image
Healthcare - Drug Manufacturers - Specialty & Generic - NASDAQ - US
$ 0.9
12.7 %
$ 11.7 M
Market Cap
1.06
P/E
EARNINGS CALL TRANSCRIPT
EARNINGS CALL TRANSCRIPT 2016 - Q1
image
Executives

Lisa Wilson - Investor Relations Scott Tarriff - President and Chief Executive Officer David Riggs - Chief Financial Officer John LaRocca - General Counsel.

Analysts

Tim Lugo - William Blair Randall Stanicky - RBC Capital Markets David Amsellem - Piper Jaffray Irina Koffler - Mizuho.

Operator

Good morning. My name is Keith, and I will be your conference operator today. At this time, I would like to welcome everyone to the Eagle Pharmaceuticals First Quarter 2016 Earnings Results Conference Call. All lines have been placed on mute to prevent any background noise.

After the speakers' remarks, there will be a question-and-answer period [Operator Instructions]. As a reminder, this conference call is being recorded, today, May 09, 2016. It is now my pleasure to turn the floor over to Lisa Wilson, Investor Relations for Eagle Pharmaceuticals. Please go ahead..

Lisa Wilson

Thank you, Keith. Welcome to Eagle Pharmaceuticals' first quarter 2016 earnings call. This is Lisa Wilson, of Insight Communications, Investor Relations for Eagle Pharmaceuticals. With me on today's call are Scott Tarriff, President and Chief Executive Officer; and David Riggs, Chief Financial Officer.

John LaRocca, General Counsel will be available for the question-and-answer session. This morning the Company issued a press release detailing financial results for the three months ended March 31, 2016. This can be accessed through the Investors section of the Eagle Web site at eagleus.com, and you can also access the webcast of this call from there.

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 may be 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 forward-looking statements are not guarantees of future performance.

Actual results may differ materially from those projected in the forward-looking statements. Eagle Pharmaceuticals specifically disclaims any intent or obligation to update these forward-looking statements except as required by law.

A telephone replay of the call will be available shortly after completion through May 16th; you will find the dial-in information in today's press release. The archived webcast will be available for one year on our Web site at eagleus.com.

For the benefit of those who may be listening to the replay our archived webcast, this call was held and recorded on May 09th. Since then, Eagle may have made announcements related to the topics discussed, so please reference the Company's most recent press releases and SEC filings.

And with that, I'll turn the call over to Eagle's CEO, Scott Tarriff..

Scott Tarriff

Thank you, Lisa, and good morning everyone. We’re pleased to share with you the progress we are making at Eagle. Our business outlook for the Company remained bright.

We are encouraged by the potential to have our products to deliver solutions that address life threatening conditions and improve treatment outcomes and look forward to some upcoming milestones that we expect will drive meaningful earnings growth.

Since we provided a thorough business update a few weeks, I am going to keep my remarks brief on this call, focusing on several key highlights for the quarter. And I’ll turn the call over to David to review our financial results for the first quarter of ’16. During the quarter, Teva launched BENDEKA beginning the market conversion from TREANDA.

Product did not ship until the end of January so the launch was slightly delayed but momentum is clearly picking up and we have a shared goal of 90% market share. We’ll talk a little bit more about market share in just a moment. Our docetaxel non-alcohol formulation launched in January and contributed as expected.

This was our first quarter as a fully commercial organization with our own sales force. And as a result, RYANODEX sales were up approximately 5% quarter over quarter. The massage is getting out and we were beginning to see reorders. As previously disclosed we received a complete response letter for Kangio from FDA.

We have now met with FDA and they’re in dialog with the agency. As soon as we have something tangible to share, we will let you know. We also advanced our programs focused on RYANODEX label expansion opportunities.

We are encouraged by early clinical results and enthusiastic about the prospects for RYANODEX to be approved to potentially treat Exertional Heat Stroke as well as ecstasy and methamphetamine intoxication.

This was an active and important quarter for Eagle largely due to the much anticipated launch of BENDEKA, our marketing partner Teva Pharmaceuticals. As Teva stated on its call this morning, it is fully committed to BENDEKA. BENDEKA was launched at the end of January and sales are now steadily advancing.

In Q1 Teva achieved net sales of $38 for BENDEKA reflecting the timing of the launch. We are seeing momentum, with estimated net sales for the month of April at $45 million, and an overall conversion to Bendeka as of the first week in May of approximately 71%. We expect significant market share increases during this quarter.

In the critical hospital outpatient and clinic segments, which account for about 70% of Bendamustine sales market shares already reached approximately 77%. Teva and Eagle have a joint goal of reaching 90% or greater share. We believe Teva is committed to enabling Bendeka to reach its full market potential.

We're quite pleased with Teva's commitment to the product, and we are fully committed to supporting Teva in achieving those targets. As Bendeka sales grow, we expect our 20% royalty from Teva on those sales will be an important earnings driver for Eagle Pharmaceuticals.

Teva and Eagle hold six patents in the orange book for Bendeka, extending from 2026 through 2033 with additional patents pending. It is reasonable to believe that the market protection for Bendeka is likely to hold for many years to come.

Regarding the Delaware litigation involving generic challenges to Teva's Treanda patents, we are still waiting for a ruling from the court. We're optimistic that there will be a favorable outcome for Teva, particularly since the claims that have been brought will have to be invalidated for generics to come to market.

Now let's turn to Ryanodex, a product which we believe has the potential for multiple additional clinical indications. As, Ryanodex received first cycle approval from FDA for treatment of malignant hyperthermia. We have secured seven years of orphan drug exclusivity, have five patents issued, and two more filed.

The message about Ryanodex's effectiveness is spreading, and our sales force is focused on it. Sales were up about 5% quarter-over-quarter, approaching the $2 million mark. It's early in the quarter, but we continue to see momentum and expect additional growth.

We are waiting for comments from the FDA regarding Ryanodex for the treatment of exertional heat stroke, for which we've already been granted fast track designation and the orphan drug designation.

Our study at the Haje last year showed 122% increase in incremental improvement in the Glasgow coma scale at 90 minutes in the subset of non intubated patients.

Substantiating that the use of Ryanodex drives the improvement of cognitive function, which is the critical CNS factor motivating Eagle to pursue these new indications, exertional heat stroke, ecstasy and methamphetamine intoxication. We have the potential to be the first drug to market for the treatment of exertional heat stroke.

We look forward to updating you on the final meeting date with the FDA soon. The National Institute on Drug Abuse, part of the National Institutes of Health, is preparing to undertake preclinical animal studies evaluating the use of Ryanodex in the treatment of ecstasy and methamphetamine intoxication, a potential additional indication.

Ecstasy and methamphetamine intoxication, which can result in life threatening brain hypothermia, accounted for 125,000 emergency room visits in 2011. Our intent is to file an IND related to ecstasy and methamphetamine intoxication, and ultimately meet the with the FDA.

Now I would like to ask our CFO, David Riggs, to update you on our first quarter financial results.

David?.

David Riggs

Thank you, Scott. For the first quarter of 2016, our revenue totaled $29.6 million, compared with $36.3 million in the first quarter of 2015. The revenue mix consisted of product sales, royalty revenue, and license and other income.

As this is the first quarter we are recording Bendeka revenue, let me add some color about how we are accounting for the product. In addition to royalty revenue, there are two components that we include in our income statement. Bendeka is accounted for as part of both product sales and cost of revenue.

When we ship inventory to Teva's distribution center, title passes to Teva and we record the transfer price essentially at our cost. This shows up as product sales. In the first quarter, we recorded Bendeka product sales of $10.3 million. We also recorded Bendeka cost of revenue for the inventory we shipped to Teva at $10.6 million.

Overall, total product sales reflecting all of Eagle's products increased $11.1 million to $14.1 million during the quarter.

As a result of 10.3 million in net product sales from Bendeka, as I just mentioned; 1.9 million in sales of Ryanodex; 900,000 in net sales of Docetaxel; and increases in net sales of Diclofenac Misoprostol, offset by a decrease in Argatroban product sales.

Royalty income increased $6.2 million to $9.5 million, compared to $3.3 million in the prior year quarter. Royalty income was driven by the first quarter launch of Bendeka. License and other income was $6 million, compared with $30 million in the prior year quarter.

This $6 million revenue pickup represents revenue previously deferred from the 2010 sale of a non-core asset that was subject to a claw back provision which has now expired.

With Bendeka's launch delayed a month and the conversion of Treanda to Bendeka still building momentum, combined with the unexpected completed response letter for Kangio, we acted to slow our spending. We reduced discretionary spending on R&D programs to lower our expenses. We froze hiring of sales reps and trimmed marketing programs.

The scalability of our infrastructure allowed us to minimize the effects of slower than expected revenue. R&D expenses were $6.7 million in the first quarter of 2016, compared to $6.3 million for the prior year quarter.

The increase is due primarily to the successful completion of the clinical treatment portion of safety and efficacy studies associated with Ryanodex for exertional heat stroke, our investment in Kangio, and other pipeline products. And higher R&D personnel costs, offset by a decrease in spending related to Bendamustine.

For 2016, we expect total R&D spending to remain consistent with our spending in 2015. We will continue to manage our cash position closely, and scale our investment in R&D in accordance with top-line growth. SG&A expenses were $11 million in the first quarter of 2016, compared to $4 million in the prior year's quarter.

Personnel related expenses accounted for the bulk of the $7 million increase, and were due to overall expansion of the business. We added 12 sales reps during the quarter, but froze hiring in response to unexpected market delays in the launch of our products.

We expect sales and marketing expenses in 2016 will ramp up as new product launches begin and gain momentum. We expect spending to be in the $18 million to $20 million range for the year. G&A expenses are expected to be $19 million to $21 million. On March 29, 2016, we divested our Diclofenac/Misoprostol product to a third party.

We recognized a gain in the first quarter of 2016 of $1.75 million, and we are entitled to receive a 25% royalty on net profits for five years.

The net loss for the three months ended March 31, 2016 was $900,000, or $0.06 per basic and diluted share; as compared to net income of $19.7 million or $1.38 per basic and a $1.31 per diluted share for the three months ended March 31, 2015.

We closed the quarter with $78 million in cash and cash equivalents, $15 million in receivables due from Teva, and $200.3 million in additional paid-in capital. We had $92.3 million in shareholders' equity as of December 31, 2015. And with that, I'll turn it back over to Scott..

Scott Tarriff

Thank you, David. To sum up, we believe the outlook for Eagle Pharmaceuticals remains bright, with multiple upcoming growth drivers. I realize there is a focus on the outcome of the generic litigation in Delaware, and rightfully so.

In event that the outcome is favorable, Eagle will be in a stronger position with strong earnings, significant cash, no debt, and a deep pipeline. And importantly, a significant portion of our revenue will be coming from Bendeka, a branded exclusive product rather than from a generic marketplace.

We believe we're well positioned to continue to build value. Thank you for your support and for joining us this morning. I am pleased to answer any questions you may have..

Operator

[Operator Instructions] We'll take our first question from Tim Lugo with William Blair. Please go ahead..

Tim Lugo

With the Bendeka switch going well, although a little bit delayed, Scott, you still have your big bag of 500 milliliter liquid formulation product of bendamustine? Do you have any updated thoughts on the potential of launching that product yourself, or what you would do with that product?.

Scott Tarriff

As you know, as of May 1, we have the contractual right to launch our big bag, the 500 milliliter bendamustine formulation. We haven't launched it, obviously. There are a number of variables that influence the decision.

What we can say that we are very focused on this, and we'll be updating everyone regarding our plans in the future, in the near future..

Tim Lugo

Is one of the variables, I assume, the outcome of the [indiscernible] generics case, or are there other things out there, levers out there, that we might not be appreciating?.

Scott Tarriff

Yes, were there a number of variables that influence the decision, Tim. As we said, we are focused and we're going to provide an update here in the near future. But what I will say is Bendeka is being very well received by patients and physicians.

The feedback has really been very positive on how the shorter time infusion rate is being received by the people that are touching it and using it, which is great. And you are right we will have to focus on how that goes, what's going on with the litigation. We have a public hearing coming up very shortly on the J-Code appeal.

And from our standpoint, we just need to look at all these variables and I think we will have an answer before too long..

Tim Lugo

Okay, thanks. And maybe a question for you, David, you mentioned some slowing of expense growth during the quarter given Kangio, but SG&A still looked a little bit higher than we were expecting.

So should we, for the remainder of the year, should we model off of this quarter or should we look back at the $5.6 million from Q4 as a base?.

David Riggs

Okay, so thanks, Tim. Yes, I think that we want to stand by the guidance that we gave at the last conference call and also at this one. So we would expect to see sales and marketing expenses at $18 million to $21 million, and G&A at $19 million to $21 million and R&D around $30 million for the year..

Tim Lugo

Okay.

And for the COGS portion, will that always be a 1 to 1 and then most of the -- and then the royalty will obviously be the big swing factor for Bendeka?.

David Riggs

Right, right. Yes, we would expect the royalty number to really be the bulk of what's reported there. And cost of revenue to be approximately equal to product sales..

Operator

We will take next question from Randall Stanicky with RBC Capital Markets..

Randall Stanicky

Scott, can you talk about the dueling IPR versus District Court decisions, and should we assume that the District Court will be the decision that holds just considering the recent IPR updates? And then secondly, in light of where we are today, there's been a couple of product delays, you're building a sales force.

How do we think about your existing or current thinking on business development? Are your interests there accelerated given some of the recent events, and what should we expect out of you? And also, what you seeing in the current environment from a BD perspective? Thanks..

Scott Tarriff

Thank you, Randall. So first on the IPR, it appears, from our view, that the IPR is positive. We have the first IPR coming out and positively for Teva, and the IPR, the patent office, not going further. Remember the standard at the patent office is lower than the standard in the court.

So even though there is no direct influence on the court by the results of the IPR, we are certainly encouraged by the fact that in the first IPR we had a positive event on the 270 patent, which is a key patent here. And in the second IPR proceeding, the key claims, claims one, three and five also went well for Teva.

And when you look at that and then combine that with the higher hurdle at the District Court of clear and convincing, which favors the innovator, we are optimistic that things will work out. But obviously, there's no way to tell. We will know in a few weeks, probably by early June, and we will just have to see how things unfold.

On the sales force, we've certainly reduced the number of people that we have right now in terms of what we plan to hire because of the delay in Kangio. And we have put our effort now behind Ryanodex and it's having a pretty good impact. If you look the last couple of quarters of Ryanodex it's growing nicely.

As I stated my comments here earlier that I realize it's early in Q2. But we are seeing continued growth of Ryanodex to date and so I think we're getting good use out of the sales force. We are making reasonable progress on the docetaxel launch and we still hold out hope for Kangio. We did meet with FDA, we are in dialog.

Let's see how that goes, and as soon as we have anything tangible there we will give everybody an update. But business development is a focus. We are commercial now, and we do have the sales force between ourselves and Spectrum and it would be nice to be able to add more products.

We think we can add a few products into the infrastructure here at Eagle without adding much expense to the system. We are looking. We have not found anything yet that quite fits us, but we are aggressively reviewing opportunities and hopefully we will find some good fits..

Randall Stanicky

What size, I mean should we think about more types of product deals or could we see infrastructure adds that come in with perhaps a portfolio of products?.

Scott Tarriff

We are open Randall to look at all opportunities. The way we see things, the Delaware court case obviously is so important to us.

But in the favorable situation where there's a positive decision there, we find ourselves with a long number of years where we have really wonderful royalty coming in from Bendeka and the way we view that is, Bendeka is a branded product.

We are not subject to some of the issues going on in the generic environment, and that's a great place to be and the pipeline that we have, it's not just the methamphetamine, the ecstasy and the exertional heat stroke coming out of Ryanodex, but it's the AMRI relationship, it's a couple of products that we have in our pipeline that we haven't fully spoken about.

Remember we have the Pemetrexed, the Alimta filing later this year. I think once we get past that court decision, we will step back. We will look at Eagle and see how well poised we are, again, with cash and a pipeline and no debt, and obviously the clean balance sheet.

It gives us a lot of opportunity to acquire baskets of products or products or quite frankly, Randall, we would be in a situation or maybe patients works where we would not be in a situation where we have to have increases to the pipeline or the portfolio through acquisitions.

So why don't we take it step by step and see, and leave it at the fact that we would love to be able to bring some more products into the sales force..

Operator

Next question is from David Amsellem with Piper Jaffray..

David Amsellem

Thanks. So wanted to explore a hypothetical on Bendeka which is, suppose that the case does not go Teva's way and obviously the setback on the J Code. I think you've said in the past that you could take Bendeka back.

So can you just talk about that, and just give us some color on the mechanics of that and the agreement? That's number one and then secondly, if you're operating in a multi source environment where you either take Bendeka back or you have the big bag on the market.

Can you talk about what your expectations would be in terms of number of entrants later this year, and how you would think about your own share given that you've got a liquid product and the other players are lie off products? Thanks..

Scott Tarriff

Thank you, David. So I will say, go down the road whenever it is that there are generics in the market. Hopefully, later as opposed to sooner. I think what we would find ourselves in a situation where we would have the two best products in the marketplace of three. Now as I mentioned earlier, Bendeka is showing some very positive results early.

There's some, what we would call, safety data coming out that will be public here soon, that I think will add to everybody's enthusiasm about infusing bendamustine over 10 minutes. And so we are reasonably optimistic with a commercial organization maintaining a large portion of the Bendeka market, even in the face of generic competition.

I think the longer number of years that Bendeka is out in the marketplace, so patients and physicians and nurses could enjoy and see the tangible benefits of the product, the better situation we will be in, in order to protect that share over time.

It's hard to predict how many people will ultimately enter that market, or when they would enter that market. And certainly the price within the market is going to have an impact on the profitability of the product, but probably not the market share of the product and we will just have to see how things unfold.

And contractually, again, if there is no unique J Code, if the situation stays the way it is, we have the right to terminate the relationship and take back Bendeka and also launch our big bag. That's still an option for us that we are reviewing.

So what I will say here, David, is lots of variables, lots going on, but what we do know is Bendeka is the better product. It has wonderful benefits. Early on we are seeing that with the response from patients and from physicians, and it should maintain itself as probably the workhorse in the marketplace..

David Amsellem

And then on Bendeka in terms of what you have outlined in the contract, would you have the right to take it back only after you have exhausted all of your options, your appeals options, to CMS? Or is it, would you have the ability to take it back earlier? Could you just give us a sense of how that would work?.

Scott Tarriff

Yes, sure. So we are, the contract is obviously addresses the situation, and we are evaluating that situation on the exact timing now, David. Keep in mind that we do have a preliminary ruling now, we are going to CMS hear shortly to argue our points. We will see how that goes, and then in the fall there will be a final decision coming out of CMS..

Operator

[Operator Instructions] We go next to Irina Koffler with Mizuho. Please go ahead..

Irina Koffler

Hello, good morning. I wanted to understand a little bit about the royalty and the flow of the business. So Teva reported sales of 155 million this quarter, you guys that implies a royalty of 31 million but you guys got 9.5 million.

So just wondering, is there a bolus or something we should expect rolling into the second quarter, or just it is what it is? And then secondly, the 155 million was about 15% lower than last year.

So is this an 800 million drug that we're talking about, or is this more like a 600 million, 700 million drug for modeling purposes? And then I have one more after that..

Scott Tarriff

Okay, thank you, Irina. Let's take it one at a time. So of that 155 or so that Teva reported about 38 of that was Bendeka the rest was Treanda. So we received our royalty on the Bendeka piece obviously.

And then what we did just state that the month of April it looks like sales of Bendeka was about $45 million for the month, and we continue to see the ramp up hopefully in May and June as we end the quarter.

I don't recall specifically Teva's sales number but I thought that their Q1 number was about 1% off of where their Q1 number was the previous year. And there may be some seasonality there may be an anomaly there and terms of what their Q1 sales are. We don't know but the range was similar to what it was in the first quarter of the previous year..

Irina Koffler

Okay. And then on Alimta and your NDA that you're going to file later in the year, how much do you know about other competitor 505(b)(2) filings. For example, we know Actavis has one out in Europe, so what's to say they don't have one in the states as well and your ability to get an exclusive there? Thanks..

Scott Tarriff

Thank you. So Alimta, it's hard to fully monitor what other people are doing, a lot of it just isn't public. And in these situations, all we can do is put our heads down and file our drug. I think we have a great drug.

It is difficult to formulate this cytotoxic product as a liquid, so again the difference that we have is that ours is a liquid and not a powder. We don't believe that there are other liquids that have been filed, but we can't be certain about that. We have confidence in the position that we are taking and how we're approaching it.

And we will file it at the end of the year, and we will see how it goes..

Operator

It appears we have no further questions at this time. I will return the floor to Scott Tarriff for additional or closing remarks..

Scott Tarriff

Thank you, everyone. I appreciate the time everyone took today, the continued support of the Company, and we look forward to continuing to update everybody as future developments unfold. Thank you very much..

Operator

Ladies and gentlemen, this does conclude today's program. Thanks for your participation. You may disconnect. Have a great day..

ALL TRANSCRIPTS
2023 Q-2 Q-1
2022 Q-4 Q-3 Q-2 Q-1
2021 Q-4 Q-3 Q-2 Q-1
2020 Q-4 Q-3 Q-2 Q-1
2019 Q-4 Q-3 Q-2 Q-1
2018 Q-4 Q-3 Q-2 Q-1
2017 Q-4 Q-3 Q-2 Q-1
2016 Q-4 Q-3 Q-2 Q-1
2015 Q-4 Q-3 Q-2 Q-1
2014 Q-4 Q-3