Q4 2020 Osmotica Pharmaceuticals PLC Earnings Call

March 30, 2021

Thank you for standing by and welcome to the Osmotic Q4, 'twenty 'twenty earnings business update conference call. At this time, all participants on a listen only mode.

After the Speakers' presentation there'll be a question and answer session to ask a question at that time. Please press Star then one on you touched on the telephone.

As a reminder, today's conference call is being recorded.

I'll now turn the call 30 host Ms. Lisa Wilson you may begin.

Thank you operator, welcome to ask Monica Pharmaceuticals, fourth quarter 2020 business update call.

As Lisa Wilson Investor Relations for Us moniker.

With me on today's call are Chief Executive Officer, Brian <unk>, Chief operating Officer J D shop.

And Chief Financial Officer, Andy Einhorn.

This afternoon.

The company issued a press release detailing financial results for the three months ended December 31 2020.

This press release and a webcast of this call can be accessed through the investors section.

As Monica website 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 belief expectation projection forecast anticipation or intent regarding future events and the company's future performance may be considered forward looking statements as defined by the <unk>.

But securities Litigation Reform Act.

These forward looking statements are based on information available to us monarch of management as of today and involve risks and uncertainties.

As noted in this afternoon's press release, and our filings with the SEC.

Such forward looking statements are not guarantees of future performance.

<unk> results may differ materially from those projected in the forward looking statements.

As Monica, 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 as Monica Dot com.

For the benefit of those who maybe listening to the replay or archived webcast. This call was held and recorded on March 32021.

Since then as Monica may have made announcements related to the topics discussed.

Please reference the Companys recent press releases and SEC filings.

And with that I'll turn the call over to ask Monica CEO, Brian markets.

Thank you Lisa and good afternoon, and thank you for joining our call today.

The fourth quarter of last year represented a significant turning point in the company's recent history.

We introduced <unk> in the middle of a pandemic with a tightly controlled approach to a select group of eye care providers.

During this time, we learned that up neat because everything we had hoped patients love. It providers are impressed by the safety and more importantly, the efficacy.

We introduced the products through our new subsidiary RVO Pharmaceuticals, and made it exclusively available through RVO pharmacy, which is the next level up for customer support and service.

We also partnered with sand 10 for the global development and commercialization of up need.

They are off to an excellent start and we will be meeting with regulatory authorities around the world as they complete development for the major markets.

Our base business has performed well with the highest quality of manufacturing excellence in customer service. The companys non promoted products and generic products have also performed as expected.

Finally, our strategic review is well underway and robust we look forward to updating you about this process in the coming months.

I'll now turn the call over to Andrew Einhorn, who will discuss the Companys financial results.

Andy will be followed by JD Schaub, our chief operating officer, who will provide additional insights into our early progress on uptake with <unk>.

Andy.

Thank you Brian.

Total revenues for the three months ended December 31, 2020 were $34 5 million compared to $59 9 million for the three months ended December 31, 2019. The decline was primarily due to a decrease in net product sales, partially offset by higher licensing in contra.

<unk> revenue and royalty revenue.

Net product sales decreased by $26 7 million to $32 1 million for the three months ended December 31, 2020 that compares to $58 8 million for the three months ended December 31 2019.

This decrease largely reflects lower realized pricing and volumes of our generic products, including methylphenidate ER venlafaxine, ER and Laura zone.

Which were partially offset by higher sales of give a gel and sales of up knee, which was introduced in September of last year.

Selling general and administrative expenses decreased by 400000 to $20 7 million. During the three months ended December 31, 2020, as compared to $21 1 million in the three months ended December 31, 2019, the slight decrease reflects lower selling expenses.

Due to sales force realignments in late 2019, and early 2020 offset by higher marketing spend associated with <unk> and higher legal expenses.

Research and development expenses decreased by $4 4 million in the three months ended December 31, 2020 to $4 5 million as compared to $8 9 million in the three months ended December 31 2019.

This decrease is primarily due to the completion of the phase III clinical trials of RV, All 12 O one and our baclofen ER.

During the fourth quarter of 2020, we recognized intangible asset impairment charges of $49 million as compared to $29 9 million in the fourth quarter of 2019.

Net loss for the fourth quarter of 2020 was $54 9 million compared to a net loss of $26 6 million in the fourth quarter of 2019.

Adjusted EBITDA in the fourth quarter of 2020 was $1 2 million compared to adjusted EBITDA of $14 9 million in the fourth quarter of 2019.

Our full year financials are as follows.

Total revenues decreased by $62 1 million to $177 9 million in 2020 as compared to $240 million in 2019, primarily due to a decrease in net product sales, partially offset by higher licensing in contract revenues, including $25 million from Sandy.

<unk> pharmaceuticals for the license of Asia, and EU rights for up Nique.

Net product sales decreased by $89 6 million to $1 $45 9 million for the full year of 2020 as compared to $235 5 million for 2019.

Net product sales of methylphenidate ER inclusive of M 72, Venlafaxine, ER and Laura zone decreased by 57%, 66% and 73% respectively due to price erosion from generic competitors, resulting in significantly lower net selling prices and lower <unk>.

<unk>.

We expect that the additional competition for our generic products as well as additional generic product approvals and launches in the future. If any will continue to negatively affect sales of our products in 2021 and in future years.

Selling general and administrative expenses decreased by $11 million in 2000 $20 million to $82 million as compared to $93 million in 2019.

The decrease reflects the previously mentioned sales force reductions in 2019, and 2020, partially offset by higher marketing expenses associated with the launch of up Nique and higher general and administrative expenses largely due to costs associated with the Santa <unk> license transaction and legal expenses during the year.

<unk>.

Research and development expenses decreased by $12 6 million in 2020 to $19 7 million as compared to $32 3 million in 2019, reflecting the completion of the phase III clinical trials of both our baclofen ER and RV all 12 O one.

We incurred intangible asset impairment charges of $72 2 million. During the 12 months ended December 31 2020 pre.

Primarily related to the write down to fair value of Methylphenidate, ER Venlafaxine, ER Oxybutynin and on two new E. R. Due to price and volume decreases resulting from competing generic products and delays associated with the anticipated commercialization of on tenuous E. R. If approved.

Our net loss for the full year of 2020 was $79 6 million compared to a net loss of $270 9 million for 2019.

Our adjusted EBITDA for the full year 2020 was $40 6 million compared to adjusted EBITDA of $68 8 million for 2019.

As of December.

<unk> 31, 2020, we had cash and cash equivalents of $114 1 million and borrowing availability under our revolving credit facility of $50 million.

As of December 31, 2020, we also had debt of $219 5 million net of deferred financing costs. Following the prepayment of $50 million in the third quarter of 2020.

I'll now turn the call over to J D.

Thanks, Andy.

As Brian stated this has been a truly exciting time for our organization with the launch of up Nique today I'll update you on the highlights share additional details on the tactics, which are building momentum and touch on the expansion of those efforts.

As the first FDA approved therapeutic treatment, we are building a market.

The first phase of our launch through the end of this past year was designed to provide seamless trial through an early experience program and allow us to generate real world insights, which would further inform and shape and expanded rollout.

In short we provided almost 18000 samples representing almost 12030 count equivalence to a select group of over 4000 eye care providers.

This introductory period was met with tremendous receptivity from both clinicians and their patients and is validated what we have always believed which is an outsized commercial opportunity for uptake.

Perhaps most importantly, the practical utilization of up Nique, thus far has highlighted the safety and efficacy profile, particularly given the broader range of adult patients beyond the controlled setting of clinical trials with acquired ptosis now being treated.

More specifically the majority of our early prescriptions are being driven by the more obviously severe patients those who may or may not be ready for surgery.

This is to be expected and extremely encouraging because it's also the smallest subset within ptosis and indicates that we have barely scratched the surface.

The fact that the average age of our patience has already shifted from about 65 at launch.

<unk> 62, and 63 more recently is also very encouraging.

Obviously, as our medical and marketing campaign Rolls out we would expect this trend to continue.

Lastly, the early success has provided a platform for us to attract top tier talent complementing the foundational team already in place.

We have added significantly to the depth of eye care experience within the RV L organization, including leadership across sales marketing market development and medical.

Turning to some more recent highlights in February we began the transition to a broader launch with the expectation that pandemic related restrictions would begin to open up.

Leveraging what we learned and expanding our commercial efforts to include an increasing array of launch tactics.

We launched a new website print and digital media campaigns created the platform for social media engagement across key platforms, including Instagram and Youtube kicked off our speaker programs with a series of educational and promotional Webinars led by experts across the eye care.

Spanned at our medical marketing efforts and have begun to fill in the gaps beyond personal promotion.

Now I know that everyone is hungry for data so I'd like to spend the next few minutes covering our most recent trends.

First we have continued to see sequential monthly growth in paid prescriptions since launch with the most recent month March expected to exceed 2000 paid prescriptions and representing over 50% growth versus February.

Second we continue to see similar growth in new prescribers first time prescribers every week.

Since launch we have sampled just over 6500 ecp's and through this past Friday over 3800 of them have written a prescription for up Nique.

Over recent weeks the number of first time prescribers has further accelerated averaging just under 200 a week in the month of March.

Again, we're seeing these trends with only a fraction of the ECP universe, having been sampled and prescriptions being disproportionately skewed toward a more severe patient type out of the gate.

We are truly just getting going.

Though it remains far too early to draw conclusions around refills, we are encouraged by the early data. Additionally.

Additionally, we continue to see a consistent split of O D M D prescribing about 55% and 45% respectively.

And 90, Count 30, count prescriptions, again about 55% and 45% respectively.

Lastly, we continue to be encouraged by the conversion of new patients to filled prescriptions. Another indicator that we're coming out of the heavy sampling phase of the early launch period.

Awareness is building momentum is accelerating and all of this has occurred in just a fraction of both the prescriber and potential patient population.

Ultimately, we're focused on creating a large enough prescriber base to serve as the platform for an increased emphasis on consumer activation and DTC advertising more.

Moving forward, we will continue to increase our corresponding investments in sales marketing and medical to further accelerate the growth of this unique asset.

As we've previously discussed we expect to increase our sales team from the current 65 to about 100 over the next couple of months.

The increased reach coupled with growing investments in digital marketing direct to consumer advertising and disease education and data generation will all contribute to the continued acceleration and market penetration of up Meek.

Towards the middle of the year, we expect to rollout a volume based program, which includes the ability for our E. C. P partners to dispense directly from their office where allowed.

The patient response and market feedback. Thus far is also accelerating our efforts towards finalizing our plan and strategy to expand up into the aesthetic channel.

Which could significantly.

Gently enhance the already large commercial potential of this brand.

In closing, we see a drug with tremendous upside.

A noninvasive treatment, which has an almost immediate positive effect on patients and is promotional sensitive we look forward to updating you all on our progress again in a couple of months.

With that I'd like to turn the call back to Brian.

Thanks J D.

And with that operator, we're happy to open the call for questions operator.

Thank you again, ladies and gentlemen, if you'd like to ask a question. Please press Star then one on your Touchtone telephone one moment. Please for our first question.

Our first question comes from Randall <unk> of RBC. Your line is open.

Hey, guys. This is Dan Busby on for Randall.

I'd like to start by going back to your early experience program and the 650 positions that were part of that can you talk a little bit about the shape of the adoption curve for that specific cohort of physicians now that we're about six months into launch for that group and do you expect subsequent phases of the launch to follow a similar pattern with respect to uptake.

And second.

Can you elaborate a little bit more on how you expect your use of samples to evolve going forward and can you share any details on the conversion rate from samples to paid prescriptions. Thank you.

Yeah, and I think this is Brian you packed a lot of questions into that end and thank you I think the the.

The early experience program and the adoption is something thats very different.

Then what's happening today. So what we did is we put on early experience program in front of our providers with a lot of free product.

And we asked them to commit to a certain number of patients upfront and really not look beyond that group of patients. So they can adequately treat them with the free product and give us really really good you know.

Real time feedback however, what I'll say is that even outside of that group, we saw prescriptions right away.

So we did notice an immediate uptake.

Outside of our early experience program, but nothing that you would.

We really anticipated, but we were pleased to see it because we saw prescriptions coming into the pharmacy.

Now I'm going to let J D comment further on it in a few seconds, but what we did from that program as we dialed back our sampling profile quite substantially.

We had full boxes of 30 out there or are on.

Our up kits out there for the early experience program that had quite a lot of product. We're now distributing much much sleeker and in fewer individuals samples.

Not leaving it around the office all that much because we really don't need to and it does impact refills in sales.

So J D you want to add a little to that.

Yes, I think Dan just to just to expand a bit on what Brian was saying with the 650 I think the important aspect of the early experience program for US was at the end of the day. This is a new market right. The first in class product for.

Or a condition that largely hasn't been considered in.

In the mind of the eye care practitioner, historically, and I think a large market at that but when you don't have many options to treat something.

It tends to fall by the wayside and so for us.

That group of practitioners and remember if you go back to some of the earlier comments upfront, we pretty quickly expanded because it turned into a real opportunity to generate insights as much as accelerate adoption within different practices and I think the thing that we really have taken up.

Out of that is this product cuts across all of the different specialties of eye care and what that means in terms of the adoption curve specific to each of those specialties is going to be a bit different and.

And by that I mean, if you're an optometrist the way in which you're interacting with your patients from a care perspective, whether it's co management of surgical patients within an integrated practice, whether it's an optically focused practice or whether it's just simply a private practice providing primary care.

I care, you're going to approach, how you incorporate and implement up unique differently.

If you're a cataract surgeon right overhauling protocol within the way in which you operate and we're talking about surgeons that.

On average are doing upwards of 40, plus surgeries a day.

That's a process that takes several months and so I think most importantly, we've taken those things and really worked over the last several months to develop and position ourselves to now be able to go effect that behavior more broadly across this.

Spectrum as we expand the launch and really put the full weight of our organization behind it.

From an accelerated adoption perspective, I think what we're seeing is number one the increase in the number of prescribers. That's happening. So quickly given this is a new market is just incredible number two the ability for the range of utilization that we're seeing.

Seeing from an adoption standpoint is low.

Low hanging fruit, what's most obvious the more severe patient and then those that have gotten comfortable the practices and again were working off of small ends here that we have really kind of dug into and worked with are partnered with to figure out the best way to implement.

Have started to move where we're starting to see.

One two patients a day coming out of these practices because they are now actively looking for it they've trained the staff and the entire practices bought in and I think those are those are the things that youre going to see in net we're focused on continuing to drive in a systematic manner.

That will allow this thing to accelerate at the exponential pace that we've started to see here through February and March as the investments have ramped up.

Got it Thats all very helpful color.

I'll ask just one more maybe for Andy if we look at the fourth quarter as a baseline how should we think about the cadence of operating spend this year just given the ongoing investment behind the <unk> launch.

Yes sure Dan.

<unk>.

The cadence of operating spend as it relates to up Nique.

Was frankly limited in 2020 to just the introduction of the up program as we head into 'twenty, one we would see the marketing spend increase and also we've.

We'll be looking to expand the number of <unk>.

Sales reps, we have so I think on the SG&A line for sales and marketing, we would see those expenses creep up as well.

Okay. Thank you.

Thank you.

Our next question comes from Greg Fraser on Securities. Your line is open.

Thanks, Good afternoon folks.

Can you speak to the mixed use debt you're seeing with the <unk> in terms of aesthetics vs impairment.

It sounds like just given your comments about severity most of the east is probably in patients with impaired vision just curious about that.

Yes, great question.

J D you mentioned it in.

His prepared remarks, I think out of the gate. The average age of our subjects was around 65 years.

And.

In the time when the pandemic was most restrictive.

These were folks that were stacked up considering surgery, and we got them as a trial on our program.

And these are not it's not the market, we're really going after but we got great results and great feedback.

Today, the average age is pushed a little south of that to around 62 63 range J D.

And we are beginning to branch more into the mild to moderate however, I can tell you that we have not scratched the surface outside of the patient that's more severe and sort of some obvious to the clinician. So I think really the theme of this call.

As we've barely scratched the surface.

We're very very excited with what we're seeing as once again JD mentioned, it already and I hate to be repetitive, but once the practices get comfortable with the efficacy and safety profile. They use it for themselves a few patients and then they begin to understand how.

Broadly applicable it can be across the entire spectrum of ptosis.

And how people perceive their islands on how to enter into that conversation.

This thing is only beginning to expand and flourish. So right now we're getting a sliver of really what's there and ptosis and almost nothing in aesthetics. There's a few folks out there working with it is as an aesthetic agent.

I won't name names, but they are very close to us and they're doing a lot of great work with us.

And they're just loving it so.

We will get there hopefully sooner than later J D mentioned, we're going to try to begin that rollout middle of the year to the aesthetic market, but we've got a lot of wood to chop right now in ptosis and again, we're only reaching a fraction of the eye care providers that we need to see.

To establish that broad base of utilization and acceptance.

Got it that's very helpful.

Can you talk about the studies that youre thinking about that would help to broaden the consumer opportunity.

Yeah sure Greg This is J D.

So look we have we.

We have what we consider to be.

Very broad label.

And I think this foundation of acquired Ptosis as a condition ended of itself.

We believe is incredibly large much larger than the ICD 10 diagnosis codes.

Would tell you I think some of the feedback that we've gotten and that we continue to parse through as we think about expanding the debt.

The consumer piece of this and maybe the more.

Our static leaning.

The profile of this product.

The things that are most important we talk about onset.

On the relevance of this is immediate.

Satisfaction and gratification, that's a rare thing.

When you talk about a product where you see a change within a matter of minutes and are able to make that determination now we looked at that in our clinical program.

But I think it's something that we.

We're certainly keen on teasing out in a bit more of a robust manner as we move forward.

You think about things like the subjectivity of a low lying lid.

We measure in millimeters.

But the reality is the before and after.

Impact of this drop is going to mean something different depending upon who you are and so the.

The concept of age relevant ptosis.

Millimeters matter the effective eyelids cemetery what.

Is the impact of raising the lid on things like brow heightened contour.

Within without a variety of other aesthetic press.

Procedures, just to give you a sense of the range of data that we're looking to generate that I think number one will really resonate most with clinicians on the aesthetic side and then number two also provide a greater platform for us to engage.

<unk> directly with consumers with things that are meaningful.

Got it that's very helpful on.

On the question for Andy.

Should we think about an average net sales per prescription and how might that change once providers are able to dispense the product in their office.

Yes.

Thanks, Thanks, Greg.

Again, this is where selling up sneak through a kind of a closed system through our own pharmacy. So the traditional gross to nets you'd see on a retail pharmacy system youre not going to see in this kind of product.

There are some ancillary costs involved in getting the product to the patient those are fairly fair.

Fairly de Minimis, we are considering to answer the question from doctors, what's in it for me a number of programs or loyalty program, where we might offer some kind of.

Incentives back.

In the form of a rebate or something like that.

And that would that would affect the gross to net Brian right and as we we lean.

Harder into the full year.

We will be exploring a direct expense model, where the physicians will be able to sell it to the patients were doing more market research now real time with providers, who are giving the product and selling it to patients.

And once we narrow in on the pricing dynamic that we prefer then we'll be able to roll that program out and again it'll be exclusively through our proprietary channel. So.

That's the best I can tell you on that direct expense model right now we've got some more work to do.

But.

We have a lot of people asking for it but the other part of it that's really.

Staying our hand, if you will.

There's a number of patients out there that should get this drug no matter what.

And we do not want to give up economics.

And pay for that baseline so in our view performance will need to be above a certain baseline.

For the eye care providers, if theyre going to dispense it directly to their patients and charge money for it.

Got it okay.

So we're still a little early on we're still we're still early on and we need to refine it.

So I think that's really the punch line.

Got it thank you.

Thank you again, ladies and gentlemen, if you like to ask a question. Please press Star then one on your Touchtone telephone.

One moment please.

Our next question comes from David Steinberg of Jefferies. Your line is open.

Thanks, Good afternoon, a couple of questions I have.

First in your obviously, you're still on your experimental phase and I was just curious.

Around feedback youre getting from physicians and atomic trusts.

<unk>.

What are some of the side effects.

The patients have the most commonly reported or are there just no side effects.

And then.

You've mentioned prescriptions have exploded.

What what percent or a lot of the prescriptions coming from the base of doctors, who actually hasn't been sampled yet.

Sort of a word of mouth phenomenon and then just in terms of pricing do you think you've priced it right with the prescriptions growing rapidly.

Are you hearing back from both either patients or doctors are both debt.

G. Some patients feel like the price is too high and just can't afford it or do you think maybe you under priced at just curious thanks.

Hey, David it's great to hear you.

I think we probably underpriced or 90, count a bit and we're thinking about making a change to that.

We think the 30 count is probably in the right zone.

So that's the last part of your question in terms of adverse events.

There are minor reports into the hotline like any product out there we're not really sure if its an adverse event related to a product or not but some things do come in but in terms of direct provider feedback we're not getting anything.

And in fact.

The drop is very soothing.

Our biggest concern.

Actually is training the patient to put the drop in their eye properly and make sure that they get it right because if I just use.

My own family members that is as an example.

One of them had a lot of trouble just getting the drop in awry.

When she is older than me. So you could take a guess who that could have been but it is concerning when you have an older population and theyre not that study. So we do have to take a lot of care to make sure that the eye drop is administered correctly.

And a J D.

Q4 2020 Osmotica Pharmaceuticals PLC Earnings Call

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