Q2 2019 Earnings Call
Good afternoon, and welcome to <unk> second quarter 2019 financial results Conference call.
Today's call is being recorded.
For introductions and opening remarks, I'd like to turn the call over to Mr., David Carey with their partners. Please go ahead.
Thank you operator, good afternoon, everyone and welcome to todays teleconference.
With me on the call is John Amos Divis, as Chief Executive Officer, Mark Oki, Divis, as Chief Financial Officer, and Dr., Santosh Varghese Beavis as Chief Medical Officer before we get started I would like to remind everyone that during this conference call Visvis will make certain statements that are considered forward looking within the meaning of the private Securities Litigation Reform Act of 1995.
These statements may be identified by the use of forward looking words, such as anticipate believe estimate expect forecast intend hope likely may opportunity plan potential predict and should among others.
These forward looking statements are based on divis as current expectations and actual results could differ materially.
There are number of factors that could cause actual events to differ materially from those indicated by such forward looking statements investors are advised to read the risk factors set forth in this Form 10-K for the year ended December 30, Onest 2018, which was filed on February 26 2019.
As well as periodic reports filed with the Securities and Exchange Commission such as Visvis is Form 10-Q filed earlier today.
This does not undertake an obligation to update or revise any forward looking statements made in this call.
I'll now turn the call over to John Amos.
Thanks, David and thanks to everyone on the call for your time this afternoon.
Fiscal Q2, 2019 represents the completion of quarter four of our 10 quarter turnaround.
The newly integrated management team has been working on improving the business for over a full year.
I would like to compare and contrast, the last four quarters of performance ending on June Thirtyth 2019.
For the four quarters of performance ended on June 32018.
From July Onest 2018 to June Thirtyth 2019, we generated revenue of $72.7 million compared with 54 million in the prior year period.
This reflects the revenue growth rate of 34.7%.
From July Onest 2018 to June Thirtyth 2019.
We generated non-GAAP EBITDA of $14.4 million compared with $155000 in the prior year.
Later in the call Mark will further expand on some of our expense management and provide some final points over the last 12 months of management of the business as well as review second quarter 2019 financial results.
I'd like to begin with a review of Qsymia.
Emphasizing that in the second quarter of 2019, we grew scripts for the product by 5% compared with the first quarter of 2019.
As noted in our prior quarterly call, we see the performance of Qsymia in the first quarter of 2019, as the baseline from which we intend to grow.
We also noted that we have relaunched the product utilizing our advantaged platform and then just a few months. It is already beginning to realize its potential generating 6800 scripts in the second quarter compared with only 1800 scripts in the first quarter of 2019.
The Qsymia advantage program was corrected several issues that patients had access to the product.
We have lowered the out of pocket costs by approximately 30%, we have flattened pricing across all strengths, but we have made significant strides in moving new patients from the 14 day free trial offer to 66 week titration and initial therapeutic dose.
The free trial offer historically represented 8% of our total prescriptions. These prescriptions were effectively have sunk marketing expense in patients only converted to a paying customer approximately 50% of the time.
The prescriptions create a negative patient perception of Qsymia and were also wildly unprofitable.
By moving to flat prices across all strengths, we wanted to remove the cost barrier to patients to move on to the higher therapeutic dose of prescribed by their physician.
Historically this strength accounted for 22% of our total scripts in Q2 2019, this strength accounted for 23%.
We believe this change is significant as patients will continue to lose weight potentially increasing their durability of treatment.
Going forward, we expect to see some fluctuations in our script volumes. This is due to the elimination of free trial offer have because we do not report our qsymia advantage strips, which will comprise a greater portion of our scripts through the normal data services.
Overall in the second quarter 2019, we generated 86000 scripts compared with 82000 scripts in the first quarter of 2019.
While the company had historically seen some fluctuations in quarterly volume. These occasional positive changes were not driven by active commercial efforts, while we do not consider qsymia fixed we are starting to see improved commercial performance. We still have another a number of other commercial and clinical initiatives in the pipeline through the Qsymia brand, including the planned rollout of telemedicine capabilities and an improved payer strategy. We expect announcements on both of these by the end of the year.
Dr Varghese, who will provide an update on our clinical activities later in the call.
Overall.
We're pleased with Deviances performance in Relaunches Qsymia.
Yesterday.
We announced that our Korean marketing partner Allergan attain marketing approval for Qsymia from the South Korea Ministry of food and drug safety Visvis will receive a $2.5 million milestone payment related to the approval in our agreement also includes future milestone payments tied to commercial launch of Qsymia and achieving certain sales goals. Nicholas will also receive royalties on allergens net sales of Qsymia.
Let's review pancreas in the second quarter of 2019.
We expected to generate 6000 total prescriptions were below that number by 291 scripts, which translates to two scripts per territory per week. We believe we will close this gap and we'll see growth in performance in Q3 and Q4 of 2018.
To review, we also relaunched in stock in Q1 of 2019, which camera representatives covering health care providers. We've also initiated our payer coverage.
Prior to the Veeva three while there has been no commercial effort supporting the product since 2012.
Typically a prescriber needs to be visited 70 times to change prescribing behavior.
On average we have seen our targeted physicians four times through the end of Q2.
Dr. Varghese will cover the pancreas clinical programs that we are in the process of considering and initiated.
Our development program VI zero 106 for ph is still on stability testing as Weve mentioned previously where we are we are working to make improvements in the stability of the product before we submit an investigational new drug application to the FDA.
The number of inbound inquiries related to partnering this product have increased in the past quarter. However, our desired partner the product will be somewhat limited until we were comfortable with the final formulation.
The STENDRA SPEDRA product is either partner.
Out or license in various global territories, we continue to collect royalties and manage the manufacturing process for marketing the license partners.
We are working with various partners in this program to reduce our working capital exposure for the product and to improve our return on capital.
A key part of our strategy has been focused on acquiring or partnering additional EBITDA generating products. Today. We have reviewed several deals but have not found a transaction that met the criteria. We've previously laid out we will continue such efforts and remain opportunistic on appropriate asset acquisitions.
Lets shift over to our debt as a reminder, we have 181.4 million of convertible bonds due in may of 2020.
We are in the process of executing the plan that will either be implemented in Q4, 2019 or Q1 of 2020.
We will utilize our on hand cash and refinanced the balance of the $181.4 million in excess of our on hand cash to close out the bonds. The bonds are not callable therefore to close we wait until the maturity. The more we will be able to minimize double payment of interest. We are already actively engaged from lenders on potential financings in an effort to be prepared for the payoff will be convertible bonds. As we have stated numerous times, we expect a turnaround visvis will take 10 quarters when completed 40% of the turnaround.
Based on the metrics, we have seen to date.
We believe we are on schedule in total.
I will now turn over to Mark to review the financials of Q2 2019 in more detail.
Thank you John I will now review the second quarter 2019 financial results and then turn the call over to Dr., Larry who will provide an update on our clinical program.
As John discussed in depth, we just completed the fourth quarter of a 10 quarter turnaround.
Which included we launching both pant grid in Kissimmee in first quarter of 2019.
As a result, we believe that comparing second quarter 2018, with the first quarter of 2018, rather than the second quarter of 2018 will provide you with a better indication of how the turnaround efforts are progressing.
Qsymia net product revenue with $10 million and $8.4 million in the second and first quarters of 2018, respectively.
Shipments were approximately 87070 5000 units in the second and first quarters of 2018, respectively.
As John discussed we began to see the positive effects of BPMI advantage program.
In the second quarter of 2018.
In the second quarter, 8% script, where to spend 50 semi advantage programs direct to patient model up from 2% in the first quarter of 2019.
Pancreas net product revenue in the us with $5.1 million in both the second and first quarters of 2018, which represented 27000.
6000 units and pancreas.
<expletive> in the second and first quarters of 2019, respectively.
We anticipate that future pancreas product revenue will increase as a result of our relaunch efforts in the first quarter.
Supply revenue from our licensees Mediterranean Mccutcheon for SPEDRA in STENDRA were $1.8 million and $1.6 million in the second and first quarters of 2018, respectively.
We remind you that both men to read in the tech and have minimum order requirements and their orders do not necessarily reflect end user demand.
The increase in revenues due to the timing of orders from these commercialization partners.
We recognized $1.5 million and $1 million of royalty revenue from Canadian pancreas empty sales and from memory sales of SPEDRA in the second and first quarters of 2019, respectively.
Canadian pancreas royalty revenue was approximately $400000 higher than the first quarter. The result of the transition can beat us assuming commercial responsibility for Canadian sales in August of this year.
This transition resulted in approximately 10 weeks of zero shipments to wholesalers.
To ensure sufficient product available to our customers additional product was shipped to our wholesale was ahead of the 10 week period.
Beginning in the third quarter, we will record Canadian pancreas sales as net product revenue and recognize associated cost of goods sold and operating expenses.
Total cost of goods sold excluding amortization with 4.4 and $4.3 million in the second and first quarter of 2019, respectively.
The increase was primarily the result of the increase of revenue during the quarter.
Amortization of intangible assets was $3.6 million in both the second and first quarters of 2018, respectively.
This amount was primarily the amortization cost capitalized related to the acquisition of Bankrate.
Research and development expense was 2.4 and $2.5 million in the second and first quarters of 2019, respectively.
Research and development expenses were primarily activities related to the Qsymia adolescent safety and efficacy study.
Pancreas post marketing requirements, it's been from Janssen and ongoing pancreas product improvement initiative.
Selling general and administrative expense was 10.1 and $9.8 million for the second and first quarters of 2019, respectively.
And included selling and marketing expense of 4.6 and $4.5 million respectively.
Peter if expect selling general and administrative expenses to fluctuate with business development activities.
Total interest expense net was $3.9 million in both the second and first quarters of 2019.
On an annual basis, we will continue to pay approximately $19.6 million in annual cash interest on our outstanding convertible in senior secured notes.
Net loss for the second and first quarters of 2019, with 5.9 and $7.9 million respectively.
Cash cash equivalent and available for sale Securities were $94.4 million at June Thirtyth 2019.
non-GAAP EBITDA for the second and first quarter of 2018 was $2.1 million and point $1 million respectively.
Reconciliation of these non-GAAP measures can be found in the press release filed earlier today with the Securities and Exchange Commission.
In regard to the timing of refinancing our convertible note due in may of 2020.
I would like to point out that due to the convertible feature of these notes. They did not include a prepayment feature.
Therefore for every month that we've refinanced ahead of the May 2020, due date, we would incur interest on the new debt along with the approximate $680000 of interest earned on the convertible note.
As a result of this we are balancing the efficient use of our cash with resolving the uncertainty surrounding the repayment of these notes.
With that I will now return the call over to Dr. varghese for clinical and product lifecycle updates.
Thanks, Mark I will review, the clinical and regulatory aspects of Qsymia pancreas, and VI zero 106, as we have made significant progress in advancing clinical programs and projects for new data.
With respect to Qsymia in the second quarter of 2019, we enrolled the first subject in a phase four study designed to evaluate the safety and efficacy of Qsymia.
It will be adolescence between the ages of 12 and 17 years.
The centers for disease control and prevention estimates that nearly 21% of adolescents age 12 to 19 years are obese and a study conducted by the World Health organization found that obesity in children ages five to 19 years has risen tenfold in the past four decades and estimates that more children globally will be overweight rather than underweight by 20 to 22.
We believe that Qsymia can be an important part of integrated strategies to address adolescent obesity and this study is designed to provide clinical data to support a potential label expansion for this indication.
We continue to have productive discussions with the FDA regarding a study designed to evaluate the effect of qsymia on ambulatory blood pressure.
We believe this study could provide us with new data to further inform our dialogue with the FDA regarding our post marketing cardiovascular outcomes trial that was required as part of the initial approval of Qsymia.
We noted in the last call that we had submitted a protocol for this study to the FDA since that time, we have received feedback from the FDA and are incorporating their guidance into a revised protocol that we expect to submit in the third quarter.
We continue to explore regions and markets, where qsymia could benefit patients on their weight loss journey.
John already mentioned about the recent South Korean approval of Qsymia.
In addition to this we are continuing our efforts to engage certain European regulators in connection with our plan to re filing of a new Q Simeon marketing authorization application on a decentralized basis, we expect to have more to report on this in the third quarter of 2019.
Finally, we are working with the researchers at major institutions to develop clinical protocols and initiate the related clinical trials to evaluate health technology platforms to augment and track patients efforts in weight management, we hope to have more information in the coming months regarding the results of these efforts.
Regarding pay increase we continue to evaluate additional pancreatic studies, including those in pancreatic.
On collision.
We are currently finalizing a study with Cedars Sinai hospital to look at the treatment of extra can pancreatic insufficiency in patients with pancreatic cancer.
With respect to our VI zero 106 program for pulmonary arterial hypertension or ph, we anticipate moving forward with an eye on D filing in the second half of this year.
This filing and the initiation of the planned phase two clinical study will require the pending stability data on our unique proprietary once daily extended release formulation.
Which we believe will facilitate therapeutic drug levels, while minimizing immunosuppressive effects for patients with ph. The stability testing is ongoing and the results will dictate the timing of our eye on the filing.
Operator, you May now open the line for the question and answer period.
Thank you todays question and answer session will be conducted electronically.
To ask a question. Please press Star then one on your Touchtone telephone.
Again, that's star then one.
Well take our first question from John Vandermosten with Zacks small cap research. Please go ahead.
Good afternoon, everyone and great results today, especially on the top line.
First question.
It is on gross margin it seems like it improved nicely over where it had been in in the first quarter and I Wonder if you could attribute that or what you could attribute that to.
Part of it is just the growth in Q semi revenues and then the other part is just a little bit of timing of the manufacture of.
Some of the Qsymia inventory, which allowed for the absorption of overhead so little bit of accounting a little bit of growth.
Okay very good.
On the telemedicine program looks like that saying that that is working nicely. So far based on the revenues in that segment.
Is there a anecdote of of the success there that might be representative of what's going on.
With with the new the new sales strategy.
Yes, Theres a couple of things that are kind of fair to weigh on our data.
One of them is.
Men are starting to utilize.
Q semi or more through this program.
There's a there's definitely a psychological effect.
We've been going into a pharmacy and asking for a weight loss or via my therapeutic and so whats great and what we surmise before we did this and executed the strategy.
Is that we expect to see a little bit of a lift in the the male population.
So thats been pretty nice the second thing that we've seen.
And our data is that the number of 90 day scripts has increased by quite a bit. So these are patients that are.
Moving onto a longer durable therapy, and then the third and final point, which we mentioned in our earlier I mentioned that our my earlier comments.
With that the high end therapeutic dose, which does drive better efficacy and results starting to.
Be a larger seller for us as a result of the better pricing, but we've added a number of physicians who have told us over the years that I've been I've been here at least that we wanted to move these patients onto this higher therapeutic dose.
But a lot of the patients were de motivated by the pricing.
And by fixing this pricing to move into the flat pricing that we have now we're seeing.
That unit of measure that NBC start to expand on utilization, which is great for us because that means patients are giving a better medical result, and stay more durable the therapy. So a lot of the things that we saw and then corrected.
With the advantage program.
Okay.
And it looks like you reported there was an 8% of the.
The scripts were from the advantage program and the second quarter do you have a sense of how that trend will progress or a target for that trend as we go through the second half.
Yeah I think.
Though if it stays on kind of par with the growth that we've seen any are you expecting a slowdown.
A little bit.
As the year goes on but we expect.
To see you.
Probably 85% of the market converted to the new platform.
It's more profitable for us within a three to four quarter.
No time period, so its a focus for the sales team.
It's actually focus for physicians on the on the program as well too because because of that flat pricing they can get better results for their patients.
By moving them up to this higher dose, but we were also doing a couple of other things.
We're having discussions now that we've seen some growth and we saw some problems and qsymia.
Where the commercialization we are seeing.
A broader discussion with some of the retail pharmacies to as they.
A lot of the retail pharmacies now have been integrated with health plans and Pvms and they're focused on.
The self insured employer and trying to drive weight loss programs for them. So we are having some broader discussions there which are great for us.
The.
We hope those will drive results and we'll talk about those a lot of part of this year.
Okay and congratulations also on the the approval in South Korea.
I am not I myself I'm not that familiar with how the process there goes for pricing and and.
What what that might turn out to be eventually but can you give us some some clues on how that might progress and I know that allergan is working on that but I. Just thought maybe you could provide some commentary on what to expect in that in that market.
Yes, so yes.
That's great.
So yes, we're really excited the team did a great job and getting that product approved and it's really nice to see qsymia to be recognized as.
And an additional territory and obviously were.
Working through to try to get to hopefully get an approval you know year to route and Europe .
Or parts of Europe , I should say.
In terms of pricing Allergan controls that process you know they are the marketing team over there, but one commentary that we can make is that and have you seen meds via my therapeutics are not reimbursed by the national insurer and Korea, They do have a national.
Coverage system, there that normally with a different type of pharmaceutical would potentially.
You'd have a negotiation between the pharmaceutical manufacturer and the national insurer, that's not the case here it is a cash pay.
Business much as it is here in the United States.
And other than that.
It's really the questions are probably best left for Alvin.
Okay.
Thank you guys appreciate it.
Yes. Thank you. Thank you.
As a reminder, ladies and gentlemen that is star then one if you'd like to ask a question at this time.
Our next question comes from Robert Medrano. Your line is now open.
Hi, good afternoon, everyone. Thank you for a very good.
Earnings report I was pleased with that just two questions. My first question with a ph.
Hypertension I was curious.
With the second half and the plan for an I. Andy are for this year are there any plans or can you add a little bit of color too.
The potential for a partnership there maybe a long term partner, it's a great marketplace. It's huge so I just wondered if you can talk a little bit more color on that.
Yes.
No. It's a great question I think.
So I've done probably 33, various forms of pharmaceutical deals and the analogy that I like to use is that.
You are baking a cake and.
Right now the way that we look at it one of pharmaceutical stone stability testing is kind of still in the oven.
And until we see the final results from the stability testing and what the final formulation looks like.
It drives your decision around what type of partner that you want to have there is pure financial partners, which were having discussions where there is people who can perform and enhance your clinical development people that you can bring that can bring the product to other markets and then Theres partners were technical capabilities that we may or may not be able to access through the free market.
From a contract manufacturing perspective, so in terms of the United States in terms of getting the product manufactured and and marketed here in the United States. The marketplace sizes are perfect size for specialty pharmaceutical company. As we are viewed as is becoming so the idea of partnering that out at this moment in time.
Doesn't make.
Really fiduciary sense or clinical sense.
That being said once we get to the point, where we file VI Andy.
And understand the other 14 or 15 aspects of the drug and how we'll think about it.
As well as global territories that potentially we qualify some of the partners that we've had discussions with and potentially eliminate some of the other so I'd like to make and we like to make decisions with as much information as possible and some of the information is still being developed but it's certainly something that we're we're open to we just.
We need to do a couple of things before we pull the trigger on that.
Okay. Thank you my second question goes to the long term that we discuss a little bit and Miss this call today.
And I think that the stock is basically and loved I think it should be much higher personally.
And I think Thats what does this degree.
And I think what keeps some of the if you will the retail investors because it's got a good and do some institutional holding and growing.
Is the long term debt and.
Yes, it was a little bit of color on addressing that is there any option. There I know that originally there was an option for some of that to be converted into stock is that still on the table or is that something that doesn't make financial sense at this time.
Yeah. So so in terms of the conversions over the holders of the convertible bonds right now the conversion price is extraordinarily high in relation to our current price for.
Our stock so for them financially that trade.
Just doesn't make sense is it really an out of out of money trade.
I think the the convertible bonds.
When you think about them, we really just view them as.
As you know 4.5% debt.
And the goal there is obviously to pay them back.
And we will have to refinance a portion of that.
And then utilize some of our cash on hand.
It's something that we're focused on and we know we get a few questions about it from the Investor community pretty pretty regularly and we are and we certainly understand why.
But the flip side, our primary focus is improving revenue improving earnings improving working capital management, improving our products clinically and improving the commercialization of our products and those are the things that we're focused on.
And the debt and debt capacity.
Now what we're focused on you when we first took the company over there was a question of oil boy, that's a awful lot of that or we got to go sort out now it's more a function of what is the weighted average cost of capital that we're going to have.
We believe you know posts.
This partial refinancing partial repayment and so the longer that we are the more we move towards.
May 2020 date, we have more time to put performance up on our quarterly results and while we can potentially do something now.
One we were double pay on interest, which would be just asinine, we just be burning $680000 per month, which would be horrible from a fiduciary responsibility.
But secondarily as we move through the turnaround.
And through the relaunch of the products our performance will hopefully get better and that allows us to have different conversations around the weighted average cost to capital post transaction.
Okay, very good and I have one last question.
With respect to future acquisitions, and what you are looking at are you looking at primarily finished product with the marketplace or could it be like the instance of PPA age and unfinished product that needs to be developed and taking the market for both yes, yes, no. It's a great question. So we.
We have a nice pipeline of what we refer to is in development products, but they are not things that we are going to.
Transact on.
Right now.
This company, given where the balance sheet is and given where we are and the relaunch of pancreas and qsymia.
It doesn't warrant.
The or nor have the ability to take on additional financial and development risk associated with development assets.
Primarily yes, our focus is just been looking at cash flow generating assets that we would build that we believe that.
We will be able to deliver.
Internal rate of return north of 18% to 20%.
Based on the acquisition price, we look at all out of a lot of frog, we just haven't been able to find one that we like it.
Very good.
Thank you and good job on the turnaround so far.
Thank you appreciate it very much sir.
We have a follow up question from John Vandermosten with Zacks small cap research. Your line is now open.
Hi, everyone I think Mark. This is for you I think you mentioned the number of pancreas shipments, but I missed that for the second quarter could you repeat that for me. Please.
John Let me send that to you I don't want to quote you a number of my head that may be wrong.
Okay no problem. Thanks, so much guys.
Thanks.
If there are no further questions I will turn the line back to John Davis for closing remarks.
Yeah. Thanks to all of you for your time today and your continued interest in meetings I believe that interest is warranted given note both the potential value.
Of the products and the momentum we are generating toward fully realizing that value for patients and shareholders alike.
The VIP Veevas health platform and our Qsymia advantage programs.
For both pancreas, Thank you Simeon.
Our already.
Demonstrating our ability to increase awareness for our current commercial products and we believe that they are transformative infrastructure that we can leverage to build out a portfolio of cash flow positive assets and make a difference to patients physicians and healthcare system as a whole.
Clearly building that portfolio and fully realizing the value of Qsymia bankers will take additional on time and investment.
But we believe that our achievements in the second quarter clearly demonstrate that we have in the strategies determination know how to get it done we're not even halfway through the 10 quarters. We believe are needed to turn visvis around and we are already seeing important revenue gains in operational efficiencies that we believe are strong indicators of our continued progress I look forward to updating you.
On that progress in the months ahead.
Turn it back over to you operator.
Ladies and gentlemen that concludes today's call.
All parties may now disconnect.