Q2 2021 SWK Holdings Corp Earnings Call
Yes.
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Good morning, and welcome to ask WK Holdings Corporation second quarter 2021 financial results all participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.
After todays presentation, there will be an opportunity to ask a question.
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I would now like to turn the conference over to Marine Dock in row E V. P of IRR at Tiberon strategic advisors. Please go ahead.
Thank you.
Good morning, everyone and thank you for joining S. W. K holdings second quarter, 2021 financial and corporate results call.
Yesterday evening after PK Holdings issued a press release detailing its financial results for the three months ended June 30th 2021.
The press release can be found in the Investor Relations section of after you take whole dot com under news releases.
Before beginning today's call I'd like to make the following statement regarding forward looking statements.
On the development of our consumer and drug product candidates.
For future potential product candidates and studies and our expectations regarding our capital allocation and cash resources.
These statements are based on our current expectations and you should not place undue reliance on these statements.
Actual results may differ materially due to our risks and uncertainties, including those detailed in the risk factors section of S. W. K Holdings 10-K filed with the SEC and other filings, we make with the SEC from time to time.
That's W. K holdings disclaims any obligation to update information contained in these forward looking statements, whether as a result of new information future events or otherwise.
Joining me on today's call is <unk>, chairman and CEO F U K holding who will provide an update on <unk> second quarter 2021, corporate financial results. Once didn't go ahead.
Yeah.
Thank you Marie.
And everyone for joining our second quarter conference call.
Let me close the book on our second quarter on June 32021, SBA holdings at the end of the first half of 2000 say one on solid footing.
These developments during the second quarter in recent months was robust returns generated by our finance receivables segment and continued strong credit trends led to realized yield of 22, 9% for the quarter ended June 32021.
The engine behind these returns remains our unique investment strategy focused on small and mid sized life science companies with differentiated patent protected commercial stage products.
This business model remains highly effective for us to vacate given the continued innovation in healthcare aimed at addressing unmet medical needs and the need for capital to fund the development of these innovations and bringing resulting technologies to market.
Added to that life science companies continue to make a strong recovery from the COVID-19 pandemic widespread effects.
We remain well positioned to benefit from a niche in the health care focus specialty finance sector viewpoint.
We find growth opportunities for small mid sized commercial stage life science companies through the creation of unique financing structures.
Deals include structures that traditional royalty monetization synthetic royalty transactions and asset purchases and typically range in size from 5 million to $20 million market segment, often ignored by other structured finance companies.
Illustrate this business strategy was a finance you've made thus far in 2021 and March we closed the $9 million loan with some serious pharmaceuticals, <unk> compounding pharmacy focused on dermatology customers more.
More recently in April we completed a 5 million synthetic royalty purchase with ideal implant medical device company focused on the aesthetic space.
Followed in July by $9.5 million financing with trio health care to support the company's U K and international launch of its innovative somewhat bag jeanie.
Transactions are very much keeping with our investment strategy and we continue to seek source, an assessment, where sloan and royalty opportunities.
As of now we have three 2 million of cash and revolver availability to support our partner companies and capitalize on potential investment opportunities.
Other business development companies Bdcs and some investment funds <unk> balance sheet is not heavily leveraged.
Second quarter was also a period of solid progress at our subsidiary and terrorist Biopharma.
Led by the expansion of its manufacturing facility and the launch of his new CMO business segment.
<unk> enhanced capabilities, allowing terrorists CEO, Dr. Rajiv coleslaw and his team to seek deeper development and manufacturing relationships with partners by providing custom solutions from bench to market, including the containment and processing of high potency API.
First considered acquiring and terrorists if you'd expand the company's manufacturing capabilities and important component of our technology licensing strategy and believe the expanded capability of the facility will facilitate the business going forward.
Exemplifying this opportunity is the ongoing success of <unk> relationship with Cara Therapeutics, the company's development of oral course through the <unk>.
June and tariffs earned an additional $10 million milestone from Kerem <unk> third milestone payment in the last 12 months.
Oral Chris who is now subject to four separate clinical programs, including an anticipated phase III trial for the treatment of pruritus in patients with stage, three and four chronic kidney disease.
We anticipate additional payments over the next several quarters subject to achievement of development milestones.
In May <unk> Board of Directors announced the formation of a strategic review committee to identify review to explore strategic alternatives for the company with a view to maximizing stockholder value.
While the strategic review Committee continues to work diligently on this initiative at this time. It has not made any decision to enter any transaction and there can be no assurance that the exploration of strategic alternatives will result in any transaction being announced or agreed upon.
Now turning to our finances.
As of June 32000, and for anyone that's vacates portfolio of royalties and structured credit backed by royalties totaled approximately 213 million across 25 partners.
This compares favorably to $182 million three excuse me $182.3 million from the same period last year, representing a 16, 8% increase year over year.
For the second quarter of 2021 in recent weeks as we've previously discussed as we closed a five minutes synthetic royalty transaction with ideal implant.
With 3 million funded at close on June 30th 231, the weighted average projected effective yield of the finance receivables portfolio was 13, 9%, including an accrual positions.
Versus 13, 2% as of the end of the second quarter in the previous year.
Also after the close of the quarter on June 30th SBA closed at $9.5 million financing of trio health care of which $5.1 million was advanced at close.
At the end of the quarter S&P K reported book value per share of $20.18.
Which included a <unk> <unk>.
Per share negative impact from the amortization of <unk> intangibles seven cents per share positive impact from mark to market changes on more in equity securities.
Compared to $18 six.
As of June 32020, this is approximately a 12% year over year increase.
General financing book value per share, which includes the <unk>.
Bird tax assets intangible assets goodwill and contingent consideration payable totaled 17 point.
<unk> 23 per share, which increased 14, 5%.
From the same period last year of $15.05.
Management views tangible financing book value per share is a relevant metric the value of the company's core specialty finance business.
For the second quarter of 2021.
<unk> reported total revenue of $22.3 million compared to some point 9 million for the second quarter of 2020.
The $14.4 million net increase in revenue was primarily due to a $4.1 million increase in interest and fees earned on our finance receivables and a $10.3 million increase in revenues at <unk> terrorists.
Primarily related to <unk> licensing agreement with care of them.
Which included a $6.1 million.
That was paid to the former and terrorists owner.
Income before taxes for the second quarter of 2021 totaled $17.5 million compared to $125000 loss for the same period the previous year.
The year over year, approximately $18 million increase is primarily driven by the $14.4 million increase revenue.
A $2.6 million a decrease in amortization of intangible assets.
One 9 million decrease and the change in the fair value of the contingent consideration related to terrorism acquisition.
This was partially offset by $1.3 million increase in general and administrative pharmaceutical manufacturing expense.
The GAAP net income for the second quarter ended June 32000, free one totaled $14 million.
Or $1.09 per diluted share compared to 876000.
Or <unk> <unk> per diluted share for the second quarter of 2020.
The second quarter of 2021, adjusted net income was $17.2 million compared to $4 million for.
The second quarter of 2020.
Second quarter non-GAAP net income generated by the specialty finance business totaled $10.6 million.
Compared to $7.7 million for the prior period prior year period.
As evidenced by these results are especially finance business continues to perform well and we're working hard to identify new transactions that leverage our areas of expertise and a growing need amongst small to mid life science companies for access to capital to fund future growth and.
And by doing so youll benefits the bar and positive returns for us to Vaca shareholders.
And history dynamics should we believe remain favorable to our business strategy.
<unk> remains well positioned to harness our expertise.
Our produce to opportunistically deploy capital for compelling value, adding investment opportunities.
As friends Harris as we discussed Rajeev and his team continue to execute a dual arm growth strategy and maximize the potential of its new manufacturing and CMO business and the company's type Telegent some procurement technologies.
In that regard and terrorists continues to work hard towards partnership agreements.
In conclusion.
<unk> thousand 21 fiscal year has so far continued what has been a period of substantial development for us to have U K <unk>.
This is made possible by the diligent efforts of our SDK holdings team I once again like to thank our employees for their dedication and loyalty.
Take holders for their continued support as we evolve our model and grow as to BK holdings.
With that I will now open the call to your questions.
We will now begin the question and answer session.
To ask a question you May Press Star then one on your Touchtone phone.
You are using a speakerphone please pick up your handset before pressing the keys to withdraw your question. Please press Star then two.
Our first question today comes from Kyle Bowser with <unk> Securities.
Hey, Wednesday, and good morning, and thanks for all the updates today and congrats on a great quarter here.
Thank you.
Maybe just starting on the tariff side of things following the build out and.
Of operation to support manufacturing.
Clinical trials and early commercialization of new assets.
Has this provided some momentum for new partnerships and collaborations now that you're kind of up and running.
Sure.
Definitely believe it has yes.
As we noted in the press release and tariffs has recently signed.
Three new feasibility studies.
Which I think is a direct result of <unk>.
Of all the momentum that they have there.
Yes, I think as we.
We think about the visible pipeline.
Rajiv started last year in May.
And you're right in the midst of Covid.
Which was a difficult time to come onboard and begin to turn around that program, but here we are.
Roughly a year past that and now we're starting to see the feasibility agreements starting to ramp in the facilities open.
I think.
We're starting to see that momentum come together a little bit.
Great I appreciate that and and you mentioned it in your prepared remarks, I mean, we've got over $30 million of availability and cash in the revolver.
But at relatively low leverage ratio compared to your peers and Yep question I ask every quarter, but.
How are we thinking about the leverage ratio now and going forward any any appetite to.
Take out some more debt.
Sure Great question, and yes, I think the the <unk>.
Answer is yes.
I figured I'd ask again in case Theres, some more details because I'm I'm trying to understand better the process of the feasibility studies. Obviously these licensing agreements if youre able to hit some new ones that are good they can be tremendously valuable valuable so I.
I'd like to kind of better understand what the process is there.
And like I said, you already touched on this but also the timeline.
And also if kind of in the meantime, what those feasibility studies if there's much in the way of revenue opportunities there.
Sure.
The solar.
The timeline generally as you know.
You have your visible mint discussion and Doug.
We will progress to wanting to sign a CDA between the parties, which the Cta to protect our technology and then of course for our partner would want a C D. A to protect their their knowhow in there and there are and they are molecules that they're looking to develop an oral formulation of an yep.
That process could be quick in terms of your from first meeting to go to the actual Cta or perhaps there's a couple of meetings.
If you think about.
The group like for like a large pharma.
That process may take weeks months quarters.
Which I don't think it would be surprising and then you think about a small biotech that may move more quickly.
Yeah more aggressively that.
That could be.
A couple of weeks. So yes. So you have that that kind of first time frame.
And then.
Youre kind of once you get to the point, where the parties are working with one another.
The.
The feasibility studies.
<unk> be brief.
Preclinical type.
One of the models that we typically use as like a dog study for example, and so from a revenue opportunity.
They are.
100000, a couple of hundred thousand.
Pending on the scope of work in the.
Uh huh.
A number of iterations that the other team has to do indeed.
And of course with all the different partners looking to achieve so and then does that was that process goes on that can you.
Got to lead to additional.
Clinical work that can that can lead to a license kind of right away or.
Or a different partner may want to actually see some.
Some clinical results before taking a license and there's kind of puts and takes all along the way when you're doing that.
The.
The further you are in.
Clinical development, the better economic terms will be on a license.
<unk>, which is not dissimilar from what you see in the industry generally and of course earlier that is in development and of course, the less and less important and valuable to the potential economics are.
And so.
In terms of going from the feasibility studies to a national license that can be cut.
A couple of quarters or it can be.
A couple of years it just depends on the on the on the overall process, but along the way there you know there is opportunities to earn.
Economics on.
The formulation work on the on the manufacturing for to support you.
Your partner and then and so forth so.
<unk>.
The whole goal is to kind of build as big as the licensing funnels. We can increase the number of shots on goal and anything keeping to keep building and building. So that is as we get into.
Yep.
Over the over the next 12 months 24 months, we will have.
A building of that of that pipeline that will eventually turn into a into licenses.
Bill Dave Yep.
We hope to be a very valuable portfolio of milestones and royalties that are out of that technology.
Okay, Yeah, that's great that's very helpful.
In terms of the strategic review and this is a little related.
My findings.
Certainly this will be more true as you sign more licensing agreements but.
Then terrorists are probably has a lot more value I think that even when you bought it with the developments you've already had and the milestone payments.
There is the feasibility study, including any options.
There might be something like raising some money at the in Paris level or anything like that or is that anything you can reveal I don't know if that would be.
Worthwhile thing to do or not but is that the kind of thing being considered or not.
Yeah.
Sure Yeah the.
That's a great suggestion that in.
Yeah in terms of what all the <unk>.
The strategic review Committee is considering I think there.
<unk>.
And everything and that's yeah.
That's definitely a conversation that's been had in the past and yep.
Yep.
Again I would like.
I would very much like to tell everyone exactly what all of US there is being considered and so forth, but yeah. I think so I think we can we can leave it that.
Src will.
Well definitely be be apprised of your suggestion and well we'll.
We'll see you know exactly how it's determined to to to move that forward.
Okay, Great just one last kind of minor thing, but I was kind of look I was looking at the warrant and equity portfolio do you have a few.
Things that have had a pretty decent return there I was just curious how you're managing those or are you kind of reviewing them quarter to quarter are you consider them long term buy and hold positions just.
Looks like some kind of end up being at home runs potentially or are these things you just kind of assess quarter to quarter.
Sure. It's a it's a little bit of both Matt and I think one of the challenges with the <unk>.
With monetizing those those positions is that yep.
In most cases, we remain lender to you know to a partner that we that we actually have a warrant position and as a result of that we're somewhat limited from a material nonpublic information perspective, and being able to go to.
The bio ties those.
And so yeah, I think historically, you probably noticed that we've typically.
Yeah, but being able to monetize those when there's a change of control of.
The partner company.
But when you think about.
Alone, where we get refinanced and and then our kind of our cleansing period so to speak.
Kind of.
Completes yeah, I think at those at that point.
Able to determine whether we're going to you know to monetize or or or wait so.
It's something that we look at it on a quarterly basis, but.
Yeah, but were also limited in terms of.
What we can do with some of these positions until.
Well were cleared from from M. P I.
Okay, well, that's great keep up the good work are really enjoying seeing all the progress.
I appreciate it thank you for the support.
Our next question comes from Scott Johnson, a private investor.
Hey, good morning, Wednesday in another great quarter. Thank you.
So my question is a little bit of minutia, but when I looked at the Narcan revenue for this quarter.
And I looked at the underlying sales of Narcan can you go over again, how you get paid is it like a quarter off or delayed because the narcan sales were fantastic and we're up.
Yeah, Yeah, how does that work yeah, great great question.
And.
I think it's I think it's good to clarify for everyone to make sure that everyone understands how these work so we recognize revenue on our royalties and arrears, yes.
Since where we don't have very good information on go on actual sales of of a product on which we get paid royalties.
Really have to wait to see what we get to be able to recognize that revenue. So in the case of narcan.
You know the payment that we would've received during the second quarter is derived off of sales from the first quarter and that's that's pretty typical from for all royalties were.
Just generally speaking royalty.
The royalty payments are or do you know anywhere from 45 days or 60 days or kind of industry norms.
For those royalties to be paid post quarter. So yeah, the you're absolutely right.
Emergent announced today.
A blockbuster quarter, if you will for it and then so are our royalty payment associated with that in the second quarter.
It will be paid during the third quarter and that's when we'll recognize that as revenue.
Great well, thanks for that and I'll go back in queue.
Do you have any additional questions. Please press star then one to join us.
And at this time I'm showing no further questions. So I'd like to turn the call back over to Winston Black for any closing remarks.
Thank you operator.
In closing I appreciate your time and attention and look forward to future updates as we continue to advance as to BK Holdings I also like to extend my sincerest wishes of good health tool.
Thank you.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.