Q2 2019 Earnings Call

Greetings and welcome to the albeit Pharmaceuticals second quarter 2000, <unk> earnings Conference call. At this time, all participants starting listen only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad as a reminder, this conference is being recorded.

It is now my pleasure to introduce your host Lisa share senior director of Investor Relations and Communications. Please go ahead.

Thank you operator, and thank you all for joining US. This afternoon I'm excited to have recently joined Opn pharmaceuticals to lead Investor Relations and communications, along with opioids, Chief Executive Officer, Dr., Roger Crystal and Chief Financial Officer, David O'toole, who are on the call with me today.

This afternoon, Ob and issued a press release announcing financial results and providing a corporate update for the second quarter ended June Thirtyth 2019.

Please note that certain information discussed on the call today is covered under the safe Harbor provision of the private Securities Litigation Reform Act, we caution listeners that during this call management will be making forward looking statements actual results could differ materially from those stated or implied by these forward looking statements due to risks and uncertainties associated with the company's business.

These forward looking statements are qualified but by the cautionary statements contained in OPX news releases in FCC filings, including in our annual report on Form 10-K for the year ended December 31st 2018 and subsequent filings.

This conference call also contains time sensitive information that is accurate only as of the date of this live broadcast August eight 2019.

Opn undertakes no obligation to revise or update any forward looking statements to reflect events or circumstances. After the date of this conference call.

Now I'd like to turn the call over to Roger.

Thank you Lisa.

We are thrilled to have you join Europeans as we expand interactions with existing shareholders and our outreach to new potential investors and analysts.

Everyone on the call with us Thank you for joining.

I'd like to begin with a brief overview of opiates for those of you who may be new to the story.

Our mission.

It's a developing best in class medicines to treat addiction and drug overdose.

Our programs are well funded from a revenue stream by royalties from the sales of Nok a nasal spray.

Government grants from the NIH in particular night and quarter.

We develop knock on nasal spray to reverse opioid overdose and licensing it licensed it to adopt pharma in 2014.

Emergent biosolutions or E. B S. A quiet adapt for $735 million in 2018.

Highlighting the value of knock on nasal spray.

Recently, it has been reported to the deaths from opioid overdose may have started to decline, which we haven't opened welcome.

It is believed that this initial decline is largely due to the widespread use of knock on.

Unhedged opens we are very proud to have led its development.

Nevertheless, opioid crisis continues to Ravage America and our work here is not done.

The reporting of opioid overdose deaths from Encino and other synthetic opioids continues to rise.

And there are over 2 million people in the U.S. suffering from opioid addiction.

Therefore, opioid overdose remains a significant public health crisis, and one that is really has evolved into a fentanyl crisis.

It is now easier to obtain fence no I'm prescription opioids and in 2017, but the 48000 opioid overdose deaths, 55% with fentanyl related.

Well access to naloxone is critical to save lives substantial need exists for stronger like longer acting opioid antagonists due to the rapid increase in defense and the related I hear it overdoses.

We are developing a PNC there is a three nasal now machine to help address this issue.

The data generated to date supported being more potent and long acting analog sound.

I'll provide an update on it states. This later in the call.

The royalties received from the net sales a knock a nasal spray I used to advance our pipeline.

A recent driver of our growing royalty from PNOC and sales is the increase in co prescribing laws now present in nine states.

This means that the patients receiving an opioid prescription would also receive a prescription now Ken.

This has been primarily implemented when patients are considered at high risk of an opioid overdose.

For example, when they also receive prescriptions for sleeping medication.

Alongside an opioid.

Recently, you Mexico requires naloxone prescribing alongside every single opioid prescription of five days or more duration.

Moving on to our pipeline.

First I'd like to discuss driven and Opn TV series area for our acute cannabinoid overdose program, a CEO , where we recently expanded our partnership with Sanofi.

[laughter].

We in licensed or an event for the treatment of HCV from Sanofi in December 2018, and we recently expanded our relationship to include the drugs manufacturing by Sanofi.

I see I was most often linked to the ingestion of both at the Bulls containing large quantities of THC and synthetic cannabinoids, often referred to as K two and spice.

These synthetic cannabinoids are more potent easily obtained often in local markets and less expensive thing kind of this containing products.

To make matters worse, he synthetic cannabinoid have even been linked to death, but ingested alone or in combination with other substances.

According to the National Emergency Department samples.

I see okay resulted in over a million emergency department visits in the U.S. in 2016, the latest year, which data is available.

The number of reports in emergency room visits for 2017, and 2018 is expected to rise with the increasing legalization of kind of business in North America.

We view this indication as a substantial market opportunity for opium.

Asia is already over burdening emergency rooms, acquiring intensive monitoring and length of stay.

Sadly many of these E R visits from children to ingest it THC containing products resembling cookies candies brownies.

As the legalization of kind of price increases.

We anticipate a potential kind of this crisis for waste society is not prepared.

Importantly, there are currently no approved treatments for AC.

And we know of no others that are currently in development.

[laughter] this increasing need for Asia treatment has us excited about our Opn teases therefore program.

Fair enough and has been shown to be safe and well tolerated when taken orally.

In phase one and phase two studies conducted by Sanofi more than 700 volunteers and patients receive oral drugs advance dropped to 24 weeks.

In addition in the study establishing proof of principle in 36 subjects that were given all the drip and and then inhaled THC.

Subjective and objective effects of THC were blocked.

Opens we'll reformulated, Japan as an injection. So it can rapidly reversed the symptoms of AC in an emergency room setting.

We intend to initiate formulation development studies, this year and clinical trials and 2020 .

With that let me now provide an update on Opn sees there is there are three.

I'm pleased to report that our PK study will be underway in the third quarter and we expect to report top line data for PNC. There's there are three this year.

Our objective remains to file and then the next year and we remain on track to do so.

As a reminder, we have confirmed five if IP to regulatory pathway with the FDA and therefore, a similar development pathway to narcan nasal spray.

In addition, Oh PNC. There are three has been validated by the U.S. government through a $7.4 million grant from neither and they contract for up to $4.6 million from BARDA.

To accelerate the development of open teases area three as a medical countermeasure in the event of offense no chemical attack.

David will address the financial implications of these collective funds, but let me just say that we are very grateful to have the continued partnership with these key U.S. government agencies in its development.

Moving onto open Caesars area to nasal now tracfone, which we're developing for alcohol use disorder or a U D.

We have initiated formulation selection study and begun preparations for a phase two study and expect to begin enrolling patients later this year.

We continue to anticipate the completion of the phase two study by the second half of 2020 .

As a reminder, longer term, where the plasma life essentially identical to naloxone gets with greater potency then naloxone.

You can see there is there are two may also have potential as a treatment for opioid overdose.

In addition to advancing our pipeline we are busy telling our story to both industry leaders and the investment community.

From an industry perspective back to Phil Skolnick, our Chief Scientific officer present today discussion on the development of Intranasally Nauman theme at the developing medical countermeasures to rescue opioid induced respectfully depression meeting sponsored by neither on August six.

In addition over the next few months, David and I will have the opportunity to present, the opiates story to institutional investors at conferences that include event sponsored by Wells Fargo.

Hey, C. Wainwright and cancer fish Cantor Fitzgerald.

Additionally, I will be presenting at the 10th annual CNS summit in Boca Raton, Florida.

Moreover, I am excited to announce today that opens we'll be hosting an R&D event for investors and analysts October's 70.

The agenda will be announced in the coming weeks and we look forward to sharing further highlights of each of our programs with the investment community at this event.

Finally in support of our clinic and that's fine.

Finally in support of our clinical development program.

Oh pins remains in a strong financial position with cash of approximately $23.9 million.

At June 32019, which does not include the majority of the $4.6 million Arctic contract or the remaining funds from the night a grant.

With that I will now ask David to discuss our financial results David.

Thank you Roger.

I'll begin with a brief discussion of the results for the second quarter ended June Thirtyth 2019.

We recognized 6.8 million in revenue in the three months ended June Thirtyth 2019.

Compared to 3.2 million in the corresponding period of 2018.

For the three months ended June Thirtyth 2019, we recognized $6.1 million of revenue from a license agreement between us and the B us as compared to approximately 3.1 million in the comparable period of 2018.

The 3 million dollar increase in royalty revenue represents an increase of approximately 97% year over year and was driven by higher net nor can sales of approximately 73 million in the second quarter of 2019 as reported by Hebei us.

DNA expenses were 3.7 million and $2.9 million for the three months ended June Thirtyth 2019, and June Thirtyth 2018, respectively.

The increase was primarily due to a point 9 million increase in royalty expense, a point 2 million increase in legal accounting and professional fees.

Partially offset by 8.3 million decrease in stock based compensation expense.

R&D expenses were essentially flat at 1.6 million for the three months ended June Thirtyth 2019, and June Thirtyth 2018.

Net income for the three months ended June Thirtyth 2019 was 1.6 million.

Or 39 cents per basic.

And third point and 31 cents per diluted share compared to a net loss of approximately 1.4 million or a loss of 52 cents per basic and diluted share in the comparable period of 2018.

Now, let's focus on the results for the six months ended June Thirtyth 2019.

We recognized 12.2 million in revenue and the six months ended June Thirtyth 2019, compared to $4.9 million in the corresponding period of 2018.

For the six months ended June Thirtyth 2019, we recognized 9.9 million of revenue from the agreement between us and he'd be us as compared to 4.7 million in the comparable period of 2018.

The 5.2 million increase in royalty revenue.

Perhaps representing an increase of approximately a 110% year over year.

And was driven by higher net in our camp sales of approximately $138.5 million in the six months ended June Thirtyth 2019 as reported by the us.

GNS expenses were 7.4 million and $5.8 million for the six months ended June Thirtyth 2019, and June Thirtyth 2018, respectively.

The increase was primarily due to a 1.3 million increase in royalty expense.

<unk> point 7 million increase in legal and professional fees.

A point 4 million increase in personnel and related expense, including recruiting recruiting expense, partially offset by a point 8 million decrease in stock based compensation expense.

R&D expense for the six months ended June Thirtyth 2019 were approximately $5.2 million.

Compared to approximately 4 million in the comparable period of 2018.

The increase was primarily attributable to a 1.2 million increase and third party expenses associated with our research and development programs.

A point 4 million increase an employee related compensation expense, partially offset by a point 4 million decrease in stock based compensation expense.

There were no third party license fees recorded for the six months ended June Thirtyth 2019, we recorded 5.6 million and license fees. During the six months ended June Thirtyth 2018.

These.

Third party license fees related to our obligation under the license agreement with DBS.

For certain payments made by ABS to third parties.

Net loss for the six months ended June Thirtyth, 2019 was approximately $2.2 million or a loss of four cents per basic and diluted share.

Compared to a net loss of approximately 10.7 million or a loss of $4.11 per basic and diluted share for the comparable period of 2018.

As of June Thirtyth, 2019, we had cash and cash equivalents of $23.9 million compared to 24.6 million at December 31 2018.

Again, the current cash balance does not include the majority of the 7.4 million night, a graph and the 4.6 million BARDA contract.

We continue to project a cash balance of 17 million to 20 million at the end of 2019.

However, this anticipated range does not include the potential one time milestone payment of 13.5 million due to opn from ABS when net new account sales exceed $200 million in the 202019 calendar year.

Pursuant to the license agreement in the event that this milestone is achieved DBS may reduce the amount payable to open by the remaining $2.7 million of third party license fees payable.

Therefore, the net amount we will receive will be 10.8 million.

As recently reported net art gun sales for the first six months of 2019 of approximately 138.5 million.

And they updated their guidance for full year 2019, our current sales from 200.

The $220 million.

Upwards to two now to 240 million to 260 million.

Hence the likelihood of net Mark M. sales, reaching $200 million in either the third or fourth quarter of 2019 is extremely high.

If net art gun sales exceed 200 million in the third quarter, we will receive the net sales milestone of $10.8 million in the fourth quarter of 2019.

Otherwise net narcan sales will exceed two 200 million in the fourth quarter of 2019.

And we would then received a 10.8 million net sales milestone payment in the first quarter of 2020.

The receipt of that 10.8 million sales milestone in either the fourth quarter of 2019 or first quarter of 2020.

We'll further fortify our solid financial position.

In addition, as we did in the second quarter, we will have positive net income and earnings per share for the remainder of 2019.

With that I'd like to turn the call back to Roger for closing remarks.

Thank you David.

We are excited about the growth of our company and our financial position, which allows us to continue to address particularly in the U.S. continued addiction and drug overdose crisis, which has taken countless lives already.

With a compelling late stage pipeline that is partially funded via mostly U.S. government sources.

I'm, an expanding royalty revenue base and a solid balance sheet.

Okay, and is well positioned operationally and financially to enhance long term shareholder value.

With that I will now ask the operator to open the call up questions.

Operator.

Thank you we will now be conducting a question and answer session.

If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue.

You May proceed star two if he would like to remove your question from the Q.

For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key is our first question comes from Brandon Folkes with Cantor Fitzgerald. Please go ahead.

Hi, Thanks for taking my questions and congratulations on the quarter.

Firstly.

Are you able to provide perhaps any insight into what level of gates. We may see when you do the court hearing here are three data later this year and will we get through the validation of the longer haul fly when the state is really.

And then.

Secondly.

On your answer or you mentioned.

1 million emergency room visits.

Yes could you help us frame what percentage of those 1 billion visits each year would be suitable for years there. Thank you.

Thank you Brian .

So firstly in terms of the silicon timing is there is a its rate.

The PK study, yes, we will we will give more guidance on that but there is quite a.

Okay Studies, I will just announced the data when its out rather than necessarily when the studies underway.

PK study of a few weeks duration I think it's more likely to.

They pace in Q4, but with again the data.

Being available less enforce up.

In terms of the longer half life.

Yes that that well.

It's a PK study so absolutely we would hope and expect to see the similar offline characteristics of.

These is there to say that we show now pilot data.

On there's a four I guess instead of the addressable market.

Yes, I mean, essentially if someone is.

We don't have.

Really granular data yet, it's one of the reasons being that.

This is in many ways Clinton emerging.

Condition that is being at a known amongst everyone.

Why do I say that because physicians and I.

My personal experience having worked in the.

Well the feed a patient with.

Kind of a no.

Overdose, but.

I'm.

Getting up to speed.

On an even on the assumption that as diagnosis.

On takes a while historically because.

We didnt see as many as the around now.

The putting getting out is ultimately anyone who sufficiently on well, though to be presenting the E. R.

And.

That will not being able to manage that condition.

Hello.

I'm being brought in by others realistically would all be suitable at this stage as far as we can tell for reversal agent.

It's something from our primary market research certainly supports that.

I'm.

Sufficiently on well and they are a burden on the Yodlee palms evening.

Now on the milder end of the scale, but still requiring observation and.

Otherwise supportive care for many are like intravenous fluids and.

Other forms of sedation than it would be and I'm thinking Evans interest to rapidly reversed so they can be say centime safely and quicker.

Thank you. Our next question comes from Carl binds.

With Northland capital markets. Please go ahead.

Great. Thank you and congratulations by the way.

Considering you'd be elses guidance range at 240 to 60.

At the highest quarterly.

50 million to low 60 million.

Wouldn't that place.

The royalty payout in the fourth quarter, the bulk of what Youd see probably in the 12% category.

With a small portion of that being at 10%.

That's the first question. Thanks.

Karl Thank you for attending the call really appreciate it thanks for the question.

Yes.

That would you know.

Based on the trends of where.

Net narcan sales have been for the last two car quarters.

The range for the third quarter would only have to be $61 million a little over in order to earn the sales milestone in the third quarter and therefore get the payout in the fourth quarter.

To your second part of your question if their top end of the range is in the 260 million, yes, anything over 200 million, which would be $60 million total would be at the 12% range and that would all be earned in the fourth quarter.

Great. Thank you and then just.

Accounting perspective.

Let's let's assume that you get the 13.5 million milestone in the fourth quarter.

We recognized in the fourth quarter, but actually receive in the first quarter when would the adjustment.

What line item what is it would you grow would you gross up to 13.5, and then adjusted and expense line item to note at 10.8 or would you only recognized 10 point.

Thanks.

Yes, the revenue side of it.

The 13.5 million for us when it's recognized either in the third or fourth quarter would be the revenue line item.

The expense for that.

The the payout of the license the third party license fee was recorded in the financial statements December 30, Onest 2018, because that is when it was actually the obligation was recorded.

And so there would be from a BNL standpoint, there would be no reduction on the expense side.

Perfect. Thanks much.

There are no further questions I would like to turn the floor over to Roger for closing comments.

Sure.

Thank you.

We are very excited about the prospects of our pipeline and significant market opportunities we are pursuing.

Moreover, R&D plans are well supported by our financial resources.

Most importantly, we truly believe that the medicines, we are developing have the potential to impact thousands of lives.

We are excited to continue advancing each in the clinic.

As we advance our pipeline and execute on key near term catalysts, including top line data from Opn T. There three initiation of the trial zero PMT, there's a chore and continued royalties from the knock a nasal spray anticipate additional value creation.

Thank you for joining us today and for your interest in opiate and we look forward to keep you updated on our progress throughout the second half 2019 enjoyed the rest of your day.

This concludes today's conference. Thank you for your participation.