Eagle Pharmaceuticals Inc (EGRX) 2016 Q3 法說會逐字稿

Good morning. My name is Erica and I will be your conference operator today.

At this time, I would like to welcome everyone to the Eagle Pharmaceuticals' third-quarter 2016 earnings results conference call.

(Operator instructions)

As a reminder this conference is being recorded on November 9, 2016.

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

Thank you, Erica. Welcome to Eagle Pharmaceuticals' third-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 September 30, 2016. These can 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 conference call that expresses 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 November 9. 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. This was yet another exciting quarter for Eagle, with important developments and milestones that ensure the continued growth, success and sustainability of our future.

Bendeka market share continues to ramp, with 88% of the market now converted. Teva and Eagle continue to share its goal of achieving a 90%-plus market share. With the recent announcement that CMS was granted a unique J-Code for Bendeka, we now have more certitude about the significant earnings potential of Bendeka, well beyond 2019.

We have six patents issued and listed in the orange book, extending from 2026 through 2033, including the 2026 patent that [Teva held]. This patent has already been found to be valid at the district court level, and has survived two IPR challenges.

We will also receive a $40 million milestone, and our royalty rate will increase from 20% to 25%. We have a great relationship with Teva, and have extended our licensing agreement to include some territories outside the United States and Canada. We received an upfront payment of $1.75 million on signing this extension, and we will receive a royalty on the net sales of 20% as Teva enters each additional country.

We are also pleased to report initial positive data from our study with the NIH, evaluating Ryanodex and Ecstasy induced hyperthermia, consistent with the results of our clinical work with Ryanodex for the treatment of exertional heat stroke. We look forward to reporting further results from our ongoing animal study for EHS to support the submission of our rolling NDA for Ryanodex with the FDA, shortly. If the outcomes of the animal study prove successful, we anticipate requesting priority review, and have the potential to be the first drug on the market to treat -- for the treatment of exertional heat stroke, as early as next summer.

If approved, we're hopeful of being the first to market with a potentially lifesaving treatment option for exertional heat stroke next year. As many of you know, we will host our first Investor Day this Friday, November 11, at the Pierre Hotel, where we look forward to sharing more details about our pipeline.

Lastly, I'd like to point out the strength of our financial performance during the quarter. We reported revenue of $37.8 million, earnings of $0.73 per diluted share, cash in receivables of $106.4 million, and no debt. We are very focused on optimizing the deployment of our capital on behalf of shareholders and continue to evaluate opportunities to do so.

As part of that effort, through the end of the quarter we repurchased a total of $32 million in shares -- $32 million in shares, as part of our stock buyback program, of which $18 million was in the third quarter. With this as a backdrop I would like to turn the call over to David to update you on our third-quarter financial results. David?

Thank you, Scott. For the third quarter of 2016, our revenue, as Scott just mentioned, totaled $37.8 million, compared to $5.7 million in the third quarter of 2015. The revenue mix consisted of product sales, a royalty revenue, and license and other income.

Overall, total product sales reflecting all of Eagle's products increased $4.5 million to $7.8 million during the quarter as a result of $2.2 million in net product sales from Bendeka, $1.2 million in sales of Ryanodex, $1 million in net sales of Docetaxel, and increases in the net sales of Argatroban, offset by a decrease in diclofenac-misoprostol sales. Royalty income increased $23.8 million to $26.2 million, compared to $2.4 million in the prior-year quarter, as a result of the launch of Bendeka. We recorded license and other income of $3.8 million during the third quarter of 2016, with no amount for the same quarter of 2015.

R&D expenses were $3.2 million in the third quarter of 2016, compared to $6.9 million for the same quarter of the prior year. The $3.7 million decrease resulted from certain cost reimbursements from one of our suppliers.

Non-recurrence of project spending for Ryanodex for exertional heat stroke related to the completion of the clinical treatment portion of the safety efficacy study. And lower project spending for Pemtrexed offset by the increase in project spending far ET 6101 bivalirudin, and other projects and higher personnel-related expenses due to increased headcount.

SG& A expenses were $11.9 million in the third quarter of 2016, compared to $5.5 million in the prior year's quarter. Personnel-related expenses accounted for the bulk of the $6.4 million increase, and were due to overall expansion of the business. We expect sales and marketing expenses in 2016 to ramp up as new product launches begin and gain momentum.

Net income for the three months ended September 30, 2016, was $12 million or $0.77 per basic, and $0.73 per diluted share, as compared to a net loss of $10.2 million or $0.65 per basic and diluted share in the three months ended September 30, 2015. On August 9, 2016, the Board of Directors approved a share repurchase program of up to $75 million. As Scott mentioned, we repurchased $18 million during the quarter, and a total of $32 million since the program was approved.

We believe this reflects the best use of our growing cash position at this time, and it is in the best interest of shareholders. We closed the quarter with $59.3 million in cash and cash equivalents, $47.1 million in receivables, with approximately $30.9 million due from Teva and $206.5 million in additional paid-in capital. With the J-Code decision, the Company royalty rate has increased from 20% to 25% on Teva's US sales of Bendeka, effective November 1.

In addition, we will receive a modest payment of $40 million. Finally, we believe we will of reach the accumulative sales milestone in January of next year, entitling us to another $25 million milestone payment. Altogether, we expect to receive approximately $100 million or more from Teva over the next few months.

We had $105.5 million in stockholders equity, as of September 30, 2016. And with that, I'll turn it back over to Scott.

Thank you, David. I'm very proud of our team for the progress we've made so far. We expect to see continued progress on multiple fronts in the coming weeks and months.

We've built a solid foundation and are focused on execution, and we believe Eagle is well positioned to deliver growth well beyond 2020. We look forward to welcoming all of you to our first Investor Day on Friday, November 11, at the Pierre Hotel, when we will share more details on Ryanodex and our pipeline.

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

(Operator instructions)

David Amsellem, Piper Jaffray.

Thanks. Just had a couple of questions. On the Bendamustine franchise, now that you have the J-Code in place, how do you think about the potential role of the big bag over the long term or even near term? Hasn't switched the entire market, so is there potentially a roll near term, or do you envision launching the big bag after generics on a lie-off project into the market in late 2019? Maybe just give us a lay of the land on how you're thinking about big bag.

And then secondly, in terms of capital deployment. When you're generating quite a bit of cash. I wanted to get your thoughts on potential acquisitions, assets that you are looking at where you can leverage your hospital infrastructure and how much of a priority that is in the near term. Thanks.

Thank you, David. Appreciate it. So, big bag.

Let's step back for a second and review where we are. We now have almost 90% share. We have 88% and we're committed to seeing that grow. We have faith that we will continue to grow that market share.

Now that we have the J-Code, I think it's safe to say that we have an asset with a very long tail. Probably well beyond 2020 with the way reimbursement works and in the virtue of the product, which is so wonderful. Now, you are looking at having the value of that franchise, probably into 2026, and maybe well beyond that.

Our royalty just went up to 25% of net sales. The last week is really a sea change in the value of Bendeka to us, and we're just thrilled.

And then we're sitting here with big bag, which obviously still has value and could provide some additional value to the Company. But we have to be very strategic, and we need to determine exactly what we're going to do with it.

And I can't tell you that as of today, we have a clear response for you and answer as to the big bag, and the reason for that is we are absolutely thrilled with the way things have worked out for us. Thrilled with the relationship with Teva, and very satisfied with how this all worked out. And so for now, we are where we are with the J-Code, and we'll continue to monitor the situation over time.

Scott, before you get to the M&A question, just to be clear, your contractual rights regarding big bag do not change as a result of the J-Code, right? You still have the right to launch it whenever you'd like, per the contract? That hasn't changed?

That's correct, David. We still have the right to launch big bag today if we wanted to contractually. Those terms are not altered with the J-Code.

And while we're on that topic, obviously, we're also thrilled about expanding the territories with Teva, and now bringing Bendeka to several additional countries over the years. Where we will enjoy milestone payments and royalties from that, as well. We're just really very, very pleased with where we are and how things turned out over the years with Bendeka.

On the capital side, you're correct, we're building very nice cash. We have a significant amount of receivables now coming into the Company.

We have the $40 million payment from Teva as Dave had mentioned. We think we hit that next sales milestone probably the first half, middle of January. That's $25 million that will be coming to us.

The royalty rate for Bendeka, as I just mentioned, went up during the quarter, during Q4, when the J-Code occurred. So, we get that extra 5%, as well.

We've been buying back our stock. We had a $75 million stock buyback. We're at about halfway. Still very bullish on purchasing our stock.

And, you're right, with the fact that we have absolutely no debt completely unlevered. We are a commercial organization and we have this cash flow coming, and we are. We are looking at potential acquisitions.

We're looking at acquisitions on the product side. We're looking at ways to improve our capabilities here to company, and as we come to the conclusion of how to deploy capital, we obviously let everyone know.

But take solace in the fact that we are very, very focused. Very focused on building shareholder value, and that's our first and foremost objective.

Okay. Thanks.

Thank you, David.

Randall Stanicky, RBC Capital Markets.

Thanks. Good morning. This is Ashley on for Randall.

Scott, as we discussed now that you have the unique J-Code and greater visibility on cash [base], kind of beyond 2019, where do you see its potential for share beyond 2019? And do you see an opportunity to get price?

I'm sorry, I missed the question. Can you repeat it, please?

Sure. Where do you see potential for share beyond 2019, given the decision and do you see an opportunity to take price?

Sure. Market share and price. The market share is really, very important. And so our view of the process is really twofold. One, the way the drug is reimbursed. And two, the product attributes.

We continue to hear very positive feedback about how the drug is being received by patients and by physicians. We just believe that over time as the drug is being used, the product attributes will separate it from generic [tray ended], and that the reimbursement as well will provide an opportunity to see that through. And so, our view is solidifying on the J-Code.

But I think it's safe to say at this point that we will maintain a significant portion of that market post 2019. Certainly, the majority of the market, we are very enthusiastic about the value of the product post 2020. And I think as time goes by, we will have a more specific number for you in terms of market share, but we think that market share is significant and high.

And so, that is the sea change that we had in the Company here over the last week. The fact that the value of Bendeka well beyond 2020, hopefully to 2026 and then maybe 2033, will continue to be a significant opportunity and profit driver for this company for many, many years to come.

In terms of price, that's really a tepid situation. They have all of the responsibility for handling price. We don't get involved in that. I think that's a question for them.

Remember, too, as part of the J-Code here, we've given up our ability to take the drug back in generic (inaudible) come to the market. That was the trade-off of $40 million in the extra 5%. And because we feel so confident in the product and the reimbursement, we think Teva will be an innovator for all these years, and with the 88% share that they have, are at best position to continue to grow this opportunity for us for many, many years to come.

Okay. Thank you very much.

Thank you.

(Operator instructions)

Tim Lugo, William Blair.

Thanks for taking my question. Maybe we could start with the MDMA study. It looked positive.

Should we expect that you'll run a clinical human study in 2017? And also, could you update us on the timing for the methamphetamine study and maybe the gating factors for each at filing?

Hi, Tim. Thank you.

We will update everything that you're asking now in more detail on Friday. We expect to spend quite a bit of time on all of these questions on Friday. But just to give you a quick overview, we will be meeting with FDA to discuss the path forward on Ecstasy.

Really looking forward to having that meeting with them now that we have this data, and we'll share more, again, at the meeting. The methamphetamine piece is starting now with NIH.

We elected to do ecstasy first, get that out of the way and take a look at it and learn from the study design, and then move into meth. That is starting. We will get those results out to you reasonably quickly.

Let's see what happens. We don't expect to see much of a difference between the meth piece and the ecstasy piece.

Everything seems to be consistent with what we've seen with brain hyperthermia across MH, really, EHS amphetamines, both meth and ecstasy. That is all tracking well. And exertional heat stroke, we'll also provide an update on Friday, but that's all moving as planned.

Great. I'm looking forward to the update on Friday. I guess going back to your financials.

Could you maybe talk about the buildout of the Company in 2017? Your expenses looked a little light this quarter, but I assume you're going out to invest in Ryanodex for next year. Can you give us, on a high level, just when does that buildout occur and maybe the magnitude of that buildout?

Sure, Tim. This is Dave.

Well, you can expect to see a buildout. We're working on those numbers right now.

This should be thought of as a traditional branded product launch, which would require significant investment. And being responsible business guys, we are focused very much on the right time to add expense applied against the P&L, and right now, though, the plan is to be prepared to launch Ryanodex in the exertional heat stroke market in summer, hopefully earlier rather than later.

And, Tim, I would add to that, as well. I do believe Friday is an important day, because we will spend a tremendous amount of time with everybody going through the medical side of Ryanodex. The clinical side, and really spend a good amount of time with everybody on the marketing plans, the size of the market and the opportunity.

And I believe we will be in a better position to speak to how we plan on handling what is hopefully a 2017 launch of exertional heat stroke, and then let's see how the FDA meeting goes now and start working on a future launch for drug-induced hyperthermia. But I do believe the size and scope of the opportunity will become more clear in two days, and then we can probably have a good, healthy discussion about our marketing plans.

Just see a glimpse into our public relations and our marketing plans on Friday. And we're excited about sharing it with everybody.

Great. Looking forward to it.

Thank you.

(Operator instructions)

Irina Koffler, Mizuho.

Hey. Thanks for taking my questions. I have a bunch.

Scott, can you comment on the overall trends in Bendeka and the market? Maybe break out the actual royalty on Bendeka?

And then another financial question I had was the R&D refund. Can you go through that a little bit in more detail? I think there was something like that last quarter. Just wondering if it is a recurring expense.

And finally, do we have any updates on Kangio?

Thank you, Irina. First, the trends in Bendeka. As we've mentioned before, as we look at Bendeka, it's about a flat market.

Our internal forecast, or maybe it's down a little bit in volume. Maybe a little up in volume, and the quarters ebb and flow.

They're not consistent. Some quarters will be higher, some quarters will be lower, but when you look at Bendeka over four quarters, six quarters and eight quarters, it's been somewhat flat on a volume standpoint, maybe down a little bit.

So, we think that trend is just going to continue, and now that we have the increase of the royalty from 20% to 25%, you will certainly see a significant pickup in our revenue 2017 over 2016, as our share continues to grow and our royalty increases.

Kangio, we plan on giving an update on Friday, as well. Nothing new there.

And I don't think we can go into the R&D refund piece today. But maybe at some point we will be able to go into some details on that.

But it is non-recurring.

At this time, it appears we have no further questions. I'd like to turn it back over to Scott for closing remarks.

Thank you, everybody. Really do appreciate everybody spending time with us this morning. It really was a very meaningful quarter for us.

We moved a lot along very positively, and we are very, very much looking forward to our first-ever Investor Day on Friday. And speaking to everybody thereafter.

So, thank you again. We all appreciate it.

We'd like to thank everybody for their participation on today's conference call. Please feel free to disconnect your line at any time.