Harrow Inc (HROW) 2014 Q3 法說會逐字稿

Good afternoon and welcome to the Imprimis Pharmaceuticals third-quarter 2014 financial results and business update conference call. My name is Rob and I will be your operator for today's call. (Operator Instructions). The press release for third quarter 2014 is available on the Investor Relations page of the Company's website at imprimispharma.com.

This call is being recorded. Replays of the call can be accessed shortly after the call concludes and will be available on the Investor Relations page of our website.

I would like to remind everyone that management's prepared remarks and answers to questions on today's call will contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Forward-looking statements represent management's current estimates based on assumptions that may prove to be incorrect. As a result matters discussed in any forward-looking statements we make are subject to risks, uncertainties and changes in circumstances that may cause actual results to differ those discussed today.

Examples of forward-looking statements may include those related to any anticipated growth of our ophthalmology business; the expected launch of our urology business; the market potential for our ophthalmology and urology products; any anticipated increases in sales of our products or our revenues; any ability to achieve payer coverage or normalize pricing for our formulations; and our plans for our prescription dispensing operations. Imprimis assumes no obligation to update any forward-looking statements in the future.

We encourage all listeners to review the more detailed discussions related to these forward-looking statements, including the discussion of some the factors that may cause results to materially differ from those discussed in these forward-looking statements contained in the filings the Company makes with the SEC including its quarterly report on Form 10-Q for the third quarter of 2014 and the related press release announcing third-quarter results, both of which are available on the Company's website.

I will now turn the call over to Mark L. Baum, Chief Executive Officer of Imprimis Pharmaceuticals. Mark.

Thank you, good afternoon and thank you for joining us today. On today's call I have with me Andrew Boll, VP of Accounting and Public Reporting.

I intend to cover the highlights of the quarter and recent developments, also review the third-quarter financial results and outline our objectives and goals as we finish out 2014 and move into 2015. I will first cover our ophthalmology business; then developments in a new line of business we intend to enter, urology; and finally I will discuss our prescription dispensing operations.

First in ophthalmology, we have made significant progress with our proprietary ophthalmic formulations and here are a few key points. First, all metrics that we will discuss are for orders dispensed during the months of August and September only. During the month of July we were completing the implementation of changes to our quality assurance and quality control policies and procedures and did not dispense during that time.

All metrics also relate to our ability to serve about 60% of the US population, which includes 33 states, Washington DC and Puerto Rico. This does not yet include some large markets like California and Texas. We do hope, however, to access the entire US population within the next six to nine months.

Go Dropless formulation sales for the quarter more than doubled to over 7,000 units, equating to an increase in revenues of nearly 200% quarter over quarter. Based on our current run rate, which included more than 4,000 units in October alone, we now estimate that we are servicing about 1.5% of the people in the United States who have cataract surgery.

While we may have sales variability due to seasonality, during 2015 we expect this positive market share capture trend to continue. Since we commercially launched in April 2014 we now have over 140 new ophthalmologists using our formulations during cataract surgery. This represents a greater than 70% increase in our customer base relative to the end of the June 30 period.

Feedback continues to be very positive with new ophthalmologists ordering Go Dropless formulations each week. Given the significant potential cost savings to the healthcare system by supporting the adoption of Dropless therapy, our next objective is to work with both public and private payers on reimbursement policies that will allow for pricing normalization sometime in 2015.

At the recent American Academy of Ophthalmology meeting in Chicago, we captured new leads from hundreds of new potential accounts in states that we service, along with many more in states we expect to be able to service in the near-term. We also announced physician presentations of positive clinical findings demonstrating the multiple benefits of Dropless Cataract Therapy.

At AEO we launched our online Go Dropless physician training portal designed to help familiarize physicians with Dropless Cataract Therapy. The portal currently has a library of over 30 videos that demonstrate a wide array of cataract surgery preparation and surgery techniques from leading ophthalmologists in the United States.

Lastly, we have been contacted by a number of instrument and device manufacturers, including some of the largest and most respected names in the industry, who have initiated new projects to support Dropless therapy. We are now working with several of these companies to further awareness of our formulations and to support their interest in building disposable, surgical hardware for Dropless Cataract Therapy.

Beyond the major ophthalmic meetings this year we intend to exhibit at two additional key meetings before the end of the year, including the OSN meeting in New York City and the Millennial Eye Meeting in Austin, Texas. Go Dropless has received extensive national media attention and has now been featured in over 40 trade, press, print and digital articles this year.

Go Dropless formulations have now been successfully administered in more than 40,000 cataract surgeries. We recently announced also a distribution agreement with MD Distributor Corp. to introduce our Go Dropless formulations in Puerto Rico. This represents our first distributor relationship outside of the mainland United States.

MD Distributor represents leading ophthalmology companies and plans to immediately start calling on the over 100 ocular surgeons and surgical centers that perform an estimated 25,000 cataract procedures per year in Puerto Rico.

We continue to make progress in accessing new markets for Go Dropless formulations, including the LASIK market where we believe we can offer a dramatic price benefit with our combination formulations relative to what many physicians currently prescribe. And this would be as an eye drop formulation as opposed to an injectable.

We are working with a select group of ophthalmologists who are using these formulations now and we hope to discuss their findings in the coming quarter. We are also working with several leading physician groups in the US who are in the process of filing and conducting investigator initiated INDs to study our Go Dropless formulations. We expect the results of these studies to be available during 2015.

Our ophthalmology sales team currently consists of five full-time national sales directors. So in summary, we believe that our Go Dropless formulation sales are based on physicians recognizing the benefit of these formulations to their patients, their staff and, importantly, they are paying for the medicines at a reduced cost out of their pocket. This shows that our customers not only care about their patients but that they prefer dropless over drops.

In our urology business we recently acquired the rights to a commercially available compound, a patented combination of alkalized lidocaine and heparin that we call lido-hep, which is delivered to the bladder for the treatment of interstitial cystitis, which is also known as painful bladder syndrome.

This new compounded lido-hep formulation will be the cornerstone of our new urology business unit. And it will be our focus during the upcoming months as we prepare for launch, which is expected in the first quarter of 2015.

We plan to replicate the success of our Go Dropless campaign and plan to launch the Defeat IC patient and physician education campaign around interstitial cystitis and painful bladder syndrome in our lido-hep treatment option.

Compounded lido-hep installation procedures are reimbursable by private healthcare providers and to Medicare beneficiaries under CPT code 51700, and procedural reimbursement ranges have typically been from $100 to $180. Reimbursement for the lido-hep formulation itself has traditionally been approximately $60 depending on the packaging which does range from 15 to 25 MLs per dose.

The patented lido-hep formulation was developed by world renowned urologist, Lowell Parsons, the inventor of Elmiron, the only FDA approved oral medication to treat the pain associated with interstitial cystitis.

The market for this chronic disease is estimated to be as many as 10 million women and men in the United States. Select compounding pharmacies have been selling this compounded lido-hep installation since 2011. And in 2014, this year, it is estimated that the number of prescriptions written for individual patients for this formulation is expected to exceed 110,000 prescriptions generating more than $6.5 million in annual sales.

To date sales of this formulation of lido-hep have been generated entirely without the benefit of a dedicated national sales and marketing strategy, which we hope to bring to bear.

Beyond lido-hep we continue to evaluate and validate a patent pending formulation of injectable pentoxifylline for the treatment of Peyronie's disease. We expect to announce the findings of this initial research as early as the second quarter of 2015 and may provide additional funding to support additional investigator initiated studies for this important formulation within the next 12 months.

And now our prescription dispensing operations. As a result of the growing demand for our Go Dropless formulations, and the upcoming launch of our new lido-hep compounded formulation, we are actively pursuing opportunities to expand our prescription dispensing capabilities in three important ways. First, we need redundancy for the one facility that we presently own. We also need to cross train our staffs at multiple facilities. And then finally, three, we intend to cross license these multiple facilities.

We currently sell our formulations through our wholly-owned pharmacy creations business which operates under Section 503A of the Federal Food, Drug and Cosmetic Act. Section 503A allows for patient specific compounding with a physician prescription.

We are now planning to either develop or otherwise access an outsourcing facility registered with the FDA under Section 503B of the Food, Drug and Cosmetic Act. Section 503B is a new designation under the FDCA which was created in November 2013 when President Obama signed what is referred to as the Compounding Quality Act.

As a 503B outsourcing facility we would be able to compound and distribute medications to hospitals and clinics without patient specific prescriptions provided that all requirements of section 503B are met.

A 503B designation means that the facility has implemented guidelines provided under the Current Good Manufacturing Practice regulations, that is CGMP for short, which typically ensures the higher standards of quality and safety are met. A 503B designation would be very useful to us for our Tri-Moxi, Tri-Moxi-Vanc and lido-hep formulations.

During the third quarter we did make specific -- significant investments in implementing new internal quality assurance standards and best practices, which we believe in some respects exceed requirements under the US Pharmacopeia, that's USP for short, and state pharmacy laws.

These new internal quality assurance standards and best practice policies were completed substantially in July 2014 resulting in limited sales of our formulations during the quarter. We plan to continue making additional improvements to our quality assurance practices over time.

Imprimis does remain 100% committed to quality, best practices and always making patient safety paramount. I will now hand the call over to Andrew Boll, VP of Accounting and Public Reporting.

Thanks, Mark. Hi, everyone, thank you for joining our call today. The recently completed third quarter represents only the second time in the Company's history of reporting revenues from the sales of our proprietary and nonproprietary formulations.

For the three months ended September 30, 2014 we reported revenues of approximately $441,000 and for the nine months ended we reported revenues of approximately $1.1 million. Of the Company's reported revenues in the third quarter, approximately $149,000 are related to the Company's Go Dropless formulations compared to approximately $51,000 recorded in the second quarter.

Our operating loss for the third quarter of 2014 was approximately $2.5 million compared to $2.1 million for the same quarter a year ago. Operating loss was about $7.4 million for the first nine months of 2014 compared to $5.8 million for the first nine months of 2013.

The Company reported a net loss for the three months ended September 30, 2014 of approximately $2.5 million compared to $2.1 million last year. And for the nine months ended September 30, 2014 we reported a net loss of approximately $7.4 million compared to approximately $5.8 million last year.

We continue to operate the business in a capital efficient manner and as of September 30, 2014 our cash balance is about $10.4 million. During the third quarter ended September 30, 2014 Imprimis used approximately $1.8 million in operating activities and under $100,000 in investing activities.

We also received approximately $134,000 from financing activities, mostly related to the exercise of stock options and warrants during the third quarter. As of November 11, 2014, there are 9,255,316 shares of common stock outstanding. I will now hand the call back to Mark.

Thank you, Andrew. Looking forward we are more excited about the future than ever, we plan to grow adoption of our Go Dropless formulations, we plan to introduce new ophthalmology formulations, normalize our Go Dropless therapy pricing in 2015, launch our urology business and scale to a national footprint while continuously maintaining and improving quality. I will now turn the call over to the operator to take your questions.

(Operator Instructions). [John Grimley], private investor.

Hey, Mark, congratulations on your progress to date.

Thank you, John.

Just wanted -- so wanted to understand the urology business a little bit better. So there is currently roughly 110,000 prescriptions written, $6.5 million in sales. Is it right to assume once you become -- once you guys -- I guess you have the rights -- first I want to understand at what point does it become an exclusive product for you or can it become an exclusive product? And at that point what happens to those 110,000 procedures, or to the people doing those -- selling those 110,000 procedures?

So the license becomes exclusive, we have the right to make it exclusive six months following the execution of the agreement. So we signed the agreement a few weeks ago and so six months from then we have the right to choose to go exclusive.

The question about the existing prescriptions that have been written is a good one. So there is a base of physicians that are familiar with this formulation that are working with their patients to provide the formulation. And what we are doing now with the existing licensees is working with them to transition those relationships to Imprimis from the existing licensee.

So what we are anticipating being able to do, and it will take time to transition those relationships, but we hope that by the time we are able to go exclusive that there will be a smooth transition of those relationships to Imprimis and that we will be able to service those physician prescription needs.

And then just so I understand how it works in patient care setting. It is my understanding that urologists are writing -- are doing most of these procedures, but a large percentage based on what was on the [Urogen] website, a large percentage of the patients are women. Is there an opportunity to sell this product to someone other than a urologist?

Right. So the existing physicians that are prescribing the formulation are largely urologists. And they have relationships with the inventor of the formulation.

Our strategy has been to get to the primary care physician, the physician that first sees the patient who is reporting with these symptoms. And typically that is a GP or, because this disease primarily hits women, the OB.

And interestingly, if you look at who prescribes Elmiron, the FDA approved oral dose by Janssen, it's primarily OBs. And so, part of our strategy is to go beyond the current urology -- urologist network that prescribes this compounded formulation and promote our Defeat IC campaign to OBs as well.

Great. And then just real quick, you touched on it in the press release. It sounds like sometime early next year you hope to be using Dropless for the animal cataract market. Is that -- what is the size of that market or is it a market worth focusing on or could you just give us a little more information on that?

Sure. The animal cataract surgery market is estimated to be north of 100,000 procedures per year. And the work that we have done so far has led us to believe that the cost of an animal cataract surgery, which is primarily dogs and also horses, is fairly significant. They are paying north of $3,000 to as much as $5,000 per procedure and a nice chunk of that is the cost of the eyedrops.

So you can imagine the benefit to the animal owner if they were able to choose a Dropless therapy as opposed to having to put eyedrops in their animal hundreds of times post surgery.

The other nice factor is that it's all cash. So it is a cash pay market, allows us to get a premium price for our formulations right away. And we think it is an exciting opportunity and, as I said in the press release, we do intend to start accessing that market and making sales in the animal market in 2015.

And then last question. In cataract surgery is it kind of an 80/20 rule? You know, the majority -- 20% of the docs do 80% of the surgeries? And what is the real target market to penetrate the majority of the market? You're at 140 now, which is tremendous effort in such short time, but what is kind of the number you want to get to that is a realistic target over the next three years?

Can you repeat the question again?

Sure. Just I think you guys are currently selling to 140 docs, what is the number -- or ophthalmologists -- what is the number -- what is the target market there?

My sense is 80% of the surgeries are being done by 20% of the docs given the current reimbursement environment. You need to be really good to be able to do a lot of procedures in a day to kind of exist as an ophthalmologist these days. So where are you at as far as the high impact guys, those 140? What percentage of those are high impact guys and how many more do you need to get over the next three years?

Right. We've said publicly, and it remains the case, is there is about 2,000 high-volume cataract surgeons and we have made a significant dent. Obviously the 140 that are currently using our formulation from really zero in April of this year is a significant dent in that group of 2,000.

But the answer is there's about 2,000 ophthalmologists in the US who really make a difference and who do the vast majority of the cataract procedures.

Got it. Okay, great. Nothing else for me. Thank you.

Thank you, John.

(Operator Instructions). Thank you. There are no additional questions at this time. I'd like to turn the floor back to management for closing comments.

Thank you, Rob. I just want to thank everyone for attending. And if you are a shareholder, we really want to thank you for your investment and your trust that you've placed in our Company. Thank you for your interest and we look for to continuing to update you on our progress in the coming months.

In the meantime, if you have any investor-related questions, please contact our Director of Investor Relations, Bonnie Ortega. Her direct number is 858-704-4587. Thank you again and this will now conclude our call.