Good day and welcome to today's program. My name is Keith and I'll be your conference operator. At this time, I'd like to welcome everyone to Eagle Pharmaceuticals' First Quarter 2019 Earnings Results Conference Call. [Operator Instructions]. As a reminder, this conference call is being recorded today May 7, 2019.

It is now my pleasure to turn the floor over to Lisa Wilson, Investor Relations for Eagle Pharmaceuticals. Please go ahead..

Thank you, Keith. Welcome to Eagle Pharmaceuticals' first quarter 2019 earnings call. This is Lisa Wilson, Investor Relations for Eagle Pharmaceuticals. With me on today's call, are Eagle's Chief Executive Officer, Scott Tarriff; Chief Financial Officer, Pete Meyers; and Adrian Hepner, Chief Medical Officer.

This morning, the company issued a press release detailing financial results for the three months ended March 31, 2019. This press release and a webcast of this call can be accessed through the Investors section of the Eagle website at eagleus.com.

Before we get started, I would like to remind everyone that any statements made on today's conference call that express a belief, expectation, projection, forecast, anticipation or intent regarding future events and the company's future performance 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 will be available shortly after completion of this call.

You'll find the dial-in information in today's press release. The archived webcast will be available for one year on our website, eagleus.com. For the benefit of those who may be listening to the replay or archived webcast, this call was held and recorded on May 7, 2019. 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..

Thank you, Lisa and good morning everyone. There is so much to discuss today. First, I'll recap what we've accomplished to solidify our bendamustine position and then I'd like to address the investments we made in some critical upcoming events and our plans for future growth.

So starting with bendamustine, we've been very active on this front to reinforce our position in the market. As you recall, about a year ago now the FDA granted Bendeka seven years of orphan drug exclusivity, which runs through December 2022.

However, the FDA's more recent decision agreeing with us that the scope of the orphan drug exclusivity extends to Treanda Generics means that no competing bendamustine products will enter the market before December 2022. While there is an appeal pending regarding the original grant of exclusivity, we remain confident in our position.

This is obviously an important achievement to solidify the growth of our company. We also recently announced the revised agreement with Teva, which creates substantial incremental value for two reasons. First, the royalty payment will increase from 25% to 30% in October of this year and then by an additional 1% annually until it reaches 32%.

Second, the royalty term, which was set to expire in 2025 has been extended in the United States for as long as the product is sold. We believe the strength of our patents which run to 2033 will now allow us to earn significant long-term value from bendamustine, well beyond the original end date of the agreement.

Based on our view of the marketplace, the net present value impact of these two changes is approximately $200 million. And lastly, we were able to secure unique J-code for BELRAPZO, which is the brand name under which Big Bag will be sold beginning June 3 of this year.

Obtaining this unique J-code is both a critical and important milestone for our Big Bag franchise because when Treanda Generics ultimately enter the market they will be billed under a different J-code.

Combined, these events now give us the most certitude for our bendamustine portfolio since launch, and should provide a very strong base of earnings for many years to come. And to be clear, we anticipate growing Eagle significantly from this base. I will now focus the remainder of my comments on our growth strategy.

First, let me say that we anticipate non-GAAP spend in 2019 to be in the range of $32 million to $36 million in R&D and $51 million to $54 million in SG&A. Our SG&A estimate includes significant spend on legal fees, which Pete will explain shortly.

Now many of you for various reasons see the value of our pipeline differently than we do, which is not unusual in our industry. That being said, we do not believe we're getting sufficient credit for many of our pipeline products.

And it is up to us, the management team to provide more data points and more detail to clarify our confidence in the potential of our pipeline. This year, we will spend $18 million on projects that for the most part have not yet been forecasted externally into the future growth of the company. This is a lot of money.

It represents almost a dollar in EPS in 2019 alone. And by comparison last year in 2018, we spent $8 million on these very same projects. In total, we have invested about $1.40 in earnings per share to fund Ryanodex for EHS, PEMFEXY, vasopressin and other projects because we strongly believe in the potential of these programs.

But let's turn to the nerve agent indication for Ryanodex first. This morning we announced positive results of our nerve agent study. The results are strong and we anticipate meeting with FDA to discuss a regulatory path forward for this indication in the near future.

If we are successful this will be the first drug approved as a neuro protector against nerve agent exposure. Multiple federal agencies including the Departments of Homeland Security and Health and Human Services have issued different documents highlighting the risks of exposure to these extremely toxic chemical warfare agents.

We have been working closely with the U.S. military and believe that given our positive data, we may have a broad opportunity to provide product not only for our military personnel but also for the strategic national stockpile for civilian use and for allies abroad.

If you examine companies supplying countermeasure therapeutics, you can begin to understand the magnitude of the opportunity. We will shortly begin spending the capital required to scale up manufacturing capacity in order to meet future needs. We look forward to further discussions with the FDA and the U.S.

military and we'll keep you informed as those discussions progress. Now let me turn to PEMFEXY, our Pemetrexed product. Last month the court ruled in our favor on clean construction. And as a result, Lilly dropped its literal infringement claims.

Based upon the case thus far we are hopeful that we will prevail in this litigation and have the product on the market potentially prior to the first ANDA generic launch, which is May of 2022.

There are other 505(b)(2) companies but we believe we have several advantages in court because of the claim construction ruling as well as commercial advantages. Trial is scheduled for September 2019 and the 30 month stakes are February of 2020. In 2018 Lilly's Olympus [ph] sales totaled $1.2 billion in the United States.

Obviously, we believe this could be a very significant opportunity. We're also very excited about our vasopressin opportunity because we appear to be first to file. In 2019, we have budgeted almost $9 million to ultimately bring the product to market. The reference listed product is projected to be more than $500 million in 2019 branded revenue.

This first to file opportunity is well worth our investment. The trial is set for May of 2020 and the 30 month stay expires October of 2020. We could have a decision next year. As of now, we expect to prevail. With regard to our exertional heat stroke indication for Ryanodex, I realize that this has been a very long road.

We have continued to make investments in this indication to best position ourselves for approval. We believe and now have nerve agent data to support further that Ryanodex has clear central nervous system benefits.

We believe the available data clearly supports our position that EHS patients treated with Ryanodex in addition to standard of care have a better chance of recovery than patients treated with cooling alone. We have our next FDA meeting in June and we'll report back to you.

We also continue to invest in EA-111, our next generation IM version of Ryanodex, which may help with exertional heat stroke and potentially other new indications. Now based on our positive nerve agent results I hope you can more clearly see the need for an IM product, which will be eligible for new chemical entity exclusivity.

We continue to spend to develop Ryanodex for acute radiation syndrome, well, which will ultimately be market in the new IM form. We hope to have at least one other new indication for our Ryanodex to discuss as well in the near future. And I'd like to speak for a few minutes about our fulvestrant formulation.

As you know, on October 30 of last year we announced that we failed to meet the primary endpoints of our 600 subject PK study. While we were disappointed with the results, the data from the study was very interesting. And since then, we have continued to analyze the data and recently met with FDA.

While it is still early, we now believe that we can reformulate our product in such a way that may result in a better drug than the current brand and therefore compete effectively post generics. We will know more in the near future and are planning to meet again with the FDA next month.

Our hope is that the path forward recommended by FDA at that meeting will be reasonable. Lastly, we expect to add to our pipeline through in-licensing and continue to be very active on this front. At this time we do not have anything further to report.

All-in-all, we are very enthusiastic about our growth prospects given our solid position with bendamustine, multiple product candidates in our pipeline and the strength of our resources to in-license.

Beyond bendamustine, we believe in our programs to develop Ryanodex for nerve agent exposure, acute radiation syndrome and exertional heat stroke, our Pemetrexed and vasopressin product candidates and EA-111.

With this pipeline and additional potential business initiatives, we believe we are in the process of creating a very successful platform that will build upon the successes we've achieved with bendamustine. And with that, I'll call -- I'll turn the call over to Pete to review the first quarter financial results.

Pete?.

Thank you, Scott. In the first quarter of 2019 total revenue was $49.8 million compared to $46.6 million in Q1 of 2018. We recorded $9 million in revenue during the first quarter of 2019 upon execution of an agreement to terminate Teva's obligation to pay future milestones and royalties on Bendeka's sales outside the U.S.

Product sales during the first quarter were up 34% year-over-year totaling $14.5 million compared to $10.8 million largely due to Big Bag sales. Big Bag product sales were $3.2 million in the first quarter. Eagle recognizes Big Bag revenue on shipments by Eagle to wholesalers.

As anticipated first quarter 2019 shipments to wholesalers were below that of the previous quarter due to the stocking that occurred in 2018. We expect Big Bag revenue to resume sequential growth in the second quarter of 2019 and trade inventory levels normalize.

Based on IMS data Big Bag's market share of wholesaler shipments to end users was 9% of the US bendamustine market in the first quarter. So we continue to approach our 12% aspirational market share. First quarter Ryanodex product sales were $4 million, down 9% on a year-over-year basis.

Ryanodex market share in the first quarter was 29% a normalized unit terms and 52% share of dollars. First quarter Ryanodex sales were driven largely by 289 customers engaging in new business. Q1 royalty revenue was $26.3 million compared to $35.8 million in the prior year quarter.

Bendeka royalties were $26 million compared to $34 million in the first quarter of 2018. In 2019, we expect Big Bag sales to increase year-over-year and Ryanodex sales to be down year-over-year due to the expiry cycle. Gross margin was 74% during the first quarter of 2019 as compared to 75% in the first quarter of 2018.

On the expense front R&D expenses were $6.4 million for the quarter compared to $17.3 million in the prior year quarter. First quarter year-over-year decrease reflects a substantial reduction in fulvestrant expenses, partially offset by the cost to bring vasopressin to market.

Excluding stock based compensation and other non-cash and non-recurring items R&D expense during the first quarter was $5.2 million. As Scott mentioned, we expect R&D spend in 2019 on a non-GAAP basis will be $32 to $36 million as compared to $38 million in 2018.

The absence of fulvestrant in the 2019 budget accounts from the expected decrease in year-over-year R&D expenses, offset in part by spending on vasopressin to bring the product to market the Ryanodex ARS program and the EA-111 CMC scale-up and IND-enabling toxicology costs.

SG&A expenses in the first quarter of 2019 increased to $18.1 million compared to $15.2 million in the first quarter of 2018. External legal expenses associated with litigation of PEMFEXY, vasopressin and bendamustine and higher stock compensation expense account for the year-over-year increase.

Excluding stock-based compensation and other non-cash and non-recurring items, first quarter 2019 SG&A expense was $12.9 million. We expect our SG&A spend in 2019 on a non-GAAP basis will be $51 million to $54 million as compared to $43 million in 2018.

The year-over-year increase is largely attributable to increased levels of external legal expense as well as higher sales and marketing payroll. Overall, the key takeaway is that we expect to spend considerably on our pipeline in 2019.

Net income for the first quarter was $9 million or $0.64 per basic and $0.62 per diluted share compared to net income of $2.6 million or $0.18 per basic and $0.17 per diluted share in the prior year period due to the factors discussed above.

Adjusted non-GAAP net income for the first quarter of 2018 was $14.6 million or $1.05 per basic and $1.01 per diluted share compared to adjusted non-GAAP net income of $8.2 million or $0.55 per basic and $0.53 per diluted share in the prior year quarter.

For a full reconciliation of non-GAAP net income to the most comparable GAAP financial measures, please see the tables at the end of our press release. Our EBITDA for the first quarter of 2019 was $18.8 million compared to $9.5 million in the prior year quarter.

First quarter 2019 cash flow from operations excluding shifts of receivables was $23.6 million. For the 12 months ended March 31, 2019 EBITDA was $80.7 million. Cash flow from operations excluding shifts of receivables was $84.1 million.

As of March 31, 2019, the company had $102.1 million in cash and cash equivalents and $63.9 million in net accounts receivable, $46.6 million of which was due from Teva. company had $42.5 million in outstanding debt. Therefore at March 31, 2019, the company had net cash and receivables of $123.6 million.

With that, I'd like to open the call for question. Operator, please go ahead and open the line for questions..

[Operator Instructions] And we'll take our first question from Brandon Folkes with Cantor Fitzgerald. Please go ahead.

Hi. Thanks for taking my question. I wonder if you could give us some color on the dynamic that's going on within the bendamustine market. You grew share nicely in Big Bag in the quarter but you seem to have given some back in March. So just any color you could around that dynamic there would be appreciated. Thank you..

Thanks for the question Brandon, this is Pete. We're pleased with the progress in our Big Bag product roll out. As you can see from the IMS data we had a 9% market share in the quarter and we ended April at a 9% share as well. And so things are progressing as planned..

Okay.

And perhaps maybe could you just give us some color on how much was Bendeka's revenue in the past ex-U.S?.

We don't market Big Bag outside the U.S..

No, Bendeka..

Oh sorry, Bendeka is, it's zero..

Zero, okay. So that $9 million is all accretive. And then lastly, if I can sneak in one more. You talked about your ruling on Alimta but maybe can you just give us your perspective on the recent ruling against the Alimta paying the a generic filers and how this may affect your opportunity? Thank you..

Yeah, sure. Brandon, this is Scott. It obviously it's very positive for us. It appears for the most part I think it's pretty consistent that they will not be generic versions of Alimta in the market until May of '22. And clearly, our objective since the beginning was to get to the market prior to that date, prior to May of '22.

And we think we're in a good position now to achieve that. And so the stars have been lining up pretty well for us over the last month or so..

Great, thank you very much..

Thank you..

We'll take our next question from Randall Stanicky with RBC Capital Markets. Please go ahead..

Hi, good morning. This is Ashley Ryu for Randall. On the nerve agent data you discussed I know you sought to meet with FDA and that you think that it may be possible to file under the Animal Rule.

But how are you thinking about the likelihood that they may ask you to run another trial perhaps with non-human primates something like that to file and if filed under the Animal Rule, what's the timeline for filing?.

Yeah. Hi, Ashley. Hopefully you know, this is the pivotal study. We'll just have to see. The data obviously is very strong, which is very positive. We're really quite thrilled with the results. We'll meet with FDA here shortly and we'll ask them that very question.

As we've said over the last year that we've always been prepared to have to run another animal study. And so we are in position to do that if we need to. We hope we won't need to. We won't know until after we meet with the agency. But as we've stated before, if we have to run another study maybe that adds another three or four months to the timelines.

And we'll just have to see but we'll get into FDA as quickly as we can. And our mission right now is to file as quickly as we can and we don't think it'll be a very long review process. And our view of things is that we'll be on the market with this product in a reasonable period of time now..

Got it. And can you talk a little bit more about the opportunities you're seeing for business development. I know that you're actively evaluating opportunities, but we haven't seen much. And are you just not seeing kind of as compelling strategic assets or is it a valuation mismatch.

Is there kind of like less urgency around that now that you have more clarity around a generic Treanda and Trane [ph] et cetera?.

Yeah. Ashley, you know it's a great question. I think it's a little bit of about all those things. As we've moved through the last six months even though we've been quiet to some extent, as you can see and hopefully have a better view after today that we've been moving many of our internal products along pretty, pretty deliberately and pretty well.

And as things have unfolded over the last six months and you look at where we are now, we have a tremendous amount of faith in our pipeline, the products that we've been working on and there is nothing more efficient in building a company than organic growth.

And if you think about how we built this company so far having purchased back more stock than we've raised since we went public and still having the cash that we have in the relatively clean balance sheet we've been focused clearly on building this business from within.

But quite frankly you know like the rest of you, six months ago we didn't know what we had. And if you look at us we're an oncology company and we're a critical care company. So we haven't known yet which way to turn to get more into one of those two areas or to maybe find a third leg for the company.

But now that things are unfolding, it looks like hopefully, hopefully much of what we've been working on is going to pan out. We still have to get through the year and see for certain. And that's number one. Two, we have looked at quite a bit. And you know, we haven't just found anything that's just perfect.

There are a lot of products on the market that appear to be, I mean, in the clinic that appear to be positive. And then when we get into diligence for one reason or another we've balked. Maybe it's because we had the luxury of not taking as much risk as we otherwise would have as our pipeline has been coming to fruition.

But we are active, very active and I'm sure we'll find appropriate products to bring into the company and add to this pipeline. It'll be a great way to grow a combination of in-licensing as well as this growth that we see from the pipeline. We expect and look forward to do both..

Got it, And just one last one from me. Unfold vasopressin and you mentioned that you met with FDA and you have another meeting coming up and could perhaps reformulate it.

What would you kind of consider to be a reasonable path forward? Are you expecting essentially to have -- to have to rerun the trial that you already ran just with the new formulation or what are your expectations there? Thank you..

Yeah, thank you, Ashley. I believe that, that question is better to answer a month from now when we come back from the FDA. I do believe that if we're correct then let's see what they say and how our reformulation efforts go over the next 30 days.

I believe that the path forward will be something that's reasonable and that will get us to the market in a reasonable time frame and provide quite a bit of value not only for the company but quite frankly for breast cancer patients. And that's what we're most excited about right now, some of the properties that we've seen out of our drug.

And let's -- let's see what happens over the course of the next 30 days. It's important you know fourfold a strand. Let's see how it unfolds but we'll get back to everybody as soon as we exit that meeting with FDA..

Okay. Great. Thank you so much..

Thank you..

We'll take our next question from Tim Lugo with William Blair. Please go ahead..

Thanks for the question. For the nerve agent results you mentioned positive results in six critical areas of the brain.

Is this with all of the areas of the brain studied? And I guess how significant do you view the results versus your prior animal work? And can you also maybe talk about just the magnitude of opportunity for nerve agents and I think previously you have been discussing a sub-cutaneous formulation, is that still something in the works?.

Yeah, so Tim, let me -- let me turn the first question over to Adrian Hepner who is our Chief Medical Officer to talk to you a little bit more about the data. And then, I'll talk about the magnitude and the intramuscular program EA-111. Adrian? A - Adrian Hepner Thank you Scott and good morning everyone.

So the data we got the six areas we're discussing are the cortical areas of the brain. As we know the cortex of the brain are the areas with the highest density of neurons. We are observing those areas is a statistically significant difference in term of damage to those areas, which is robustly positive in favor of Ryanodex.

That's basically what differentiate the two -- the two treatment arms. And the data we have observe in this study is consistent with the data we've seen in the initial and smaller study..

Very good.

Does that help Tim?.

Sure.

And maybe just the magnitude of the opportunity?.

Yeah. So look it's obviously the potential is quite significant. Look, unfortunately there is way too much nerve agent being used on populations around the world. It's really just terrible. And as I tried to highlight in the script that there is a concern that one day there will be a nerve agent released on U.S. soil.

Now I believe we have three opportunities for the product. The first, which I think is the clear opportunity for us is the U.S. military protecting our military personnel throughout the world. The second opportunity would be for our NATO allies and our other allies to also want to protect their military.

Unfortunately, I believe our military is probably potentially being exposed around the globe. And our data and the opportunity to be a neuro protector after the results we received yesterday is just remarkable. But the third opportunity, which is probably the most important and that is protecting innocent civilians throughout the world.

Now the United States has a civilian strategic stockpile. There are locations throughout the country where emergency drugs are kept in the event that there is a situation that we hope never happens. And it's possible that the U.S. government will want to protect potentially millions of lives in the event of nerve agents.

And that's the opportunity that we have as a company to protect the civilians, the population of the United States through the stockpiling. And we will start those conversations here pretty quickly. But that opportunity is pretty large. And then the same with our allies.

There is a need to protect innocent civilians throughout the globe and there is an opportunity to stockpile the product there as well. And with today's results and the strength of the results and considering the fact that there are no neuro protectors available for nerve agent exposure, we believe that the opportunity may be significant.

And now we're going to start to have those conversations and start to invest the money to prepare to be able to manufacture as much of the product that we may ultimately need to manufacture.

And so we have all those opportunities in motion now and hopefully meet with FDA here shortly, and find the most expeditious path forward to get the product on the market and start protecting people in the event that something should occur..

Understood.

And maybe the IM formulation I think I previously called the sub key formulation or is that still in the works?.

Yeah, that's EA-111 Tim that we refer to and we're doing a tremendous amount of work on that. That's part of the expense that we cited today. We're making what I think is really good progress.

And remember we've also stated that we believe the way we approach that, that product will be considered a new chemical entity and that will provide us with a whole new patent and exclusivity opportunity for these products that we're talking about.

And so that's moving along and right now our belief is that we'll move from what was malignant hyperthermia in a vial that needs to be infused 5 ml on to an IM version of substantially that would potentially have all these other indications, exertional heat stroke and radiation and nerve agents.

And I believe I mentioned earlier in the script as well that we'll probably announce before too long at least another potential opportunity for Ryanodex as well. I think it's all coming together rather nicely..

Great. Thank you for all the detail..

Thank you..

[Operator Instructions]. And we can go and take a follow up from Brandon Folkes with Cantor Fitzgerald. Please go ahead..

Hi, thanks for taking my follow up. I just wanted to follow up on the $9 million received in the quarter from Teva. What color can you provide us on the rational basis for this payment given that Teva was not selling ex-U.S.

And then are there any other dynamics of the renegotiation of that contract that we should expect to have out in the future? Thank you..

Well, Brandon, the $9 million was paid to us as consideration to simply buy down our milestone and royalty obligations that Teva contractually owed us in some of these territories outside the U.S. And so candidly we were quite pleased to be paid $9 million in exchange for a royalty and milestone stream that us wasn't obvious.

And so we were quite pleased with the outcome there..

Yeah, Brandon, this is Scott. I'll just add to that. In those countries in which we receive the by -- the royalty, the product had not been approved in any of those countries yet. That was future stream of revenue that we took in early..

Okay. Thank you very much..

Just bear in mind please Brandon that we continue to have a milestone and potential milestone and royalty stream coming in from Japan because that's a different partner. You'll remember that in September 2017, we struck a deal with SymBio to have license their rights to Bendeka and Big Bag in Japan.

So that is separate from the Teva contract amendment that we just discussed..

Very helpful. Thank you very much..

And it does appear we have no further questions. I'll return the floor back to CEO, Scott Tarriff..

Well, thank you everyone. Thanks for spending the time with us this morning. Exciting times for the company and I appreciate I'm sure I'll speak to many of you over the upcoming months. Thank you..

And this will conclude today's program. Thanks for your participation. You may now disconnect. Have a great day..