Eagle Pharmaceuticals Inc (EGRX) 2016 Q2 法說會逐字稿

Good morning. My name is Keith, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Eagle Pharmaceuticals' Second 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, August 9, 2016.

It is now my pleasure to turn the floor over to Lisa Wilson, you may begin.

Thank you, Keith. Welcome to the Eagle Pharmaceuticals second quarter 2016 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 June 30, 2016. And another detailed result that Eagle's meeting with the FDA regarding Ryanodex for exertional heat stroke. These could be accessed through the Investors section of the Eagle website 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 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 will 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 is held and recorded on August 9, 2016. 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?

Thank you Lisa, and good morning everyone. Nearly 10 years ago when we began our effort to Eagle, our goal was simple. We wanted to take existing commercially available injectable products and make them better. By utilizing the 505(b)(2) regulatory pathway, we identified a way to get our improved injectables to market faster and at a lower cost than traditional drug development programs, with Ryanodex, Bendeka and Argatroban, now commercially available, a promising pipeline of additional products and a grown cash position. We have proven that our process works and that we can repeat it successfully. We are optimistic regarding Eagle's future.

During the quarter, we gained clarity on Bendeka and its associated cash flows through 2019. And we are confident in our ability to continue to drive growth beyond 2019. Bendeka sales are ramping up with 80% of the market converted, we now have significant earnings from Bendeka that are highly predictable for at least the next 3.5 years. Following our positive meeting with the FDA, we have an agreement on the NDA submission requirements for exertional heat stroke. No additional human studies will be necessary and assuming positive results on completion of our animal work, we will be able to submit the completed NDA for exertional heat stroke. If approved, we are hopeful of being the first to market with a potentially lifesaving treatment option for EHS next year. In addition, we signed an agreement that reduces our royalty obligations for Ryanodex from 15% to 3%, enhancing our future earnings for the product. We're also partnering with the NIH to investigate the potential of Ryanodex to treat Ecstasy and methamphetamine intoxication and have an exciting pipeline of additional product candidates. We also look forward to sharing some of the details of our pipeline with you during our first Investor Day, which will be held later this year, more to come on this as we get closer to the event.

Lastly, I'd like to point out that we announce second quarter revenue of $40.9 million, earnings of $0.80 per diluted share, cash and receivables of $127.6 million and no debt. We are focused on optimizing the deployment of our capital on behalf of our shareholders. The Board has taken two actions that reflect a very good return on capital with the purchase of the Ryanodex royalty obligation I just mentioned and a buyback of up to $75 million of Eagle's common stock.

With this as a backdrop, I would like to turn the call over to David to update you on our second quarter financial results. David?

Thank you, Scott. For the second quarter of 2016, as Scott mentioned, our revenue totaled $40.9 million, compared to $6 million in the second quarter of 2015. The revenue mix consisted of product sales, royalty revenue and license and other income.

As I mentioned last quarter, we included two components on our income statement for Bendeka revenue in addition to the royalty revenue credit. 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 second quarter, we recorded Bendeka product sales of $3.3 million. We also recorded Bendeka cost of revenue for the inventory we shipped to Teva of approximately $3.3 million. Overall, total product sales, reflecting all Eagle products, increased $5.9 million to $9.6 million during the quarter as a result of $3.3 million in net product sales of Bendeka, as I just mentioned; an incremental $2 million in sales of Ryanodex; $600,000 in net sales of Docetaxel; and increases in net sales of our Argatroban, offset by a decrease in diclofenac-misoprostol sales.

Royalty income increased $29 million to $31.3 million compared to $2.3 million in the prior year quarter, as a result of the launch of Bendeka, there was no license or other income during the second quarters of 2016 or 2015.

Recently we purchased the majority of the royalty obligation on Ryanodex net sales. We reduced our obligation from 15% to 3% in exchange for $15 million of cash. With our label expansion programs well underway, the buy down of this royalty obligation, which covers current and future Ryanodex indications could have a significant impact on profitability of the brand.

With the conversion of Treanda to Bendeka still building momentum, we acted to slow spending during the second quarter. Our efforts were primarily focused on reducing or delaying discretionary spending on R&D programs to lower our expenses. We also selectively delayed or eliminated SG&A spending. With the ramp up in the Bendeka conversion now on track, we expect to return to more normalized spending for the remainder of the year.

R&D expenses were $3.7 million in the second quarter of 2016, compared to $5.9 million for the same quarter of the prior year. The $2.2 million decrease is due primarily to the decrease in spending for bivalirudin, and certain cost reimbursement for Bendeka, offset by increases in project spending for the successful completion of the clinical treatment portion of the safety and efficacy study of Ryanodex for exertional heat stroke and other projects [revenue].

SG&A expenses were $12.1 million in the second quarter of 2016 compared to $5.1 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 deferred hiring in Q2 2016, 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.

Net income for the three-months ended June 30, 2016 was $13.1 million or $0.84 per basic and $0.80 per diluted share as compared with a net loss of $8.2 million or $0.53 per basic and diluted share in the three months ended June 30, 2015.

On August 2, 2016 the Board of Directors approved a share repurchase program of up to $75 million. We believe this reflects the best use of our growing cash position at this time and is in the best interest of shareholders. We closed the quarter with $75.6 million in cash and cash equivalents, $52 million in receivables with approximately $40 million due from Teva and $202.7 million in additional paid-in capital. We had $107.8 million in stockholders' equity as of June 30, 2016.

Before I turn the call back to Scott, I'd like to address a technical matter related to our net operating losses. This will not affect earnings per share, but will have a cash impact. In the second quarter, we had some positive changes in the makeup of our shareholders' stock holdings. We are evaluating whether or not these changes have or soon will trigger a technical change of control as it is defined in Section 382 of the Internal Revenue Code.

Upon a Section 382 change of control, the Company is required to amortize NOL utilization. As a result, how we utilize our accumulated net operating losses of approximately $99 million may be impacted by the outcome of this process. Our preliminary assessment is that we are close to a technical change of control. We estimate that should we be required to amortize net operating losses, there will be a cash impact of approximately $10 million incurred over the next few quarters. At this point, we anticipate that starting in January 2017, Eagle will amortize the remaining NOLs over the next five years to seven years. We will continue to update you regularly on this.

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

Thank you, David. As you heard, the largest contributor to our revenue in this quarter and the primary driver of profitability was Bendeka, our 10-minute infusion time formulation of Bendamustine. The second quarter reflects the first full quarter of Bendeka sales by our marketing partner Teva Pharmaceuticals. In Q2, Teva reported net sales of $146 million for Bendeka. Our joint goal with Teva is to reach 90% market share, we continue to see momentum building. As of August 5, overall Bendeka market share had grown to 80%. We expect to see continued growth and that Bendeka will achieve its full market potential.

Furthermore, we believe Teva's recent legal victory against generic challengers combined with the six Orange Book listed patents for Bendeka, extending from 2026 through 2033 with additional patents pending will allow Bendeka to be a valuable product for Eagle for very long time. Under terms of our agreement, Eagle has the right to take back Bendeka in November 2019 in the event of the launch of a generic Treanda and Bendeka has not received the unique J-Code. In addition to Bendeka, our bendamustine portfolio consists of a 500 ml formulation, which we have the right to launch at any time. We continue to evaluate the opportunity for our 500 ml formulation, we look to well optimize our bendamustine portfolio over time.

Now turning to Ryanodex, our unique dantrolene sodium formulation. Currently Ryanodex is approved for the treatment of malignant hyperthermia. Our sales force has been able to increase Ryanodex's share of the dantrolene market substantially. During the second quarter, sales were up to $3.4 million, which was an increase of 81% over the prior quarter. We continue to see momentum and expect additional growth over time.

In July we met with the FDA to discuss our application for Ryanodex in the treatment of exertional heat stroke for which we already have been granted fast track and an orphan drug designation. As you may recall, we conducted a human study last year during the Hajj, that showed very promising results for the treatment of exertional heat stroke. As I mentioned in my earlier remarks, the FDA has indicated that it will not require any additional human safety and efficacy studies.

Our ongoing animal safety and efficacy study is progressing well. The fast track designation gives us the option to file a rolling NDA, which we are considering. If the outcome of the animal studies proves successful, we anticipate requesting priority review and have the potential to be the first drug to market for treatment of exertional heat stroke as early as next year. Needless to say, we will do everything possible to bring this important product to the market next summer.

And to provide some additional color on the opportunity in the past few weeks, an otherwise healthy 12-year old boy in Georgia collapsed during the football practice, a landscaper working outdoors on a hot day and several members of our military died from complications believed to be associated with exertional heat stroke. Exertional heat stroke is the leading cause of student athlete death, and non-combat military deaths. We believe Ryanodex could be a life-saving treatment option for the condition, for which there are currently no drugs available. We will see at greater length on this topic during our Investor Day.

We are also exploring the potential of Ryanodex in treating brain hyperthermia caused by Ecstasy and methamphetamine intoxication. We're working jointly with the National Institute on Drug Abuse, part of the National Institutes of Health in this effort. NIDA began a pre-clinical animal study this summer, our intent is to file an IND related to Ecstasy and methamphetamine intoxication and ultimately meet with the FDA.

We see considerable potential in our other pipeline candidates as well. Pemetrexed registration batches have been produced and our plans to file an NDA in late 2016 are on track. We believe the Eagle's patent position may enable us to bring the product to the market as early as the fourth quarter of 2017. Lilly's ALIMTA patent infringement lawsuit win may prevent current ANDA filers from launching until May 24 of 2022 in this $1.1 billion market in the US alone.

We see multiple opportunities in our pipeline to drive value beyond 2020 and are excited about the progress we're making on the R&D front. We intend to bring investors together later this year for Eagle's first Investor Day. At that time, key members of management, as well as our development clinical, medical and regulatory marketing teams will discuss each of our products in greater depth, including the development path for Ryanodex label extensions.

We look forward to sharing with you the details of our pipeline progress and how our successful business model can be applied to other products in our portfolio. Last quarter, we received a complete response letter from FDA regarding our RTU bivalirudin product. We continue to be in discussions with the FDA about the design of a study that would support approval of the product. At a minimum, this is likely to increase the cost and extend the timing of this development program.

Before I wrap up my prepared remarks, I'd like to briefly acknowledge Mike Graves, who was appointed Chairman of Eagle's last month and welcome our two new Board members, Doug Braunstein and Robert Glenning. Mike has been a trusted advisor, an integral member of our Board since 2013 and I'm delighted that he has accepted to Chairmanship. I know that Doug and Robert will be equally committed to Eagle's mission. Their deep expertise as strategic leaders in finance and healthcare will be pivotal in helping us grow even further. We are very fortunate to have them join in our team at this time.

I believe Eagle's future has never been brighter. We have clarity on earnings from Bendeka through 2019 and are excited about what is on the horizon beyond 2019. We have multiple opportunities to drive earnings per share for the long-term. We expect Bendeka will have value when we bring it back in house. The product attributes are strong and we believe our patents will protect the product for many years.

Ryanodex for exertional heat stroke, Ecstasy and methamphetamine intoxication will provide significant value if approved for those indications. Our internal pipeline will continue to develop, and as stewards of shareholder capital, we will continue to deploy our cash prudently. I'm very proud of our team for the progress we've made so far. We expect to see continued traction on multiple fronts in the coming weeks and months. The final J-Code ruling on Bendeka is expected in Q4, we'll receive data from our Ryanodex animal studies that should be available.

We have the option of submitting a rolling NDA for exertional heat stroke at any time and preliminary NIH data on Ryanodex for both Ecstasy and methamphetamine intoxication may be available as well, allowing us to meet with the FDA to discuss the pathway for this potential indication. We've built a solid foundation for growth and are focused on execution and we believe Eagle is well positioned to deliver growth beyond 2020.

Thank you for your support and for joining us this morning and I'm pleased to answer any questions you may have. Thank you.

(Operator Instructions) Randall Stanicky, RBC Capital Markets.

Great, thanks, good morning. This is Ashley Ryu on for Randall. So, just two again. It looks like the conversion rate has been a little bit slower than expected, given the prior target of around 90% by May 1st. You mentioned that you're still committed to that target. What are you seeing now versus what the expectations were when the target had been set and how do you -- how soon do you expect to hit that target? And I have a quick follow-up.

Thank you very much. Yes, it's been a little bit slower, but we are at 80% and we're pretty excited about that. I think Teva is doing a really wonderful job there, extremely committed to the product. We have a lot of faith in their ability. Just -- after you grow up to that 75%, 80% number, obviously it's a little bit harder to get all the way up to 90%. I can't give you an expectation on when we'll get there, but we do expect nice steady growth getting us up to the 80% target.

Okay, got it.

I'm sorry, 90%.

90%, yes. And then in terms of launching the big bag, which you also touched on, you have the right to do that since May 1st and now that you've seen the Treanda litigation outcome, can you talk a little bit further about what you're thinking about as you look towards potentially launching the product? Just the factors that you are evaluating?

Yes, thank you for the question. The big bag, look, it could be an important product to us. We're evaluating the situation closely. What I can say about the big bag is that we are absolutely committed to and intend to optimize our bendamustine franchise. And how the big bag will ultimately play into that, we'll provide more updates as we move along. Obviously, we haven't launched it yet and if things change, we'll certainly update everyone.

Okay, great, thank you.

David Amsellem, Piper Jaffray.

Hi, guys. This is Sameer on for David. Just two quick ones here. First on Bendeka. Can you remind us how you're thinking about the opportunity in terms of volume share once lie-off products enter your market, that is assuming that there is no J-Code and you take back the rights from Teva in late 2019? Also on Ryanodex, in your meeting with the FDA, did you talk about a potential path forward in ecstasy and meth overdose and do you have any color on what you have to do there to get that in the label? Thanks.

Thank you. So what happens after generics enter the market on Bendeka, obviously, I believe as everybody knows, at that point we have the right to take the product back and the profit switches to 80% to Eagle. We believe that the product attributes for Bendeka are very meaningful. We are very focused on the 10-minutes infusion time instead of the 30-minutes or the 60-minutes, the sodium chloride reduction, the timing and so forth. But if you remember when we look at our clinical results, we have a statistical improvement in fatigue and chemo induced nausea and vomiting. We are in the middle of conducting studies along with our partner to look at how the attributes will be viewed later, but we do believe that the attributes of the product will carry today and that the patent protection for Bendeka will likely go on well beyond that 2019 date. Exactly how much would be retained and what price is still to be determined.

Having said that though, the break-even point here is about 15%, meaning that if 15% of the share state as a branded market, we would earn, give or take the same amount of money beyond the generic date is before the generic date. So we're very hopeful and there is a number of variables and between there could be that or some price discount, we keep more share because of the product attributes being as significant as they are. So, I don't think we've finalized our thoughts on the topic, other than to believe that the value from Bendeka to Eagle will be significant well beyond 2020.

In terms of Ryanodex for exertional heat stroke, and meth and ecstasy, the meeting with the FDA that we had last month was purely for exertional heat stroke. We did not discuss the other indications with them, and will not do that until we file the IND. We do, however, expect to meet with the FDA hopefully still this year and have those discussions. We believe the study requirements would be very manageable. It's in acute use drug, so I don't believe it will be an onerous study, and our expectation is to get through those clinicals, we feel pretty good about our ability to get that done in a reasonable timeframe. We'll know more obviously after we speak to FDA, however.

Tim Lugo, William Blair.

Thanks for the question guys. And I might have missed this, but regarding the buyback, how long is this authorized for, and what are your expectations for putting it to work? And I also know, previously Scott you've discussed, acquisitions as a potential use of cash, is the repurchase program going to hinder your flexibility at all in acquisitions or have you been looking and you just don't see a better place to put cash rather than Eagle's stock?

Thank you, Tim. We will be in. We set up the repurchase program to repurchase our shares, so we expect to start that process here quickly. The timeframe to get to the $75 million is open-ended, so we'll evaluate that daily and weekly, but our intention clearly is to buyback our stock.

In terms of acquisitions, we have a lot of runway here at the Company. When you look at our cash position, our receivables, and strength of the pipeline, especially now with the meeting with the FDA on exertional heat stroke and the support that we've had for Bendeka, we believe that there is still quite a bit of opportunity for us. We have obviously a strong balance sheet that we can borrow as well. And so, in terms of acquisitions, there is number of ways to grow the Company. We think our pipeline carries today, we continue to look, we have a good process here. Obviously, we haven't found anything yet, but I will say that we do believe that the buyback of our shares, obviously, our belief is, it's a very good opportunity for our shareholders by doing that. And we also believe we were very prudent and we think we struck a good deal in the buyback of our royalty for Ryanodex as well. And as we look at opportunities to deploy our cash to strengthen our return for our shareholders, we'll continue to report back to everyone.

Okay, understood. And I might have missed this as well. It sounds like there are some animal studies underway for Ryanodex which need to be completed before you can file for EHS. Are you expecting that filing by year-end?

Yes, so we do. We were granted doing hybrid rule, if we all recall. And so the Hajj study has been accepted as the pivotal human study for safety and efficacy. And as prior -- the agreement previously with the FDA was to conduct these animal studies. We're in the middle of that now, they're proceeding well. It's going to take us a little bit of time to wrap those up. We do have the ability and we discussed it at our meeting with the FDA for a rolling NDA. So we can file the NDA pretty much at any time this year. We're going to do everything we can to get through the animal studies as quickly as we can. We need to make sure they performed well and they are successful. We will do everything we can, Tim, to try to get the product to the market for next summer. We may or may not be able to do that, it depends also on priority review, which we expect that we will receive and so why don't we leave it at, we are very focused on getting through the animal work and we're doing everything we can to file it as expeditiously as we can.

Understood. Thanks for all the questions.

(Operator Instructions) And it appears we have no further questions. I like to return the floor to you, Mr. Tarriff, for additional or closing remarks.

Thank you, Keith. Thank you everybody for taking the time here this morning. Look, obviously we're excited about the accomplishments, look forward to the future and look forward to further update. Thank you again.

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