Q2 2019 Earnings Call
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As a reminder, this conference is being recorded today August seven 2019, I would now like to turn the call over to Maryann Miller Ma'am. Please go ahead.
Thank you operator. Good afternoon. This is married Miller with L.A.J.. Thank you all for joining todays call.
I'd like to remind you that any statements made during this call by management other than statements of historical fact will be considered forward looking and as such will be subject to risks and uncertainties that could materially affect the company's expected results.
That's forward looking statements include without limitation. The various risks described in the company's annual report on Form 10-K for the year ended December 31st 2018, and subsequent quarterly reports on Form 10-Q .
Importantly, this conference call contains time sensitive information that is accurate only as of the date of this live broadcast August 7th 2019, except as required by law Opco undertakes no obligation to revise or update any forward looking statements to reflect events or circumstances.
Dances after the date of this call.
Before we begin let me review the format for today's call Dr. Phillip Frost, Chairman and Chief Executive Officer will open the call Adam Logal, Opkos, Chief Financial Officer, and Dr., Jon Cohen Executive Chairman of Bio reference laboratories will provide a business update on pipeline review after that Adam will review the company's second quarter financial results and then we'll open the call for questions.
Now, let me turn the call over to Dr. Frost.
Good afternoon.
And thank you all for participating in today's call.
I'm happy to be speaking to you today I want to extend my heartfelt. Thanks.
All the good wishes and expressions of support I received over the past couple of weeks.
I very much appreciate the outpouring of encouragement from our shareholders.
I also want to assure you that I'm feeling quite well.
And hope to be back to 100% in the near future.
Turning now to okay.
I'm going to provide a brief overview of our Q2 highlights.
And then I didn't write a bit more detail.
Let me begin with reality.
Which continued to post sales growth in the second quarter.
Total prescriptions increased 92% in Q2 compared with the prior year.
This sales momentum is testimony.
Well to the benefits of reality and to the expertise of our growing sales force.
Well I reference laboratories.
Continues to expand its reach.
And we were pleased to announce just last week that the web was chosen by B.I.P.I. Association of America as its preferred provider of laboratory services.
To assist with data analytics, where its members.
We also announced the BRL was selected as the preferred provider.
For diagnostic testing Bryce almost.
The largest multi cultural physician what network in New York City.
We also learned during the quarter, the BRL and Dream Dx.
Were selected for inclusion in the United Healthcare preferred lot network.
This was effective July 1st.
And there's a great distinction for US says inclusion was a highly competitive process.
Regarding forteo score.
Refused to receive a new propose local coverage determination from Novitas.
Under the new.
C D.
Medicare would reimburse the test for patients who meet to find coverage criteria.
Oh this determination is still in draft form.
We are optimistic it will become final.
So that certain Medicare patients will once again have access to the benefits are four k. score.
We also took steps to secure us regulatory approval for Forest City score.
And on June Twentyth, we submitted a denovo request to the FDA seeking regulatory clearance.
Based on comments received from the FDA in July we withdrew that submission.
I'm glad to resubmit the application as a band right.
After reform now having to meet the PRB submission guidance.
We anticipate the Resubmission will occur in the next few weeks.
Importantly, we believe we already have all the data we need for the PRB for handling requirements without the need for any additional clinical studies.
Remember that's the only people who is not required for us to self workday score.
But we're committed to ensuring that as many men as possible have access to the test.
I believe that regulatory approval supports this school.
I'm now going to hand, the call over to Rod.
Who'll provide a more detailed overview of over programs.
Thanks, Phil Good afternoon, everyone and thank you for joining us today.
Steve Rubin was unable to participate in today's call, but will be available for follow up calls as needed and will be back on our third quarter call update as usual.
Since speaking with you in May we have achieved various milestones that demonstrate progress across multiple clinical programs. Phil has touched on many of them already.
Reality, the only product that raises 25 Hydroxyvitamin D levels in the blood, while also lowering parathyroid hormone levels in chronic kidney disease patients continue to grow in the second quarter.
As Phil noted prescriptions reported by eye care <unk> increased by 92% in Q2.
Compared with 2018 levels.
Our pharmaceutical pipeline continues to progress with our pivotal phase global phase three clinical trial for Hgh CTP wrapping up later this month and our open label Phase two trial for Rayaldee hemo dialysis patients continuing to enroll.
On the diagnostic in laboratory side, we continue to see progress was secured new business opportunities at BRL and of course, a nice new proposed local coverage determination on our four k. score from Nova to us.
Before I delve into greater detail on the pharmaceutical side of our business I'm going to turn the call over to Jon Cohen will speak about our growth and opportunities within BRL and Gtx John .
Thanks, Adam and good afternoon, I'm happy to report that we continue to make significant progress on our plan to improve operational efficiency.
Improve access to health plans aggressively manage and improve our billing operations decreased costs through multiple specific project management initiatives and increased volume and grow revenue with our focused commercial strategy.
We've also begun to make significant changes to improve our leadership and talent and aligned with our strategic direction.
At the same time, we're making significant improvements in the quality of our sales force as they remain focused on organic growth and the broader physician clients space.
Hi, aggressively signing up new accounts as a result of our wins in the Hcl and IP, a space and leveraging our recent selection to be part of the preferred lab network with United Healthcare and our new in network status with Humana.
In addition, our salesforce are aggressively pursuing leakage opportunities in partnership with our payer partners.
And our targeted areas of specific expertise, we have appointed a new leader for women's health and a new leader for cancer services and urology, our urology sales force continues to expand their product portfolio to our current clients and are poised to expand their reach to an increasing number of urologists as we remain cautiously optimistic about the final limited coverage decision from Nova tough.
Before case score based on the recently published proposed Ltd to cover the test.
We have also appointed a new commercial leader for Gtx Gonna Gene Dx Salesforce with the goal of restructuring the sales force to provide even more specific areas of commercial expertise to other types of clients for this quickly evolving market.
With regard to Gtx, we continue to see significant increases in growth as volumes. This quarter. It grew 16% compared to the same quarter last year.
Institutional hospital health system, based ordering with especially with especially strong with a 12% year over year accession growth.
The institutional growth is a reflection of our relationships with leading children's hospitals and academic centers throughout the country.
In addition, we're seeing significant interest in the portfolio of test offered by Jean Dx as several new payer contracts were signed this quarter.
DXP has also increased its focus on advanced bio informatics techniques and provide further test differentiation as well as improved efficiencies.
For example, recent changes and workflows have led to an high to the highest efficiency observed to date with a year over year Q2, the efficiency increase of 27% for some tests.
That 27% gain in throughput is coming from improvements in analytical methods and workflows.
Not from wet lab changes CND axes, R&D team continues to launch new revenue based test and is ready to several rounds of test for near term launch, which will open up new testing markets for gene Dx.
In the business development and strategic partnership Arena, we've announced several new strategic partnerships, including as mentioned by Phil Our strategic agreement with Somos, New York City is the largest multi cultural physician network of more than 2500 providers, serving over 700000 beneficiaries to be its preferred provider of diagnostic testing and to assist with data analytics for his patients.
We also announced our strategic relationship with the I.P.A. Association of America that provides services to assist in improving independent physician practices nationwide. They have selected us as their preferred lab for 667, IP A's representing over 303000 physicians in 39 states.
As a result of our focus on business development, we have added new partnerships with Asias large medical groups unions Corrections hospital reference and clinically integrated networks.
Our strategy to significantly upgrade the patient experience is beginning to take root as we upgrade tools for our patients. We recently launched our portable portal, allowing patients to see and track their results along with easily paying their bills through the portal over 30000 patients have registered within the first several weeks of launch.
Overall, we remain optimistic for further growth in the second half of the year as our broad clinical offerings grow with our increase payer access our specific areas of expertise in women's health urology cancer genetics and grow with our focus on new leadership and grow larger books of business with our concentration on strategic partnerships. So back to you Adam.
Thank you John turning now to our pharmaceutical business, let me start with Rayaldee as we announced another European marketing authorization application for Rayaldee was submitted by the 4% yes.
This one covering Switzerland, and it was accepted last month for a review this application like others previously submitted in Europe request approval for Rayaldee for the treatment of S.H.P.T. in adult <unk> non dialysis patients with chronic kidney disease and vitamin D insufficiency.
Approvals for all applications pending in Europe . If granted are currently expected in the second half of next year.
From a commercial performance perspective, the rayaldee numbers for the quarter break down as follows.
Total prescriptions of Rayaldee in Q2 as reported by our Q via increased 22.8% when compared to Q1, 2019, and 92% compared to Q2 2018.
New patient starts increased 25.7% in Q2 versus Q1.
Since launch there have been a total of approximately 11500 patients on reality.
We also increased the number of healthcare providers, who prescribe royalty.
As of Q2 over 2100 prescribers have written around the of which 260 were new prescribers during the second quarter.
We ended Q2 with 86% of commercially insured patients having access without prior authorization or other restrictions.
We have completed our latest salesforce expansion to 75 sales professionals.
The newly added representatives are beginning to gain traction in the field and are expected to provide the additional reach and frequency needed to drive markedly increase use of rayaldee for the remainder of 2019.
We expect to see continued and accelerated growth as a result of the larger well trained sales force.
Regarding our clinical development programs, we remain focused on progressing diversified portfolio addressing several indications with significant unmet medical need in large markets.
Our work in Reno continues to move forward in the clinic last September we initiated a global phase two trial with a higher strength rayaldee in patients with stage, five CKD and vitamin D insufficiency, who require regular dialysis.
Cost of this study are being shared with before for sending us and Japan tobacco.
The first cohort of approximately 44 patients will be treated for 26 weeks randomized open label fashion with either rayaldee or placebo to identify the appropriate dosing to be studied in the second cohort.
Roman is progressing well, but lower than we had originally planned the initial data read out on a limited number of patients for this first cohort is now expected in Q4 2019.
Other ongoing and upcoming clinical studies for Rayaldee extended release Calcifediol include an ongoing 80 patient open label Phase four study designed to demonstrate that Rayaldee is superior to commonly use competitive therapies.
Enrollment is expected to be completed in Q4, 2019 and topline data are anticipated in the first quarter of 2020.
A phase three study with rally in pediatric patients a post marketing requirement with FDIC will start later this year.
The final protocol for this study was approved by the FDA during the second quarter.
Turning to our long acting groveman human growth hormone product so much rogan Rejji CPP.
As you know so much broken is partnered with Pfizer for worldwide commercialization.
We anticipate concluding our pivotal non inferiority study in growth hormone deficient children at the end of this month and announcing topline data before year end.
This trial compares a single weekly injection so much rogan for 12 months with daily injections of Genotropin and enrollment was complete last August of last year.
Of note over 95% of the patients who are eligible to enter the open label extension study are continuing into the second year of therapy with so much rogan has the sole treatment.
We are also continuing efforts to advance new compounds in our rare endocrinology disease pipeline by utilizing our existing platform technologies. The CTP, which is used for so much rogan and reverse population to identify lead candidates were long acting therapies would offer significant patient benefits.
We plan to bring at least three additional product candidates forward as rapidly as possible with each representing a significant market opportunity.
We will keep you appraised of our progress.
Overall, we continue to make progress against our stated milestones across both our commercial and development stage programs.
We are seeing significant opportunities with bio reference, including its selection as the preferred diagnostics provider of Somos in the preferred laboratory network provider status for United Healthcare.
We have advanced multiple products across our diversified portfolio, we continue to see quarter to quarter growth for Rayaldee.
No the top issued a proposed local coverage determination for Fourq, a score and we remain committed to making this test available to every patient that will benefit from its use.
We initiated a regulatory pathway for FDA for Fourq, a school score approval.
And from a clinical perspective are so much Rogan program continues on our stated timeline and we're expecting topline data before year end.
With that overview, let me turn to a more detail on our second quarter financial performance.
Net revenues were $226.4 million for the second quarter of 2019 compared to $263.7 million for the 2018 period.
Revenue from services for the three months ended June Thirtyth, 2019 were $178.5 million compared to $216.1 million the 2018 period.
The decline in net revenue from services reflect the challenges within the payer environment, specifically, the compounding impact of the Pamela rate decreases along with Preauthorization preauthorization requirements and enhance denial rates on both our clinical laboratory testing as well as our genomic testing.
We have implemented programs are on both our clinical laboratory in genomics line of testing to improve the billing operations. We are working with payers to lessen the burden of ordering physicians to obtain preauthorizations for some testing.
Our discussions with payers and status as a preferred laboratory are expected to help further these ongoing payer discussions.
In addition, this is the first full quarter were Medicare reimbursement for the four case score was not received until the draft coverage policy becomes final we will not record revenue from the Fourq a score for Medicare beneficiaries.
Upon finalization of the coverage policy, we will work with Medicare to adjudicate claims from from the non coverage period.
Revenue from product sales during the three months ended June Thirtyth 2019 were $28.7 million consistent with the comparable period of 2018.
Revenue from reality was $5.6 million for the quarter compared to $4.8 million for the comparable 2018 period.
Unit growth of reality was significantly offset by a decrease in our net price as a result of increased utilization by patients covered by Medicare part D and increased discounting in utilization of our co pay card program.
We see a large number of our Medicare part D patients entering the coverage gap or donut hole.
Moving to costs and expenses, we continue to invest in our R&D programs, where we incurred $28.3 million for the second quarter of 2019 compared to $29.2 million for the comparable period of 2018.
Offsetting R&D expense was approximately $5 million of cost reimbursed by our Ral the partners during the quarter. Our biggest R&D spend was attributable to our pediatric trials with our HC Hgh CTP growth hormone product, which as mentioned is nearing the end of the pivotal phase three trial.
We continue to make improvements in our cost structure within our laboratory business.
Partially offset by our third to partially offset our declining reimbursement rates.
Jeff and his team continue to improve the cost structure.
And overall, we saw a decrease of approximately $10 million and the cost of service revenue and SGN a within that business line compared to the second quarter of 2018.
The foundation of improved operating efficiencies that Jeff and his team have established within our laboratory business business positions us for profitable growth.
As our growth initiatives continued to make progress.
SGN expenses overall were consistent with the 2018 period as we saw increased investment within our rail these sales efforts.
There were several other factors impacting net loss against the comparable period of 2018.
During 2018, we recorded a $15.4 million reversal of expense for contingent consideration compared to a reversal of expense of $3.8 million for the 2019 period.
And the Mark to market of our investment Securities resulted in an increase of other expense of $14.5 million compared to the 2018 period.
Overall, our net loss during the second quarter of 2019 increased to $59.8 million or 10 cents per share compared to a net loss of $6.2 million or one cents per share for the comparable period of 2018.
Looking forward to the third quarter of 2019, we expect revenues from services to be between 168 and $178 million. This anticipated year over year decrease is principally the result of continuing reimbursement pressures with the range, reflecting varying volume expectations. This assumes we will not obtain the coverage determination on the Fourq a score until after the third quarter can concludes.
As John mentioned, our preferred laboratory status with various health plans are expected to provide a tailwind as we head into 2020 and our expanded access with Humana our recent announcement.
Announcements with Somos in tipa as well as the Finalization of the Medicare coverage decision for four case score provide reason for optimism as we entered the second half 2019.
Turning to product revenues, we expect the third quarter to come in between $28 million and $31 million, including revenues from Rayaldee between 6.25 and $6.75 million, while revenues from the transfer of intellectual property expected to be between 19 and $24 million.
Rayaldee continues to grow in units, however, revenue lags behind the unit growth as the mix of Medicare patient grows.
And the associated impact of the Donut hole is expected to continue during the third quarter.
Looking at anticipated expenses for the third quarter, we expect cost and expenses to be between 270, and $280 million, including research and development expense of 32 million to $36 million.
Based on these ranges, we anticipate our operating loss during the third quarter of 2019 to be between 37, and $65 million, which includes $25 million of noncash depreciation and amortization.
Our cash position at June Thirtyth was $111 million, we will continue to invest in our R&D programs throughout 2019 as previously mentioned however capital allocation will remain a top priority as we continue throughout 2019.
Given the guidance, we anticipated utilizing approximately $30 million to $40 million of cash during the third quarter.
We have expectations for improved cash contributions in financial performance within both our commercial organizations in diagnostics and rally during the second half of the year, both of which remain critical for our continued investments in R&D.
With that I'd like to open up the call for questions operator.
Ladies and gentlemen, if you wish to register for a question for todays question and answer session.
No need to press Star then the number one on your telephone keypad.
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If you are using a speakerphone please pick up the handset before answering your question one moment. Please for the first question.
Your first question comes from the line of Maury Raycroft with Jefferies.
Hi, good afternoon, and thanks for taking my questions and welcome back Bill glad that you are doing okay and back in action.
For the first question.
Asking about the growth hormone program just wondering if you can comment on the discontinuation rate in the pediatric phase three and.
And if you can provide a status update on the extended phase two pediatric study and finally four per growth hormone, how should we think about the upcoming phase three readout and next steps.
Hey, Mark its items, such as quickly I'll try to address the ones that I know the answers to map to circle back on some of the others. So so we are in the prepared remarks, we talked that 95% of the patients who are who are eligible for the allele of continued on so it's a very strong continuation.
Of those patients. So we're not seeing anything that's unusual from any of the other compared to any of the other programs that are out there.
James Here with me engine is there anything on the peace phase the phase two read outs that are expected.
So for the pediatric indication.
We continue to do that and that will be part of the.
HM Okay seems to be.
So and as it relate some more and your third question. We expect the topline read out later this year and with the successful read out we would have a submission in mid year next year.
Got it and as far as the readout goes any specifics on.
What had been out and out type of analyses year and a half in the phase three readout.
The lung theology design.
Okay. So it will primarily be primary endpoint and.
Additional implants.
That's right yes.
Okay and.
And then just to clarify for that phase two pediatric study so you've got patients on their out out to five years I think you said and.
Is there any.
Status update you can provide on.
On that study in.
Are those patients per day.
Plus patient has been continually pizza achievement, and then switch to the U.S So Hum Eli.
Yes, Michael.
So.
Basically all the patients being treated will continue to use a jog until.
Marketing approval.
So.
50 day, how we'll have to be positive.
Okay great.
And then for the four K. Denovo a withdrawal.
I'm just wondering if.
Since it Pmeight path.
As more rigs more rigorous route to pursue we're just wondering if the withdrawal is because of advice from the FDA.
But the PMA path was better suited for Fourq a or.
Was there something missing from the de Novo submission.
Any any additional perspective, there would be helpful.
Yes, basically if you commenting.
For any closing homes and diagnostic.
Yes.
A different Uh huh.
Only approved by FDA called awful as our Pmean route.
Patients so they say hey, they wouldn't allow us to do as a de novo that's really the basis, though.
Got it okay. Okay. Thank you very much for taking my questions.
Thanks, Brian .
Your next question comes from the line of Allergan, Atlanta Landline company.
Oh, good afternoon, and thanks for taking the questions and to build the best wishes. Please go ahead.
Oh in terms of the full case school.
Finally.
Might be the timeline for the Sds decision.
So so yeah. We are we expect to submit the P.M.A. later this month.
And the other typical review timeline for Pmeight is somewhere around nine months to a year.
So probably a third quarter of next year.
Yeah Thats right.
Okay great.
And.
I've seen that I mean, you provide it to the third quarter.
Financial guidance, that's always very helpful. Appreciate it.
Just.
We can you can extend a little bit.
What's that feed the third quarter rough number will roughly cover.
The fourth quarter as well or you see some more adjustment in those figures.
Yeah. So so you know we we obviously feel good enough optimistic about the way the second half of the year is going to continue to progress.
On bio reference as far as specific numbers go obviously, we don't we only went out the one quarter Ral the growth as well we've seen the script growth continue and really really accelerate.
From from what we saw the exit rate at last year. So I think we continue to feel optimistic about the growth rates on both lines of business and and we look forward to giving your fourth quarter guidance later this year.
Okay sure and okay. Thank God and appreciate it.
Thanks, Phil.
This is all the time we have today. Please proceed with your presentation or any closing remarks.
We look forward to providing an update again when we speak again on the third quarter results for.
In November and thank you all for participating.
Ladies and gentlemen that concludes your conference call for today.
Thank you for your participation and ask that you. Please disconnect your line.
[laughter].