Good day, and welcome to today's program. My name is Keith, and I'll be your conference operator today. At this time, I'd like to welcome everyone to Eagle Pharmaceuticals Second Quarter 2019 Earnings Results Conference Call. [Operator Instructions]. As a reminder, this conference call is being recorded, August 8, 2019.

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

Thank you, Keith. Welcome to Eagle Pharmaceuticals second 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; and Chief Financial Officer, Pete Meyers.

This morning, the company issued a press release, detailing financial results for the three months ended June 30, 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 Pharmaceutical's 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 1 year on our website, at eagleus.com. For the benefit of those who may be listening to the replay or archived webcast, this call was held and recorded on August 8, 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..

Well, thank you, Lisa, and good morning, everyone. We've had a solid first half of the year, providing us with a robust platform for which to advance our R&D programs and explore additional opportunities to add to our portfolio.

Our bendamustine business will allow us to continue to invest in our pipeline, but the real growth going forward is, obviously, in the pipeline. We have 7 main programs to talk about today, including 4 product candidates in our late-stage pipeline.

Fulvestrant as well as addition of RYANODEX indication to the nerve agent, Acute Radiation Syndrome and exertional heat stroke. These have the potential to be first or best-in-class treatments in their categories.

In addition to these 4, our pipeline includes a first-to-file ANDA for Vasopressin, an NDA for PEMFEXY, an EA-111 and IM version of our RYANODEX. We anticipate filing an IND for EA-111 mid next year. Let me begin with an update on fulvestrant. As we recently announced, we believe that our fulvestrant program looks very promising.

You'll recall that we conducted an extensive clinical trial in 2018 in healthy post-menopausal women. The study enrolled 600 subjects over 140 days, with 300 subjects receiving the branded product FASLODEX and 300 subjects receiving Eagle's formulations.

A detailed review of the study data led to the hypothesis that the unique properties of the Eagle's formulation will potentially allow for greater inhibition of estrogen receptors.

Based on this hypothesis, we have met twice now with FDA, and we've completed additional work to further enhance the formulation's unique properties that led us to believe we have a potentially more efficacious drug product.

With guidance from FDA, following meetings in March and June of this year, we have developed a clinical path forward to further explore the potential of our formulation. This is a critical undertaking. There are approximately 2.8 million breast cancer survivors in the United States and 290,000 more diagnosed every year.

Roughly 70% of those diagnosed are estrogen receptor positive. The mechanism of fulvestrant to treat these patients hinges on its ability to block estrogen receptors in the breast cancer cells. We believe our product may result in greater inhibition of estrogen receptors compared to FASLODEX.

To be perfectly clear, the fulvestrant program now is dramatically different than our previous program. We believe we have a tremendous opportunity here to develop a product with a better efficacy profile for patients that could potentially change the dynamics of the category and providing better standard of care than FASLODEX or any of its generics.

The pilot study will begin shortly. Once the pilot results are reviewed, a pivotal trial based upon the parameters determined with FDA will be conducted in the target patient population. Depending on the results of the pilot, we would hope to begin our pivotal study early next year.

The main goal of the clinical research program will be to determine if the unique properties of Eagle's fulvestrant formulation will result in greater inhibition of estrogen receptors, potentially leading to an improved efficacy profile, including lower disease progression rates compared to the current treatment options.

Depending on recruitment rates, we expect the pivotal study could be completed within approximately 12 months of commencing enrollment. This is a watershed moment for the company. One can see that fulvestrant can have a meaningful impact on these post-menopausal estrogen receptor positive patients.

In addition to fulvestrant, we believe that the rest of the portfolio is also very meaningful, and let's review that now. The additional indications for RYANODEX, exertional heat stroke, nerve agent, Acute Radiation Syndrome, are all focused on disease state improvement. We no longer think of ourselves as just a reformulation company.

We are focused on the outcomes of underserved patient populations. And as we roll out additional indications and evaluate in-licensing opportunities that we may or may not transact, we will continue to be focused on products that have meaningful efficacy profiles. As such, we believe we have significant potential in our RYANODEX program.

We plan to submit a meeting request to FDA shortly to discuss the regulatory path for this first-in-class nerve agent indication. The meeting should be granted within 60 days of the request. Once the meeting date has been set, we will let everyone know. Our Radiation Syndrome work is moving along as well.

We are in dialogue with the military, and that program is progressing on track. Our intramuscular formulation, EA-111, is in process, including IND-enabling toxicology work and generation of PK data. We believe it will be eligible for new chemical entity exclusivity.

As for exertional heat stroke, we continue to engage with FDA, and I will update you when we have more to share. We believe we are getting closer to being able to provide you with a more definite update. And in addition, we are currently evaluating 2 additional indications for RYANODEX, and we'll update you on those in due time.

We should have more clarity regarding PEMFEXY and Vasopressin shortly. As I've mentioned regularly, we expect that we will be able to monetize these assets, adding significant value to our business. Collectively, annualized second quarter reported revenues for the widely referenced products approached $2 billion as the products continue to grow.

You can understand why we believe these to be very significant opportunities for us. We are hopeful that we will prevail in our PEMFEXY litigation. We anticipate going to trial in the Autumn of 2019 and the 30-month stay expires February of 2020. In 2018, Lilly's ALIMTA sales totaled $1.2 billion in the U.S.

For the first half of 2019, Lilly reported $624 million in ALIMTA sales, reflecting 18% growth over the prior year period. We're also very excited about our vasopressin opportunity.

In 2018, ANDA's vasostrict sales totaled $454 million in United States, and Endo reported $255 million in the first half of 2019, reflecting 15% growth over the prior year period. The trial is set for May 1, 2020, and the 30-month stay there expires October of 2020.

Last quarter, I outlined our growth strategy, predicated on leveraging the bendamustine platform to invest in the development of our pipeline. I hope you share our enthusiasm for the products discussed today and look forward to reporting continued progress in our pipeline.

With that, I'll turn the call over to Pete to review the second quarter financial results.

Pete?.

Thank you, Scott. In the second quarter of 2019, total revenue was $56.7 million compared to $59.3 million in Q2 of 2018. Product sales during the second quarter were up 28% year-over-year, totaling $29.4 million compared to $23 million, largely due to BELRAPZO.

BELRAPZO product sales were $15.4 million in the second quarter compared to $8.1 million in Q2 of 2018 and $3.2 million in Q1 of 2019. Eagle recognizes BELRAPZO revenue from shipments by Eagle to wholesale.

The dramatic sequential growth in second quarter 2019 BELRAPZO revenue was likely due to a draw down of trade inventory levels through the first quarter in advance of the June cutover to the branded name. Based on IMS data, Eagle's market share in bendamustine wholesale shipments to end-users was 7% of the U.S.

bendamustine market in the second quarter. We expect to continue capturing additional market share. However, as you know, Eagle books revenue based on ex-factory shipments to wholesalers, and we expect a sequential drop in 3Q BELRAPZO revenue. Same for RYANODEX, product sales were $2.9 million compared to $7.2 million in Q2 of 2018.

RYANODEX market share in the second quarter was 32% in normalized unit terms and 54% share of dollars. As you know, our orders are driven primarily by the expiry cycle. Very few customers will acquire dantrolene unless their stock is expiring.

Fortunately, we had 408 customers engaging in new business during the quarter, which is an increase over the 289 customers engaged in new business during the prior quarter. We do think the next two quarters will be low on expiry with an expected uptick in 2020. Q2 royalty revenue was $27.3 million compared to $36.3 million in the prior year quarter.

BENDEKA royalties were $26.5 million compared to $34.7 million in the second quarter of 2018. Q2 BENDEKA royalty revenue was negatively impacted by pricing trends. As a reminder, under the terms of the revised licensing agreement, beginning on October 1, 2019, Eagle's royalty payment on BENDEKA will increase from 25% to 30%.

The royalty rate will increase by 1 percentage point on each anniversary of October 1, 2019, until it reaches 32% and will remain at 32% thereafter. In 2019, we expect our asset sales to increase year-over-year and RYANODEX sales to be down year-over-year due to the expiry cycle.

Gross margin was 62% during the second quarter of 2019 as compared to 69% in the second quarter of 2018. The compression of gross margin in the second quarter of 2019 was primarily driven by an increase in BENDEKA product sales to our marketing partner, on which Eagle earns no profit.

On the expense front, R&D expenses were $9 million for the quarter compared to $15.3 million in the prior year quarter. The second 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 noncash and nonrecurring items, R&D expense during the second quarter was $7.8 million. We are reiterating expense guidance with expected 2019 R&D spend on a non-GAAP basis of $32 million to $36 million as compared to $38 million in 2018.

While we're focused on spend in the 2019 budget accounts for the expected decrease in year-over-year R&D expenses, offset in part by spending on vasopressin and PEMFEXY to bring those products to market, the RYANODEX ARS program and EA-111 CMC scale up in IND-enabling toxicology costs.

SG&A expenses in the second quarter of 2019 increased to $17.2 million compared to $16 million in the second quarter of 2018. External legal expenses associated with litigation of PEMFEXY, vasopressin and bendamustin and higher stock drop expense accounted for the year-over-year increase.

Excluding stock-based compensations and other noncash and nonrecurring items, second quarter 2019 SG&A expense was $12.4 million. We reiterate 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. We remain on track with our anticipated spend in 2019 and expect the second half of the year to be in line with our plan.

Net income for the second quarter was $6.7 million or $0.49 per basic and $0.48 per diluted share compared to net income of $2.7 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 second quarter of 2019 was $11.8 million or $0.86 per basic and $0.84 per diluted share compared to adjusted non-GAAP net income of $14.7 million or $0.99 per basic and $0.95 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 second quarter of 2019 was $15.5 million compared to $15.9 million in the prior year quarter.

First half 2019 EBITDA was $34.3 million compared to $25.5 million in the first half of 2018. First half 2019 cash flow from operations, excluding shifts in receivables, was $42.4 million compared to $26.2 million in the first half of 2018. For the 12 months ended June 30, 2019, EBITDA was $80.2 million.

Cash flow from operations, excluding shifts in receivables was $81.3 million. During the second quarter, we completed $15 million of share repurchases as part of our share repurchase program. Since August 2016, we've repurchased $169 million in stock.

As of June 30, 2019, the company had $108.1 million in cash and cash equivalents and $60.3 million in net accounts receivable, $37.6 million of which was due from Teva. The company had $41.3 million in outstanding debt. Therefore, as of June 30, 2019, the company had net cash plus receivables of $127.2 million.

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

[Operator Instructions]. And we'll take our first question for Randall Stanicky with RBC Capital Markets..

This is Ashley Ryu on for Randall. Scott, on EHS, I know you mentioned in your prepared remarks that you're getting closer to giving a more definitive update.

But can you just confirm that you had the meeting with FDA as expected in June? And whether you've received your meeting minutes yet?.

Yes. Ashley, it's good hear from you. The best way to describe is we've been in dialogue regularly with FDA on exertional heat stroke, and we're in the middle of that dialogue now. And I think there's good give and take and there's been just good strong dialogue. And I feel that we're getting closer to having a resolution to the path forward.

And as soon as we have a little bit more information, we'll make sure everybody knows..

And then just on fulvestrant. You've mentioned the potential for improved efficacy for the new formulation.

Can you give us a little bit more granularity around that? And just what gives you confidence around the new formulation and improved profile kind of relative to the prior one? And do you still expect a safety benefit as well?.

Yes. Thank you. Good question. So look, the best way, I think, to try to explain all of this is that the product that we're speaking about today is drastically different than the product that we set out to develop the first time. And so this is not what we set out to develop. We started on a drug that we thought would have more safety.

We still believe that the new formulation that we have will have many of those same positive safety profiles that we set out to develop. But here's the great part of our industry. Until we gave our drug to 600 patients over the course of about 140 days, we couldn't tell what was transpiring within -- the individuals.

And after taking a long look at and a deep dive into the data, we've come to the conclusion that due to the nature of our drugs, we can potentially have better saturation of these estrogen receptors, which is so critical to the outcomes and the benefits of these patients. We took our data, and we went to FDA. We met with them twice.

And we're all very excited about it. Based on what we saw the first time, we've made changes to our formulation that we've reviewed with the division, and we now have, for the most part, an agreed-upon path forward.

We're seeing really good positive data and a correlation between that first clinical trial that we did and the lab work that we're doing now. We'll ultimately test it in this pilot study.

And if we have a correlation between the first study, the changes we've made in the lab and the lab work we're seeing now, if we see that in people, then we'll really have confidence that we're right, and we'll go ahead and start that pivotal study, which we think will only take about a year to complete.

And that's really where we are, that having greater estrogen receptor activity could have a dramatic benefit to these patients. And if you remember, it was 300 patients for the brand and 300 patients for our product. That's a lot of data to look at. And with the changes that we've made from advice from FDA, we're pretty confident.

Let's get these pilots done and we'll know for certain..

And then during your discussion with the agency, was there any sort of high-level visibility around what the potentially that could look like? I know that it will be dependent on the results of the pilot, but just any sense for if it'll be, let's say, like a similar size as the prior 600 subject study? Any other detail?.

Yes. We have, I would say, for the most part, an understanding and agreement of what needs to happen to get the drug into the market. It's been two very good meetings that we've had with them.

As far as size goes, we'll have to do the pilot study that I --but the expectation today -- keep in mind, it might change, but the expectation today is that the next study will be considerably smaller than the first one. I don't think there's any reason now that we've looked at it that we'll need that many subjects.

It'll be small enough that we'll be able to recruit within a year. If you remember, last time, we were recruiting at a rate of about 25 subjects a week. So let's see what happens. But to answer the question, it'll just be a much smaller study..

Our next question comes from Brandon Folkes with Cantor Fitzgerald..

Maybe just following on from the prior question.

In the pivotal, kind of -- you've talked about the improved efficacy, but do you actually plan to power this to show superiority?.

Great question, Brandon. I don't think that is going to be a requirement of the study. We'll get the medical team to give regular updates now after this call going forward to give more details of it. But the objective of this study will be to determine if there is more fulvestrant being attached to the estrogen receptors..

Okay. Great. And maybe just on vasopressin. You called out the R&D costs in your press release.

Can you provide some color on the work which needs to be done to get this product to market?.

From what standpoint, sorry?.

From the R&D standpoint..

For vasopressin?.

Correct. Yes..

Well, we're just doing all the activity that typically takes place to get the drug filed. We did have request from the FDA for some more data that we're in the middle of completing. No, we feel quite confident that we will do that work in the normal course of activity, in the normal timing and have our approval in plenty of time to get to the market..

Okay. Interesting. And then lastly, maybe, can you just provide some color around the increased product sales to Teva in the quarter? I know they called out BELRAPZO taking share from BENDEKA on their call.

So I'm just interested in whether they were stocking on their side? Or any color around that increase?.

Brandon, it's Pete. As you know, we booked revenue on BENDEKA product sales and we ship to Teva, which is not necessarily consistent with Teva shipping to wholesalers. So obviously, the latter triggers the revenue end of Teva and triggers the royalty revenue to us. And so there's some lumpiness in the shipments from -- to Teva.

And that's why we decided to just make a note of that in our conversation this morning because obviously, the product sales are not intended to have a margin. They don't have a margin. So overall, we've compressed the gross margin of the company temporarily..

[Operator Instructions]. We can go next to Tim Lugo with William Blair..

This is Lachlan on for Tim.

So I guess, first of all, what are your market share expectations going forward for BELRAPZO versus BENDEKA? Did they change at all since the introduction of the brand of BELRAPZO? And second of all, can you just comment more on the pricing environment that led to the decrease in BENDEKA royalties? And do you see that as a transient change? Or something that's likely to continue? And do you see any similar pressure with RYANODEX?.

Thanks, Lachlan, this is Pete. So on the market share, we -- look, it's been a little bottle. You see the same data we see on IMS. Obviously, we see, on a daily basis, the pull-through customers, but I would say the IMS data is reasonably accurate. And so there's been some volatility around that as we continue to compete in the marketplace.

We do think that our market share will expand from where you saw in the second quarter. But I guess, I guess I wouldn't comment any further on that topic at the moment. And on the topic of pricing our -- on BENDEKA pricing, our data source is the same as yours. We don't have insight, obviously, to the pricing on BENDEKA.

So we look at IMS for BENDEKA price, same thing as you do. And there's been some compression since the launch of Big Bag, perhaps, that's not surprising. But what we've seen is an erosion in the IMS, NSP, which approximates ASP of about 10% since the launch of our product..

And it appears we have no further questions at this time. I'll return the floor to Scott Tarriff for any additional remarks..

Well, thank you, everyone. Thanks for attending. Thanks for the time and our advisory is busy these days. The exciting first half was -- really excited about the pipeline. It's come together rather well. And we're looking forward to having this call again in another 90 days and [indiscernible] reporting more progress. And thanks again. I appreciate it.

We all appreciate it..

And this will conclude Eagle Pharmaceuticals Second Quarter 2019 Earnings Results Conference Call. You may now disconnect, and have a great day..