Eagle Pharmaceuticals Inc (EGRX) 2015 Q3 法說會逐字稿

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 third-quarter 2015 earnings results conference call.

(Operator Instructions)

As a reminder, this conference call is being recorded today, November 11, 2015. It is now my pleasure to turn the conference over to Ms. Lisa Wilson, Investor Relations. Please go ahead, ma'am.

Thank you, Keith. Welcome to Eagle Pharmaceuticals third-quarter 2015 earnings call. This is Lisa Wilson, 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.

This morning, the Company issued a press release detailing financial results for the three months ended September 30, 2015. This call can be accessed through the Investor section of the Eagle website, at eagleus.com, and you can also access the webcast on 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 Wednesday, November 18. You'll find 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 November 11, 2015. 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 CEO, Scott Tarriff.

Thank you, Lisa, and good morning, everyone. Well, it's now November 11 and we're having a very strong year. We have certainly accomplished a lot during 2015. I will highlight these accomplishments in more detail later on.

The focus at Eagle now is on these last six weeks of the year. As we all know, we await the December 13 PDUFA date for our rapidly infused bendamustine product. This is a critical date for the Company. Assuming FDA approval, and based on what we believe will be Teva's complete or near-complete conversion to our product, we will be become an earnings-driven company. This places us in great shape moving into 2016.

Additionally, we have a December 26 PDUFA date for our alcohol-free Docetaxel product, and both David and I will speak more about this product shortly. In October, we completed our safety and efficacy study in exertional heat stroke using RYANODEX and plan to share the results of that study shortly. Assuming positive data, we expect it to be a significant part of our growth story going forward.

Needless to say, we have several near-term milestones that are approaching over the next few weeks. As we near the end of 2015 and enter 2016, we anticipate that there is the potential for us to have as many as four in-market products by May 1. With a highly talented commercial team now in place, thanks to our co-promote agreement with Spectrum Pharmaceuticals, we speak to you today as a fully commercial organization excited about the bright future ahead for our Company and for our shareholders.

I'll now turn the call over to our CFO, David Riggs, to discuss the financials. Following his discussion, we will speak more about Eagle's strategy. David?

Thank you, Scott. Good morning, everyone. Our revenue mix has changed since September 30, 2014. Today, our revenues consist of first, product sales, comprised of sales of RYANODEX, which we launched in August, 2014; sales of diclofenac-misoprostol, which we launched in January of this year; and sales of argatroban to two commercial partners. Also, in sales, is royalties we receive on commercial partner net product sales of argatroban to their respective customers; and lastly, license and other income.

For the three months ended September 30, 2015, total revenues were $5.7 million, as compared with $2.8 million in the prior-year quarter. The increase was driven by $700,000 in net sales of diclofenac-misoprostol; an increase of $1 million in sales of RYANODEX; and $700,000 in increase of argatroban sales during the 2015 period, coupled with a $0.5 million increase in royalty income. These increased sales figures were associated with an increase of $1.6 million in our cost of revenue, which was $3.8 million for the third quarter compared to $2.2 million in the same period last year.

R&D expense increased by $1 million, to $6.9 million, in the third quarter of 2015, compared to the prior-year quarter. This increase was due primarily to higher expenses associated with the clinical portion of our safety and efficacy study of RYANODEX for exertional heat stroke. These costs were offset, in part, by a decrease in spending related to bendamustine, for which we submitted an NDA in the first quarter of 2015.

SG&A expense increased by $1.6 million, to $5.5 million, in the third quarter of 2015 compared to the prior-year quarter. With the growth in the sales force and additional employee headcount, we believe G&A expense will be around $7 million a quarter in 2016.

Returning to 2015, though, selling, general and administrative salary and personnel-related expenses increased by $1.4 million. Professional fees increased by $400,000, and miscellaneous expenses increased by $300,000 over the prior-year period. This was partially offset by a decrease of $500,000 in marketing-related RYANODEX expenses.

I would like to take just a minute to discuss the financial implications of the Spectrum Pharmaceuticals co-promotion agreement in 2016. As outlined in the agreement, Eagle will pay Spectrum a base fee of $12.8 million over 18 months. Spectrum will also have the opportunity to earn an additional $9 million in specific sales-identified milestone payments -- if its sales force surpasses sales projections -- for a potential total payment of up to $22 million in base fees and specified milestones over 18 months. Of this, approximately $8.3 million will be paid in 2016 related to the base fee. Sales milestones, if attained, will be self-funding from additional gross profit. The milestone payments in 2016 are capped at $5.25 million.

From a financial perspective, we believe this represents a compelling opportunity for both parties and an important value driver for Eagle's shareholders. The agreement further grants both companies the opportunity for six-month renewal periods upon mutual agreement.

Let me also take a moment to discuss our outlook for Docetaxel profitability. Based upon current generic pricing, we expect an approximately 35% gross profit margin on this product, although pricing may change over the course of the year.

Now, to wrap up the quarter, net loss attributable to common stockholders was $10.2 million for the third quarter of 2015, or $0.65 per basic and diluted share, compared to a net loss attributable to common stockholders of $9.1 million, or $0.65 per basic and diluted share, for the same period last year. We closed the quarter with $96 million in cash, cash equivalents, and short-term investments and $196 million in additional paid-in capital. We had $87.6 million in stockholders' equity as of September 30, 2015.

And with that, I'll turn the call back over to Scott.

Thank you, David. What an exciting next two months for Eagle, as we move through the remainder of this year and enter 2016. First off, and approximately a month away now, is the December 13 PDUFA date for our 50ml rapid infusion, ready-to-use bendamustine product for CLL and NHL. As you recall, our product is for the same indication as Teva's TREANDA, but is administered in 10 minutes, as opposed to 30 or 60 minutes for the 500ml ad mixture. We are prepared for what we believe will be a promising launch with our partner, Teva, who we expect to convert most or all of the market quickly and who will be responsible for all US commercial activities for the product, including promotion and distribution. Once FDA approval is secured, Eagle will also benefit from an approval milestone payment.

Eagle was also awarded an additional patent for rapid-infusion bendamustine in the third quarter. We now hold a total of four patents offering IP protection through 2033. This, combined with the product's orphan drug designation for CLL and indolent B-cell NHL, which may afford seven-year marketing exclusivity upon approval, will help to ensure the product's longevity in an attractive market. There are several additional patents for this product still pending at the patent office. And we still expect to file for a unique J-code for Rapid by the end of this year and look forward to a preliminary decision, with the hope that it will be granted by May of 2016.

Now, let's turn to the Docetaxel injection concentrate, non-alcohol formula, for which we recently entered into an exclusive US licensing agreement with Teikoku Pharma USA to market, sell, and distribute the product. Docetaxel injection also has an anticipated approval date of December 26 of 2015, also just a few weeks away. It is a product intended for the treatment of a number of cancers, such as breast cancer, non-small cell lung cancer, and prostate cancer, to name a few.

If approved by FDA, Docetaxel injection has the potential to be the first Docetaxel alcohol-free formulation approved in the United States. The need for an alcohol-free Docetaxel gained prominence in June of last year, when FDA issued a drug safety communication warning patients that Docetaxel may cause symptoms of alcohol intoxication after treatment. Manufacturers of Docetaxel formulations for domestic use were subsequently required to revise their product labels to reflect alcohol content, include a drug safety warning.

Some US hospitals and clinics require patients to wait as long as two or more hours after treatment with Docetaxel before they can be released. This formulation of Docetaxel is specifically developed to circumvent these concerns. Adding Docetaxel to our product mix meets our mission to provide optimized formulations of treatments that improve the lives of patients, resolve concerns among healthcare professionals at hospitals and infusion centers, and ultimately drive value at Eagle. The market for generic Docetaxel is approximately $75 million.

Turning to our ready-to-use, or RTU, bivalirudin candidate. This product is our enhanced ready-to-use formulation of bivalirudin, the same ingredient as in The Medicines Company's anticoagulant Angiomax, which had US sales of over $600 million in 2014. We disclosed last quarter that Eagle had filed an NDA for this product and we continue to expect an FDA decision in March of 2016. Unlike Angiomax and potential generics, Eagle's RTU bivalirudin is a stable liquid IV ready-to-use liquid formulation. It requires no manipulation. A nurse can simply spike it and hang it, which we think will be a key driver of adoption, assuming FDA approval.

We would also expect to benefit from the relationships we continue to build for RYANODEX, where a surgery center or hospital is the sales call point. Finally, we have the contractual right to launch our tentatively approved liquid bendamustine in the 500ml bag starting on May 1, 2016.

As Eagle has matured, we have been evaluating our options around a best approach to building the commercial side of our business to market our products successfully. Last week, we announced that Eagle and Spectrum signed a co-promotion agreement under which Spectrum's 32-person corporate account sales team will dedicate 80% of its time to selling up to six of Eagle's products.

In addition to this group, we will hire up to 20 direct sales representatives, who will promote Eagle products under our direction with the Spectrum team for the duration of the agreement. These sales reps will ultimately form the core of Eagle's internal sales team. This collaboration provides an excellent foundation for the commercialization of our assets and marks a major step in Eagle's plan to transition from a primarily development-stage pharmaceutical company into one with a high-quality, differentiated commercialized set of products.

Let's discuss the strategy now behind the Spectrum co-promote. We focused upon three key elements in making this decision -- success, flexibility, and leveraging the P&L.

Regarding success, first. We were very careful and strategic when evaluating the optimal process for Eagle to become a highly successful, fully commercialized organization. We concluded that the 32-person corporate account sales team at Spectrum provided us with the highest likelihood of success. We do not take commercial risk lightly, and we are focused on placing ourselves in the best possible scenario to ensure highly successful commercial launches for our products and to bring the sales and detailing of RYANODEX back in-house.

The Spectrum sales team is a group of highly skilled professionals focused on hematology and oncology, calling on infusion centers and hospitals. They have extensive pharmaceutical experience, including years of oncology-specific experience, and they have demonstrated strong performance over time.

Regarding flexibility, the initial term is 18 months and could be extended for six months, at Eagle's discretion, and further, by mutual discretion. This structure allows Eagle to have the greatest flexibility as we move forward, at the same time optimize our P&L, positioning us for the greatest opportunity for success. As it relates to Eagle's independent sales force, we will build this slowly and deliberately. We anticipate ultimately having now about 50 representatives between Eagle and Spectrum selling our products. Spectrum will potentially sell all of our marketed products, except for RYANODEX, and the Eagle team will sell all of our products, but be more weighted to RYANODEX and bivalirudin. This team is contracted to sell up to six Eagle products.

From a P&L standpoint, we believe that we couldn't have achieved a more optimal solution. Our earnings growth over the next several years is critically important to us. The infrastructure costs of bearing a sales team is about 2.5 to 1 ratio to the direct cost of the sales force. Therefore, if we were to spend up to $10 million in direct sales force time and expense, we would need to spend about $25 million in total infrastructure marketing and SG&A. We eliminate much of this indirect cost by piggybacking on the Spectrum internal spend. This works out very well for both companies.

In conclusion, we have licensed a highly talented, cohesive team of 32 corporate account representatives. This has been accomplished with great flexibility and optimal P&L upside. We are extremely excited to be a fully commercial organization that has the capacity to execute a successful commercial strategy. This completes my discussion of our expected near-term commercial product portfolio and commercial platform.

Now, let me update you on Eagle's other products in development. RYANODEX, as you know, is currently approved for the treatment of malignant hyperthermia. There is still value to be unlocked in this market as we increase our share. RYANODEX also maintains a clear advantage over other treatments in terms of the ease and speed with which it can be administered, and we remain confident that it will become the treatment of choice for malignant hyperthermia.

As I've said before, we believe that RYANODEX has even greater potential to treatment for exertional heat stroke, or EHS. EHS is one of the leading causes of death in young athletes and non-combat-related death in the military. Our goal has been to expand the RYANODEX label to include EHS as a second indication.

During the third quarter, we were able to successfully explore this possibility through a novel clinical study conducted during the Hajj in Saudi Arabia. Every year, the extreme temperatures and physical effort involved in this pilgrimage cause tens of thousands of people to suffer from heat-related disease, making it a compelling forum to test the delivery of RYANODEX as a potential treatment option. Today, there are no drug products on the market to treat this potentially fatal condition. RYANODEX, which can be reconstituted in less than one minute, could offer a significant new therapeutic option for this life-threatening condition and could be the only approved drug for EHS.

Our randomized study involved a total of 34 patients between the ages of 18 to 34 showing signs of EHS, including neurological impairment, hyperthermia, representing a core body temperature of over 104 degrees Fahrenheit or greater, and tachycardia. These individuals received either current standard of care, which consists of body cooling by physical methods treatment, or standard of care plus RYANODEX. Based on our preliminary study results, participants who received RYANODEX in combination with the standard of care showed no significant drug-related adverse events. In the process, patients were also evaluated for changes in core body temperature, neurological, renal, respiratory and cardiac functions.

Our data is now being analyzed and we expect to have insights into the results shortly. Once analysis is complete, we will meet with the FDA and we look forward to sharing the results with you shortly. Importantly, RYANODEX has orphan drug designation for EHS and a patent for heat stroke in the US. Combined with the orphan drug designation for malignant hyperthermia and designation in the EU, along with four Orange Book-listed patents, we expect to enjoy a long life cycle for RYANODEX.

Lastly, regarding Eagle's Pemetrexed, our formulation is an optimized version of Lilly's Alimta, indicated for non-small cell lung cancer, which had US sales of $1.2 billion in 2014. As with RTU bivalirudin, our liquid formulation requires no reconstitution and no dilution, meaning the healthcare staff is less exposed to cytotoxic vapors. Registration batches are being produced now, and we will be filing the NDA in about 12 months.

In summary, we continue to take decisive action to position Eagle for sustainable long-term growth. Assuming FDA approvals for bendamustine Rapid Infusion 50ml and Docetaxel injection, both anticipated in December of this year; RTU bivalirudin in March, 2016, and the tentatively approved 500ml RTD bendamustine in May of 2016, respectively, we expect our in-market products will significantly expand in 2016. The future revenue opportunities we've outlined on today's call, combined with our milestone payment from Teva in connection with bendamustine rapid infusal approval, will further strengthen our capital position, earnings potential, and enhance our free cash flow.

As we move forward, we believe that we are in excellent position to deliver value to shareholders. With that, I'd like to open the call for questions. Operator, please go ahead with the instructions.

(Operator instructions)

David Amsellem, Piper Jaffray.

Thanks.

Just a couple of questions. So first, on the Rapid -- and you may not be able to answer this, but maybe you could opine on it -- with Teva looking like it's going to effectuate a hard switch, do you have any thoughts on where they may come out on price versus the currently available forms of Bendamustine?

Secondly, on RTU Bivalirudin, what are your expectations for how crowded the market will be next year? (Indiscernible) has a tentative approval. It's not clear if they will be on the market. Do you think there will be multiple competitors, or do you think it will be a relatively thin market?

And then lastly, now that you've got the commercial infrastructure in place, can you talk about what you're seeing in terms of the attractiveness of targets? Whether they're individual assets or groups of assets or companies, do you think that prices for assets and companies are attractive? And is there an actual fair amount of potential targets that you're actually looking at currently? Thanks.

Thanks, David, and good morning.

I think I see three questions here. Let me take them from the top.

The price of Rapid in the market is out of our control. Can't comment on it. It's fully in Teva's hands, being the marketer of the drug. So we don't have anything that we can add to that discussion.

In the terms of RTU Bivalirudin, you're right. There are a number of products out there. We just don't how many will be approved and when. There's a backlog at the FDA. It's hard to tell. But we think our product will do extremely well.

We just have very significant product advantages. And we're very confident that between the Spectrum sales team and our sales team and having as many as 50 people selling the product, that we will receive significant market share regardless of the number of competitors that ultimately come to the market.

And thirdly, we are seeing assets. We have a robust process in place looking for in-licensing. The Docetaxel product is a good example. I think that worked out to be a very good strong agreement for Eagle. I think there are other products like that. There are other companies that have one-offs of 505(b)(2)s that fit our skill set.

And now that, I will say, that we're commercial, we have a much better story to tell people as to why they want to partner with us as a Company. We will have a very unique coverage of hospitals and infusion centers, and I think we become a very attractive partner.

The Spectrum arrangement was designed specifically to be able to take on more products and expand the number of products. So we'll keep deferring the cost here. We'll just have more products in this fixed cost that we have going to Spectrum. So, yes, we're very excited about the opportunities and hope to continue to bring more products in over time.

If I may ask a follow-up. Do you expect some divestitures in the injectable space to shake out of Actavis/Teva combining their generics businesses? And are you going to be active on that front in terms of divestitures?

I don't know, David. And I don't think we'll be involved in that, unless there are some products that require a promotional effort that we're not aware of today. But we're primary looking for improved products that we can deliver value. We don't consider ourselves and we don't believe we're a generic drug company.

And so we're really very interested in trying to find assets that improve the current products on the market and provide value to our customers. So I think it's less likely that we'll find products in that particular basket. But if there's something out there we're not aware of, we'll just have to look at it.

All right. Thanks.

Thanks, David.

Randall Stanicky, RBC Capital Markets.

Great.

Scott, I just have a follow-up on that second question. You're going from one product to four pretty quickly, and more beyond that. And the deal with Spectrum allows up to six. When you think about the build-out of the footprint, is there a critical mass that allows you to have more leverage or deeper relationships with some of the hospitals? How are you thinking about the importance of breadth of offering there?

And then, secondly, on Pemetrexed, it's not gotten a lot of attention, but that could be a pretty nice opportunity for you. I think the generic entry date is May of 2022. Can you talk about when you think you can get on the market and how you're thinking about that opportunity? We just haven't heard you talk a lot about it, but it certainly is an interesting one.

Thank you, Randall.

The first question about the importance to having a broad basket, I think it is very important. And we're looking to be a very well-regarded Company in the eyes of our customers. I think in any industry in any business, that's critical.

The more that we can bring to the table -- if you look at Docetaxel, it may not be a tremendously large product for Eagle, but it is used in the infusion centers. It's a high-volume drug. And so when our customers look at Eagle, we're solving a problem that they have every day. And the more that we can do that -- I've always believed that when you have a situation like that, it's self-fulfilling to some extent; and it builds upon itself. And the more problems we can solve for our customers, the easier it will be to build upon itself and continue to sell.

I think the nature of the type of sell that we have at Eagle lends well to that. Once an infusion center stocks one of our products, I don't think they're keeping two inventories. They're probably going to convert 100% to our product when they do. So once you get that initial sale, it opens up the time for the salesperson to talk about that next product.

In our case, we could have can have a large number of products coming to the market at the same time. And that's part of the reason that we wanted to reduce risk and find a sales force that's cohesive and has been together for quite a period of time. But we'd like to see this Company grow and have multiple products on the market at the same time. And I think we'll be able to achieve that.

In the case of Alimta, we'll make our registration batches now. Hopefully, we'll file the NDA at the very end of next year. I assume we'll be in patent litigation. We've said before that we think we have a novel approach to how to handle those patents that the other generic companies have previously lost. If that's the case, we can beat it to the market at any time after the litigation, depending how it goes.

Not saying that we'll get through the courts as quickly as we did with our Bendamustine product. But remember, the 30-month stay is truncated with a lower court decision. And so we're just going to be very aggressive, get in there. But our expectation right now is assuming we're right about our patent position and we ultimately win, we should hopefully be to the market first. And in a product this size, you're right; it's rather meaningful.

Is it fair to think about this as a life-cycle opportunity for Lilly, should they choose to pursue that?

I think that's correct, Randall. I believe that all of our products have the ability to be life-cycle products for the innovators. How we choose to handle that, either out licensing it or marketing it ourselves, now that we have the commercial organization, it's easier for us to market these drugs if we choose to. Maybe it puts a little bit more pressure on the innovator because now we really do have the ability to compete and get to the marketplace. We'll just have to see how things unfold.

But that's a great optionality for Eagle. We can either bring the product to the market or partner. Either way enhances shareholder value. So let's get these products filed and onto the market and create some value for all of us.

Great. Thanks, Scott.

Thanks, Randall.

(Operator instructions)

Tim Lugo, William Blair.

Thanks for taking my question, and congratulations on the progress.

I guess as we're approaching December 13, can you just remind us the clinical work you had to do for the Rapid product, and maybe the questions the Agency had prior to you starting that clinical work? And I don't think we've ever seen it presented, but can you just briefly go over maybe what the safety study produced?

Sure, Tim.

So to step back for a moment, remember that we have the tentative approval for the 500ml bag. And it is essentially the same manufacturing and the same API, the same product. So that tentative approval clears the deck, in our minds, of all those CMC issues that need to be reviewed from the Agency. So you're right, the difference between Rapid and the product that's already tentatively approved comes down to the clinical trial that we ran.

The clinical trial had two aspects to it, safety and bioequivalence. And the results, which I do think we released in a press release earlier in the year if I recall, the safety profile, we had about 80 or so patients -- cancer patients -- that were studied. It was half of the population received a brand product; the other half received our product. We compared BE and we compared safety.

From an AUC standpoint, which is what the Agency asked us to study, we were spot on, on the equivalence. And then from a safety standpoint, we saw no differences between the adverse events infusing our product rapidly and the innovator. And that's what's under review now.

Great to hear.

And maybe switching to Docetaxel, what did you see for the product where you became comfortable in licensing it before the PDUFA date? And why do you think it's a relatively low-risk product?

Yes, so we did our research. We had our diligence team, which we're getting, I think, good at now. We have a good number of people handling that. We get to obviously see all the records, and we feel pretty good about it.

The deal terms, how we structured it, take into account the risk of all products potentially not hitting the PDUFA date. We feel pretty good about it. Any time that you're dealing in a situation like this, anything can happen. Our expectation is that it will be approved, so we did everything we could. And I think we struck a fair deal relative to the risks that exist when you in-license products prior to approval.

Understood. And maybe one last question.

Now that you're a commercial Company, again this morning, we're seeing some general pricing discussions in the market. Could you just maybe step back and tell us how you look at the pricing discussions that are ongoing? Whether you think those will bleed over into the hospital channel at all? And just how do you think of general pricing now that you're entering a pretty commercial 2016 for the team?

Tim, I think you just hit a very important aspect of Eagle. We are uniquely positioned in this marketplace. Our plan, in many of these products, is to provide significantly improved products but at near or the same price as the generic.

And when you think about building a franchise for the Company and the Eagle name to our customers -- going back to Randall's question about solving problems and having a broad offering to the marketplace. What we've been saying when we speak to people, for instance, our RTU Bivalirudin will probably be at parity to the generics, maybe a small premium. But we're going to provide a solution to our customers at a very valuable price relative to generic competition.

That's very different than some of the conversations we have been having in the industry right now. If you take a look at our Docetaxel product, it's the same process. We'll be selling at the similar price to a generic, but we're going to be solving a problem.

And so if you think about us as a Company, solving the problems, creating value for our customers, for patients and our shareholders, we love our P&L going forward, even at those prices. Generic companies and generic P&Ls are very valuable these days, and I think we slot in well. And from time to time, we'll have a product that creates unusual value to our customers. And maybe we can get a little bit of a premium price.

But we're very, very well-positioned relative to everything that's going on in the market right now.

Thanks for taking all the questions, and thanks for the additional commentary.

And it appears we have no further questions at this time. I'd like to turn the floor back over to Scott Tarriff for closing remarks.

All right. Well, thank you again, everybody, for taking the time to listen to the call today. Really do appreciate it. Obviously, an exciting next few weeks here at the Company. I look forward to speaking to everybody again soon. Thank you.

This concludes today's program. Thank you for your participation. You may now disconnect. Have a great day.