Q2 2023 Eagle Pharmaceuticals Inc Earnings Call
Good morning, everyone. My name is Shelby and I will be your conference operator.
At this time I'd like to welcome everyone to Eagle Pharmaceuticals second quarter 2023 financial results all lines have been placed on mute to prevent any background noise.
After the Speakers' remarks, there will be a question and answer period.
That time, if you have a question please press star and one on your telephone keypad.
As a reminder, this conference call is being recorded today August eight 2023.
It's now my pleasure to turn the floor over to MS. Lisa Wilson Investor Relations for Eagle Pharmaceuticals. Please go ahead.
Thank you Shelby welcome to Eagle Pharmaceuticals, second quarter 2023 earnings call.
This is Lisa Wilson Investor Relations for Eagle Pharmaceuticals.
With me on today's call are Eagle's, President and Chief Executive Officer, Scott tariff.
Chief Financial Officer, Brian Cahill, and Vice President of Medical Affairs, Dr. Michael Greenberg This morning.
Hey, Eagled issued a press release detailing its financial results for the three months ended June 30th 2023.
This press release and a webcast of this call can be accessed through the investors section of the Eagle website at <unk> 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 private Securities Litigation Reform Act. These forward looking statements are based on information available to Eagle Pharmaceuticals management as of today.
And involve risks and uncertainties, including those noted in this morning's press release and our filings with the SEC such.
Such forward looking statements are not guarantees of future performance actual results may differ materially from those projected in the forward looking statements.
Eagle Pharmaceuticals.
Typically disclaims any intent or obligation to update these forward looking statements, except as required by law.
Telephone replay will be available shortly after completion of this call you'll find the dial in information in today's press release.
The archived webcast will be available for 30 days on our website at Eagle U S Dot com.
For the benefit of those who may be listening to the replay or archived webcast. This call was held and recorded on August eight 2023. Since then Eagle may have made announcements related to the topics discussed. So please refer to the company's most recent press releases and SEC filings.
We will be discussing non-GAAP financial measures. During this call. In addition to financial information prepared in accordance with U S. GAAP. These non-GAAP financial measures should be considered in addition to but not as a substitute for the information prepared in accordance with GAAP and.
A description of these non-GAAP financial measures and reconciliations of these non-GAAP financial measures to their most comparable GAAP measures are set forth in our earnings press release available on our website at <unk> Dot com and with that I'll turn the call over to Eagle's, President and CEO Scott Harris.
Thank you Lisa and good morning, everyone and thank you for joining our call today.
We delivered a strong second quarter with impressive earnings and revenue continuing the positive trajectory we've seen over the past 18 months. This morning, I will begin by discussing our financial and business highlights for the second quarter as well as expectations for the remainder of the year. Brian will then provide a more detailed review.
You have our second quarter financial performance and our updated guidance for 2023 before opening the call to Q&A.
We entered 23 with a great deal of momentum from our outstanding performance in 'twenty two.
And we built on that with strong <unk> numbers in the first half market share retention for it than Deca in bell wrap so and growing relaunch revenues for bar emphasis and by favorable since our acquisition of these products from Acacia.
First we are obviously very pleased with the performance of our currently marketed drugs, both in oncology and in our hospital business.
Once again, we posted strong earnings and revenue and in fact this is now the fourth consecutive quarter in which we have beaten consensus estimates.
<unk> on these and other positive factors that I'll discuss this morning, we recently raised our full year guidance and in July resume repurchases under our existing share repurchase program.
Based on the higher guidance, we anticipate ending the year with over $100 million in net working capital.
Let me provide some context here, we believe this expected working capital position as meaningful.
Considering how much money, we anticipate having invested by the end of 'twenty three across our products and pipeline.
For 'twenty, two and 'twenty three we anticipate to have invested $38 million in direct R&D to fund our product candidates <unk> hundred 14 in call it too.
Additionally, we spent approximately $130 million, mostly cash to acquire acacia shares and debt and $25 million to date for an equity position with an option to acquire MLR.
This totals approximately $193 million and we still find ourselves in this positive working capital position as we continued to generate positive cash flow.
Over the past 12 months, we have also expanded our commercial teams, but within the hospital and oncology segments and we now have a significant commercial infrastructure of about 80 people, which is included in the earnings and cash flow just discussed and the revised upward guidance, we view our two sale.
<unk> forces as strategic assets to the company, which we will discuss further shortly.
What we believe this means for the future is that equal could bring in additional products through R&D <unk> acquisition with minimal additional cost because of the commercial infrastructure, we already have and therefore most of the revenue generated would fall to the bottom line.
Now, let's put everything in perspective for a moment for fiscal year 'twenty, two we more than tripled non-GAAP earnings to just shy of $8 per share compared to 21.
Which was driven by approximately $230 million of gross profit and 22, excluding amortization expense adjusted non-GAAP EBITDA grew more than 350% to $132 million for the fiscal year 'twenty two compared to 21 for <unk>.
<unk> 23, we expect nearly the same gross profit as we saw in 'twenty two excluding amortization expense, although we increased our spending our gross margin continues to be strong in fact, our gross margin percent excluding amortization in the first half of this year.
Was 83% compared to 74% in the first half of last year.
And when you remove vasopressin, which was discontinued our gross profit actually increased for the second quarter of 2003 compared to the second quarter of 2002.
We expect this trend to continue going forward.
The year over year decline in earnings per share is mostly due to these continued investments in R&D and our commercial infrastructure, which we believe positions us well for the future upside and it's not a function of gross profit decline.
We have been highly focused on our R&D initiatives and are working hard to ensure that each asset has the best chance of success. We're just a couple of weeks away from an important type C meeting with FDA for EA 114 hour estrogen receptor antagonist project, which I'll discuss in more detail shortly the <unk>.
<unk>, we have made in our commercial infrastructure clearly paid off we have more than tripled our market share of the non 340, <unk> pemetrexed market to approximately 21%, leaving Q2 up from 6% at the end of last year.
It's important here to look at our balance sheet and receivables as well.
<unk> of our receivables related to <unk> at the end of the second quarter for this product. We received the majority of our orders near the end of the quarter because contract pricing is mostly adjusted quarterly large quantities of product are purchased near the end of the quarter. Producing. This result, this trend is likely to continue into the near future our core.
Order over quarter receivables balances flat, indicating that we are in a normal cycle of payment and new revenue.
Now turning our attention to the Acacia acquisition. We are also very pleased with the relaunch efforts of our emphasis in <unk> favor within our hospital acute care segment, we characterize and treat both products is re launches.
As a reminder, our acquisition of Acacia was effective June 9th of 2020 to about a year ago are fully trained and fully staffed sales force was first in action in Q1 of this year as we re launched.
And by favorable received its unique J code. It May now please review the following slide.
We now have two full quarters of sales data and growth has been about 30% quarter over consecutive quarter since the relaunch and we anticipate a similar growth rate to continue for the foreseeable future.
In the second quarter of this year alone we estimate that approximately 19000 patients were dosed with <unk> or by say, though is very impressive number reflecting the fact that the drugs are being embraced by our customers.
Terms of penetration two quarters in approximately 275 healthcare facilities are purchasing product out of a targeted 4000 entities in the United States, we see significant upside expansion potential here.
I mentioned 19000 patients a moment ago, let me repeat this number 19000 patients were administered bar emphasis or by favor in our second quarter of relaunch imagine what happens at half. These entities are using our drugs or if we increase our market share in each of these you can see how the 19000 could grow quickly.
We'll see how the next several quarters ago, but I hope you can feel the excitement we have about these two launches.
Now, let's discuss our oncology business.
Gross profit excluding amortization expense in our oncology business was $43 $8 million in the second quarter of 2003.
From $38 7 million in the second quarter of last year.
Representing an impressive gross margin of 84% and 82% and 72% respectively.
Across the entire portfolio, our gross margin percentage, excluding amortization has gone from 70% in the second quarter of 'twenty two.
Up to 83% in the second quarter of this year, we anticipate that these trends will hold in the near to medium term.
Hopefully you can see that our gross profit and our gross profit margin continued to be very strong as it has for the past year and a half.
We are strategically investing in our business for future growth.
Today, we have the largest commercial team that we've ever had which is prime now to be able to bring more products into the company with minimal incremental expense, thus accelerating the bottomline as products come into the portfolio. We have been investing heavily in R&D as well as a way to expand our portfolio. We believe we are poised for.
Future earnings growth based on the strength of our business and our R&D the.
The question remains how do we ensure growth going forward. The answer is simple we need to add products through acquisition <unk> through our R&D pipeline. Fortunately as we've discussed this morning, we believe we can bring in products with minimal additional commercialization expense one potential opportunity is a 114 hour estrogen receptor and <unk>.
This program, which we have invested in over the past several years we.
We believe we have compelling data from our recent study of EAA $1 14, and we have a type C meeting with FDA. Later this month. Once this meeting transpires, we will provide an update now turning to our hospital segment. We believe the hospital business is a great space with strong growth potential if already.
Heard about the relaunch for bar hemp system by favor and <unk> two analog 001 could also have significant potential.
As people familiar with this space.
Hospital launches are slow they are also generally rather sticky and profitable once well established.
Now, let's discuss <unk> two as.
As we recently announced our phase two study is underway in our first patients have been randomized the.
The study is designed to assess the efficacy and safety of <unk>, two which you may recall is the first which is we call is a novel first in class antitoxin drug candidate being developed to treat severe community acquired bacterial pneumonia as an add on to standard of care antibiotic therapy.
<unk> is a unique therapeutic agent that works differently from antibiotics. This army the infectious pathogens virulence factors to reduce damage and mitigate disease.
It has been designed to neutralize a broad range of bacterial toxins to lessen the effect of <unk> factors on disease progression and severity.
We plan to enroll approximately 276 patients.
At more than 100 sites in over 20 countries worldwide.
Our expectation is that we will have approximately 100 sites up and running before the year's over in readiness for the northern hemisphere as pneumonia season.
In addition, we expect to have our interim results within the first half of 'twenty four.
In June FDA granted <unk> to Q I D. P designation under the gain Act Q.
<unk> stands for qualified infectious disease product <unk>.
<unk> also received fast track designation and let me briefly walk you through what this all means to IDP designation entitled Eagle to an additional five years of marketing exclusivity upon approval Morever Eagle.
Igo believes Cao to qualifies as a new chemical entity, which would result in five years of marketing exclusivity upon approval or three years without an <unk> designation.
In total <unk> two may be eligible for a total of eight to 10 years of marketing exclusivity upon approval.
Q IDP and fast track designations underscore the significant unmet medical need in treating severe community acquired bacterial pneumonia.
<unk> also has patent protection through September of 2035 with filed patent applications that would extend to 2037 or later and may qualify for up to five additional years of patent term exclusivity as a new chemical entity up to 24.
<unk> has the potential to be a significant opportunity for us and a true paradigm shift in how health care providers combat. This complex disease, we look forward to providing updates as the <unk> clinical program advances.
Before I turn it over to Brian Let me reiterate once more how pleased I am that we were able to raise our guidance for the year very excited about the health of the business and with that I'll turn the call over to Brian Cahill to discuss our second quarter financials Bryan.
Thank you Scott and good morning, let me share a few highlights from the financials, we published in our press release this morning.
In the second quarter of 2023 total revenue was $64 $6 million compared to $74 1 million in Q2 of 2022.
Net product sales during the second quarter of 'twenty, three totaled $43 million compared to $49 2 million in Q2 of 'twenty two.
<unk> net product sales were $19 $4 million in the second quarter of 2023 compared to $16 $5 million in the second quarter of 2022.
The increase is driven by our continued growth and market share.
As Scott discussed earlier.
<unk> net product sales decreased to $6 $8 million in the second quarter of 2023 compared to $8 1 million in Q2 of 2022 second quarter <unk> net product sales were $10 million.
Compared to $8 8 million in.
In the prior year quarter.
Orders for <unk> are primarily driven by product expertise with few customers requiring dantrolene unless their stock is expiring with this our guidance considers Q3 to be lighter than the historical average.
Second quarter, perhaps system by favorable sales totaled $1 2 million.
Q2, 2023 royalty revenue was $21 7 million compared to $24 9 million in the prior year quarter.
Royalty revenues include royalties earned on sales have been deca in the U S and <unk> in Japan.
Gross margin was 74% in Q2 2023 compared to 68% in the prior year quarter. The increase was primarily driven.
Primarily sorry, the result of increased <unk> sales.
The exploration of Bendamustine royalty stream and the buy down of Confederacy royalties.
This was partially offset by the inclusion of amortization expense of intangible assets related to <unk>.
Newly acquired products, perhaps to somebody favorable.
And our.
Our <unk> Z royalty buy down both of which we expect to continue going forward.
Most margin excluding amortization expense was 83% in the second quarter of 2023 compared to 70% in the prior year quarter.
On the expense front R&D expenses were $9 8 million for the second quarter of 2023 compared to $11 4 million in Q2 of 'twenty. Two this decrease is largely attributable to the time to the timing of our EA 114 program spend in 'twenty, two and is partially offset by continuing.
CMC and clinical trial spend on our <unk> two program.
Increased internal costs, excluding stock based compensation and other noncash and nonrecurring items second quarter 2023, non-GAAP R&D expense was $9 2 million.
SG&A expenses in the second quarter of 2023 were $27 7 million compared to $36 $8 million in the second quarter of 'twenty two.
This decrease was primarily driven by a $17 $6 million and costs related to the acquisition of Acacia which will not recur.
This was partially offset by incremental $2 $9 million related to increased sales and marketing head count to $4 million related to direct marketing support for branches by CFO and excuse me <unk>.
And $2 9 million and other general and administrative expense partially related to these commercial efforts.
<unk> stock based compensation and other noncash and nonrecurring items second quarter 2023, non-GAAP SG&A expense was $23 8 million.
Net income for the second quarter of 'twenty, three was $5 2 million.
Or 39 cents per basic and diluted share.
Compared to a net loss of $9 $5 million or <unk> 74.
Loss per basic and diluted share in the prior year quarter.
Adjusted non-GAAP net income for the second quarter was $15 5 million or $1 18 per basic and diluted share.
And our adjusted non-GAAP EBITDA was $20 7 million for the second quarter.
For a full reconciliation of non-GAAP measures to the most comparable GAAP measures. Please see the table at the end of our press release.
As of June 32003, the company had $15 $4 million in cash and cash equivalents, $115 1 million and net accounts receivable and $71 $3 million in outstanding debt.
With that I'll ask the operator to open the call for questions. Operator. Please go ahead.
Thank you.
This time, if you would like to ask a question. Please press the star and one on your telephone keypad.
You may remove yourself from the queue at any time by pressing star two.
Once again that is star one to ask a question.
We'll pause for a moment to allow questions to queue.
Yes.
And we'll take our first question from Tim Lugo with William Blair. Your line is open.
Thanks for taking my questions.
And I guess a few for Brian .
You detailed some expectations around Q3, I think you mentioned seasonality in the quarter can you kind of expand on that.
And.
We've also seen gross margins expanding.
Can you also discuss some of the drivers there.
Sure Tim Good morning.
Thank you. So first on the seasonality question as you picked up on highlighting <unk> has a.
Approximately 36 month shelf life.
The cycle in which we sell the product in and the expiry cycle really dictates most of when those sales will occur second quarter was.
And Ed and third quarter is expected to be a slight flow right. So it'll be a little bit lower but that cycle kind of continues on a wave.
Depending on when those lots are expiring.
Okay.
And I tried to highlight the Tim also some of the drivers around.
The margin differentials that we're experiencing in our business and I'm trying to highlight for you.
Ex <unk>.
Amortization, what are real profitability looks like.
And you'll recall I hope that we.
We had.
We had a few factors going into our gross margin. We were previously weighted down with royalties that we used to pay on our side.
Bendamustine franchise.
Those have expired at the end of last year. So it actually increases our profitability in that area of our business and for <unk>, We made a decision to buy down.
A large majority of our royalty to another partner at the end of last year and with that we have better profitability gross margin gross profit.
And that will create the second as you look back on that what we did as far as looking at our forecast to buy down that royalty was really it was really favorable for us I think.
Okay. Thanks for that detail and I guess lastly, if our homesites owned by <unk>.
We see that growth.
Yes.
Obviously relatively still smaller compared to the total franchise.
The expectations for that franchise over a one year two year period.
Continued steady growth or will there be any anything else swinging that.
Yes, Thanks, Tim Scott. So look we're just really very excited about it and as far as we're concerned we've only been.
Fully marketing these drugs for two quarters and you can see the 30% growth.
Our expectation is that this growth rate that we see is going to continue into the foreseeable future.
It's just going to keep it just going to keep growing we're getting great feedback from our customers.
Great acceptance, if you think that there is 275 hospitals buying now or.
Facilities that could buy at a 4000 and we have our most seasoned.
And the highest number of people in our sales force most number of territories you can see what happens.
Don't know how you feel about but the fact that 19000 different patients used our drug.
In Q2 alone is very exciting our customers are obviously embracing it.
They're reusing it or you wouldn't be able to get to this 19000 number and we expect that it's just going to keep keep growth and then if you just multiply it out where this is going to go and not that too far of a distant future, it's going to be a very meaningful part of our business and I think we're going to look back and be very pleased with the acquisition and.
Combine that if we get good news on caliber too, we'll see what happens with al are but a few years couple of years, we can be one of the leading hospital businesses in the marketplace and we still think it's a great place to.
To be so we're more than excited right now about how it's going.
Understood. Thank you for that.
We are actively buying back shares.
But obviously in the public market.
The share price has been weak year to date and youre not the only one obviously.
Can you just maybe discuss those data about where do you think that disconnected.
Okay.
Tim that's a very good question.
From our perspective, we've really had.
Remarkable year and a half right will wind up with a strong 23, and the fact that we rebase the business and we grew to $8 a share and this increase of 350% last year and hopefully the takeaway today. When you go through our script in our release is that gross profit.
At year over year is about the same.
Our margins are growing in key segments of our business, we're bringing in quite a bit of profit we've decided to spend some of that profit selectively and opportunistically into the future of the company.
We're in a position to bring more products and so for instance, when EBITDA $1 14, if we're fortunate enough to bring that to the market we don't need.
Much more additional expense to add that product into the into the company.
We are waiting for data on <unk>, two we are waiting to come back from this FDA meeting.
Don't know where the disconnect is per se from a stock standpoint, but from a company standpoint, it's just been a great two years and we're very excited about the future and the future looks great either through R&D, we will see how the R&D works out we're very hopeful, but our balance sheet and our cash position just puts in a <unk>.
Position to bring in another product or two into the company. So.
We think the future looks incredibly bright great two years and hopefully people figure it out.
The stock will take care of itself.
The earnings certainly have in the R&D looks like it is in these things have a tendency to work through.
Understood. Thank you for that.
Thank you Tim.
And once again, if you would like to ask a question. Please press star and one on.
On your telephone keypad.
That is star one to ask a question, we will pause for another moment to allow questions to queue.
And it appears that we have no further questions. At this time I will now turn the program back over to Scott tariff for any additional or closing remarks.
Thank you again, everyone for joining the call I am extremely proud of our performance this quarter and as you've heard this morning, we have the foundation in place for another strong year. In 2003 looking ahead, we intend to build our sales momentum to leverage our commercial infrastructure and working capital position to add complimentary products either through R&D.
Our acquisition to advance the pipeline as always we appreciate your ongoing support and thank you for being on the call stay well we appreciate it.
And that concludes today's teleconference. Thank you for your participation you may now disconnect.
[music].
Okay.
Okay.
[music].
Hello.
Oh.
[music].
Uh huh.
[music].
Hum.
Okay.
Okay.
Hum.
Okay.
Hum.
Yes.
[music].
Hum.
Hum.
[music].
Uh huh.
Okay.
[music].
Got it.
[music].
Okay.
Uh huh.
[music].
Okay.
[music].
Hum.