structure to also give us some more runway and create non dilutive or.
You know revenue to fuel growth. So this is really completing our transformation into a growth story.
And we've got a great had a great run off the base business and now it's time to to really expand.
So JD over too.
Yeah, Yeah, and Ami I jotted down a couple of notes on that try to hit these sequentially in terms of some insights I think number one yes.
Asked about sampling.
I think the way we looked at it was our approach and we've talked about this before but.
First time up Nick has been introduced outside of a clinical setting we were going to be measured and deliberate I think would that mean was what that meant was the early experience program would start with a core group of about 650 positions and we would use.
Free trial.
As a preview and a means of really generating not just awareness, but comfort with the product from a physician standpoint, and also give patients and opportunity to use the product consistently each and every day in a seamless and straight forward manner I think what we saw coming out of that one.
As a tremendous amount of receptivity and what we're really talking about here is building a market you know theres theres not a lot of good analogs in terms of where these patients are but we know that they're everywhere across eyecare optometry ophthalmology within the ocular plastic setting and then I think you know looking.
Forward, obviously into some some adjacent an additional channel opportunities.
So we've taken that early experience and we quickly expanded to.
To where through the end of October.
We had added samples and early experience kits to 2500 easy peas in total or just over 2500 eyecare practices throughout the country.
Well, we've kind of.
Talked about it as a function of 330 days and I think it's enough product thus far.
B trial in over 10000 patients so it's quite a bit of product, but again I think this is rooted in you know really developing not just a sense of awareness within some core Sep offices up front, but also that patient feedback and I think what is ultimately given us a lot of confidence in excel.
Our rating the expansion from both the sales marketing and medical perspective. This quickly in the launch.
And then I think your last question was touching on what are some additional data points. So again early and I don't think you know the the visibility and anchoring to things, which are really just data points and not really trends at this point, but through September.
Sure and we launched right around Labor day.
Coming out of the Labor day holiday, we had about 345.
Practices that it also prescribed up need by the end of October that number had grown to over a thousand and I think similarly.
Overall prescriptions during those same two time periods submitted went from 637 to over 2400, so about four X growth in prescription volume over that four week period, what amounts to about eight weeks into the launch.
So obviously some really encouraging.
Trends or data early.
Early on and I think look that transitions to your to your last question about some of the mix and where we're headed with this.
Look number one most of the marketing spend that we're going to be ramping up is not incremental to much of a baseline. This is really new developing the CP community the traditional HCP medical marketing.
Office space resources, and importantly, education, you know keeping this top of mind in the surround sound when our reps aren't in front of them each and every day.
Peer to peer education, and the tweaks and adjustments that we've made through eight or nine weeks with the feedback from these offices to.
To give them additional tools and tactics to help them identify these patients remember we're building a market we've barely scratched the surface in terms of the number of E C P's.
That are out there and who have product today and we've got a lot to do and I think we're excited about what that that looks like moving forward on the medical side clearly it's additional additional data I think its additional horsepower and bandwidth from a personnel perspective.
To help expand upon the promotional efforts and peer to peer messaging and education.
And then consumer awareness.
We're going to be a were wrapping up some market research and testing.
Im going to be launching the first consumer campaign did digitally as we turn into January.
And then also starting to pilots and DTC tactics set at a micro geographic level and using that as the baseline to continue to build and expand on the consumer side of things.
That's very helpful.
If I could just.
Maybe just I guess, one clarification question so.
Hi, all right.
Prescriptions come from practices that you gave on sample.
Or what any process to.
Outside of that I don't think it's Frank.
Okay great.
Great Great question. So I think early on it was driven by those practices that we had gone too I think as we've moved in this in particular over the last several weeks, there's there's no doubt organic tailwinds here and I think the the white space, maybe just to put it in a.
Traditional term the number of prescribers that that have yet to be sampled or have called looking for samples and information.
Continues to increase and I think these are all really strong indicators given what was really.
Controlled launch with reps in samples in a targeted group of physicians.
That kind of have a sitting here today eight nine weeks in ready to expand the footprint and really start to open things up as we turn towards 21.
Thank you may.
Very helpful.
Thank you. Our next question comes from Greg Fraser with Trust Securities. Your line is open.
Thank you.
Following up on the planned initiatives to drive that meet you mentioned the sales force expansion increased marketing spend more folks on the medical side.
Well the planned investments.
That you're wanting to make in 2021 depend on monetizing some of the non core assets or not and are there initiatives that revenue that you would like to fund in 2021, but it will be difficult to fund.
And with your current cap structure.
Yeah, I think right now we're not really looking at.
This process driving our ability to invest.
I think at a minimum you know our loan is due at the end of 22, So we'll be looking at options again to reach.
We restructure that piece of capital.
And so I think they're not really dependent upon the other we plan to invest.
No matter, how you look at it because that's the single best thing we can do for this company and for the shareholders. So.
I'm pretty comfortable with that JD, yeah, I would say the only thing I would add Greg is I think always.
You can always spend more but I think what we're focused on is look we we have to spend more we're seeing the things that give you the confidence and conviction in investing more and ramping those spends and then we'll continue to be very thoughtful about where we put the next dollar beyond that but.
It's likely things like expanding reach and or consumer marketing campaigns, but thats going to be rooted in seeing the same data points and trends that we've seen thus far.
Got it Thats very helpful. And then just a question on our backlist and based on how the review is progressing or how would you characterize your confidence in a positive outcome.
Well, you know look I'm I'm confident in the product and the outcome but.
But you know I'm supposed to be and I think what I've, what I've told the.
I've told everyone on the street that you know, let's let's wait for it to happen before we count. It I think I think what I can really say is right now we're engaged with the FDA in a fairly rigorous review.
They are being extremely thorough we're getting some excellent questions from them and they are diving deep into the database.
Diving deep into the statistics behind everything.
Heavy on CMC, and we feel very good with the answers to all of the information requests that have come our way so I.
I think confidence is building, but I want to be I want to be cautiously optimistic for the sake of our investors.
I think it's a great product, it's got a real place in the armamentarium of neurology NMS, but.
Hoping the goal date December 29th is a nice Christmas present, but what we will say.
Got it thanks for taking the questions okay.
Okay. Thank you.
Thank you and there are no further questions in the queue I'd like to turn the call back to Brian Clark for any closing remarks.
Okay. Operator, thank you and thank you all for joining our call today, we welcome the opportunity to update you as we move into the future I think we've got some great things in store for us.
And we will be in touch thank you.
Ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect everyone have a great day.
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