Harrow Inc (HROW) 2015 Q4 法說會逐字稿

Good afternoon and welcome to the conference call covering Imprimis Pharmaceuticals' financial results and business update for the fourth quarter and year-end 2015. My name is Matt and I will be your operator for today's call. (Operator Instructions)

Before the call begins, the Company would like to note the following. First, the Company's press release discussing its financial results is available on the investor relations page of the Company's website at www.imprimispharma.com.

Second, this call is being recorded. Replays of the call will be available shortly after the call concludes through April 23, 2016. Please visit the investor relations page of the Imprimis website to access the replay.

Third, management's prepared remarks include discussion of adjusted EBITDA, which is a financial measure not prepared in accordance with US generally accepted accounting principles, or GAAP. Management is presenting this non-GAAP financial measure because it believes it may be useful to investors for various reasons, but it is not to be viewed as a substitute for or superior to the Company's results prepared in accordance with GAAP.

Please see the Company's press release discussing its financial results for more information, including a description of how the Company calculates adjusted EBITDA and a reconciliation of adjusted EBITDA to net loss, the most comparable GAAP financial measure.

Fourth, management's prepared remarks and answers to your questions on today's call will contain forward-looking statements within the measure of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on management's current expectations and are subject to risks and uncertainties which may cause results to differ materially and adversely from the statements contained herein.

The factors that could cause actual results to differ from those predicted are detailed in the Company's reports on Forms 10-Q and 10-K filed with the US Securities and Exchange Commission and include risks and uncertainties related to Imprimis's ability to make commercially available its compounded formulations and technologies in a timely manner or at all.

The Company encourages all listeners to review the more detailed discussions related to these forward-looking statements contained in the filings the Company makes with the SEC, which are available at www.sec.gov and on the Company's website. Except as required by law, Imprimis undertakes no obligation to update any forward-looking statement to reflect new information, events, or circumstances after the date they are made or to reflect the occurrence of unanticipated events.

Imprimis is not affiliated with the TEVA branded pharmaceutical products, nor Elmiron, Turing Pharmaceuticals LLC, nor Daraprim and Retrophin, Inc., nor Thiola. The drugs noted are FDA approved. All Imprimis compounded formulations may only be prescribed pursuant to a physician prescription for an individually identified patient consistent with federal and state laws governing compounded drug formulations.

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

Thank you for joining us. First of all, as evidence that we are responsive to our shareholders following our last conference call and comments from shareholders, we went to our lawyers and demanded that they shorten our Safe Harbor statement. So I hope the new order Safe Harbor statement meets your liking.

Now onto business. Today I will provide an update of our accomplishments during the fourth quarter, discuss some recent developments, and touch on our goals for the remainder of the year. I will then turn the call over to our CFO Andrew Boll to review the quarterly financials. Following Andrew's review of our financial data, we'll open the call to questions.

I am pleased with our record $3.5 million quarter, which was a more than 500% increase compared to the fourth quarter in 2014. Full-year revenues totaled $9.7 million, which was a 485% increase compared to revenues of $1.66 million for the full year the year prior in 2014.

We recently completed a $12 million capital raise, representing the first equity financing for the Company in three years. There was a significant investor interest and we were fortunate to add some large high-quality institutions to our growing shareholder base.

I'm happy to report that this week, our New Jersey team will begin moving operations to our new 8,600-square-feet state-of-the-art facility in Roxbury, New Jersey, which we expect to register with the FDA as an outsourcing facility near the end of the second quarter of 2016. We are also nearing the completion of our construction in our Texas facility and plan to register with the FDA and begin operations as an outsourcing facility here soon.

Through our two business programs, Imprimis Cares and Custom Compounding Choice, we develop, produce, and dispense novel compounded formulations in all 50 states. Under our Imprimis Cares program, we own, market, and dispense a growing portfolio of lower-cost compounded therapeutic alternatives to higher-priced FDA approved drugs in several therapeutic areas, including ophthalmology, urology, sinus, and infectious disease.

Our Custom Compounding Choice business is primarily focused on developing and dispensing a portfolio of non-proprietary compounded drugs for humans and animals in therapeutic areas that are sometimes overlooked by commercial pharmaceutical companies.

We are a patient-focused pharmaceutical company. And unlike many of our competitors, we actually interface with patients day in and day out. We hear their heart-wrenching stories of being denied access to critical medicines due to myriad of reasons.

I was recently watching a hearing in a U.S. Senate subcommittee on the issue of drug pricing and accessibility. During the hearing, a mother told the story of her baby daughter who was in need of a life-saving medicine following the little girl's diagnosis of a rare, life-threatening, but treatable condition called toxoplasmosis. The FDA-approved medicine the little girl needed for her condition was going to cost her family over $300,000 and her insurance company had denied coverage for this medicine.

Can you imagine if this was your daughter? Try and put yourself in this mother's shoes. What would you do? There is no time to fight with the insurance company, and time is of the essence. This is life and death.

The answer for this patient and for many others like her is safe pharmaceutical compounding. This woman, whose name is Shannon Weston, and her beautiful little girl were saved by a lower-cost alternative to the FDA approved drug for toxoplasmosis.

This story is one we deal with at Imprimis daily. Issues of access and the costs of critical medicines are a major problem in our country, and we believe that our business model and what we do for patients day in and day out can counterbalance these issues and offer lower-cost alternatives to our fellow Americans. Making drugs for patients like Ms. Weston's daughter is the passion of our employees and it is how we are going to build a truly great and profitable company.

The story I just shared is the real side of pharmaceutical compounding. It is not what you will hear from the media and it is not what you will hear from the FDA. But Ms. Weston's is the truth about compounding. Ms. Weston's story is common.

It is because of patients like Ms. Weston's daughter, the need to make personalized medicines and supply affordable customizable drugs that each and every hospital in the United States is dependent on safe pharmaceutical compounding each and every day. Safe pharmaceutical compounding is a critical part of our nation's healthcare system.

Now, all of our Imprimis Cares and Custom Compounding Choice drugs contain active ingredients that are all FDA approved. They are made according to a US pharmacopeia monograph, or standard, and they're obtained from FDA-registered manufacturing facilities. Importantly, every single dose we produce is made in the United States. It is subject to domestic FDA inspection and inspections from various state boards of pharmacies.

What sets us apart from generic and branded FDA-approved drugs is that unlike our FDA-approved competitors, we actually provide personalized medicine. It is axiomatic that all patients are different, biologically and otherwise. My needs are different from others.

Yet our drug approval process only allows for rigid and fixed strengths of drugs to be approved and studied. Once these FDA-approved drugs have been used for a long period time and are off patent, what we do at Imprimis is take those drugs that have already been used and studied, they are well characterized, that are really cheap and have been known to work really well. And we use them in new ways to solve unmet needs in the marketplace.

When we take old drugs and combined them with other old drugs in unique ways, we can oftentimes file for and receive new patents to protect our access to the marketplace that we create in many cases. Importantly, what we make is personalized for each patient, providing physicians with the option to prescribe custom medicines based on the individual medical needs of their patients.

We are in the personalized medicine business today and we safely provide personalized medicines to thousands of people each day. We operate in a competitive space, though, and on a daily basis, we are taking market share from several very large pharmaceutical companies.

And as a result of the competitive nature of our business and the recent uptick in market share we have experienced in 2016 and our expected continued market encroachment, we are no longer breaking out revenues by unit sales or by markets. And instead, like the majority of public pharmaceutical companies, we're going to report on overall revenues and on other more general measures of performance. We will let our numbers this year speak for themselves, especially as we continue to execute and demonstrate that we can compete and win business.

With respect to our Imprimis Cares business, during the fourth quarter, we launched our $0.99 alternative to Turing Pharmaceuticals' anti-infective drug called Daraprim. This is a drug that's FDA approved for patients suffering from toxoplasmosis.

The formulation, our formulation, contains the same FDA-approved ingredient as Daraprim, which is pyrimethamine. It's now available through the Express Scripts network, which is the largest pharmacy benefit manager in the United States, as well as other large PBMs. And it's also being prescribed by many of the country's most prestigious hospitals and healthcare organizations.

Since just the middle of December, we have helped numerous toxoplasmosis patients -- over 100 actually -- and have dispensed over 7,500 units of our alternative, representing a savings to patients and our healthcare system of almost $5.5 million when compared to purchasing Daraprim from Turing. We receive calls from patients and providers on a daily basis to thank us for providing them with an affordable alternative for their serious and oftentimes life-threatening needs.

Last month, we announced our new customizable lower-cost formulation to Thiola for cystinuria, which is an inherited disease that causes stones made of the amino acid cysteine to form in the kidneys, bladder, and/or urethra. Now in 2014, Retrophin, LLC and its CEO at the time, Martin Shkreli, acquired the licensing rights to Thiola and summarily increased the price of Thiola by 2,000%, from $1.50 per tablet to $30 per tablet, resulting in many patients dealing with their annual treatment costs increasing to over $100,000 per year. We expect our new formulations to be available next month -- so in the month of April -- and that the drug cost for our formulation relative to Thiola will be a reduction by more than 70%.

Now, Thiola is made of tiopronin. That's the core active pharmaceutical ingredient. And it's important to note that tiopronin is listed on the FDA's drug shortage list. Drugs like tiopronin that are on the US drug shortage list can be made and dispensed by compounding pharmacies with identical ingredients and with the same dosages as those made by the FDA-approved drug manufacturer, we believe without patent infringement or other legal ramifications.

Sales of our ophthalmology formulations continue to grow. We are currently supporting over 9,000 cataract surgeries per week and estimate that we have captured about 8% to 10% market share from companies like Alcon, Bausch & Lomb, which is a division of Valeant, and others that have dominated the eyedrop market for decades.

Our land-and-expand strategy is working, and customers are embracing the convenience of being able to one-stop shop and order a wide array of complementary offerings in ophthalmology that they need to meet their daily needs.

We continue to work with legislators for a policy change to allow patients to pay for dropless therapy. I've spent time meeting with key decision-makers and believe we are making significant progress with this effort.

As part of this initiative, we cosponsored an economic study that demonstrated dropless therapy could save Medicare, Medicaid, and patients up to $13 billion, and that was assuming a cost of $100 per dropless therapy dose. I cannot guarantee success in getting Medicare to pay for or allow patients to pay for dropless therapy. But with that said, we believe that in the current environment, we are on the right side of this argument and in due course, patients will win the freedom to pay for dropless therapy if they so choose.

We're planning to debut a new triple combination eyedrop at the American Society of Cataract and Refractive Surgery symposium in May 2016. We believe this innovative patent-pending triple drop formulation has the potential to become a very popular and best-selling formulation in our less-drops portfolio.

At the same meeting, we also plan to introduce a new conscious sedation series of formulations. We think this formulation and the underlying technology will be beneficial for patients undergoing certain ophthalmic surgeries and possibly other short in-office and outpatient procedures, including vasectomies, colonoscopies, carpal tunnel procedures, tooth extractions, OB/GYN and dermatology procedures, and many other in-office procedures.

Based on the positive feedback we have received from doctors in the field who are using this formulation now and have been for the last few months, we are highly optimistic about what we have and the impact it can make.

With respect to our urology formulations, we continue to market our HLA formulation and Pentosan polysulfate-sodium-delayed release tablets, commonly prescribed for patients suffering with interstitial cystitis and a lower-cost alternative to the off-patent Elmiron. Our HLA formulation is yet another market that we anticipate could be given a spurt of growth once we transition to our outsourcing facilities and physicians are able to prescribe in bulk for their office use.

As a part of our land-and-expand strategy, within the urology segment, we offer additional compounded medicines for various other conditions that urologists treat on a daily basis, including erectile dysfunction and various hormone therapies.

As a part of the purchase of our Pennsylvania pharmacy, we acquired the assets of the leading US providers of compounded sinus medications, related delivery systems, and patented single-use plastic vial packaging. We are in the process of relaunching this previously successful sinus business and expect to attain a leadership position in the compounding sinus market and in the months and quarters to come.

Our Custom Compounding Choice business is our second business program, which is focused on developing and marketing a portfolio of nonproprietary, customizable, compounded drugs for humans and animals, including sterile injectable and nonsterile integrative medicines in therapeutic areas that are oftentimes overlooked by commercial pharmaceutical companies. We specialize in a variety of condition-specific areas, including oncology, autoimmunity, chronic infectious diseases, and endocrine and metabolic diseases.

We also offer customizable hormone replacement therapies and a variety of weight loss and dermatology compounded formulations. Many of these formulations are offered in different formats than other available medicines, such as a suspension or as a lyophilized powder, which we believe may provide differentiating and potentially beneficial factors as compared to competing therapies.

While our Custom Compounding Choice business is currently focused on non-proprietary formulations, several of these medicines have unique dosages and convenient storage and delivery methods that require in-depth know-how, and they allow us to set ourselves apart from our competitors.

As part of our marketing efforts, we develop [hanes] about our products and sponsor regional conferences relating to furthering education and awareness of our formulations within the integrative medical community.

So in conclusion, as a result of the media attention resulting from our $0.99 alternative to Daraprim, I've been able to become a more active participant in the national drug pricing discussion. And I am a vocal advocate for compounding and how it can play an important role in blunting the spear that higher drug prices are having on average Americans.

As healthcare in the US moves toward a value-based system, and prescribing incentives are based on cost and patient outcomes, I believe compounding and what we do at Imprimis is well positioned to support and contribute to this important trend by providing payers, physicians, and patients with lower-cost high-quality options.

I plan to continue conversations with the media, the FDA, policymakers, insurance companies, PBMs, managed care organizations, and others to help lead a shift in the current policy and in turn help patients gain access to the medications they need at affordable, accessible prices.

During 2016 and beyond, we look forward to further taking market share within our Imprimis Cares key therapeutic areas and also expand our formulary with new formulations that we believe provide lower-cost, higher-quality, compounded alternatives to higher-priced branded and generic drugs. With the expected opening of our FDA-registered outsourcing facilities in Texas and New Jersey, it is looking like 2016 will be another year of setting new records and financial milestones as we continue our march towards profitability.

I'll now hand the call over to Andrew Boll, our Chief Financial Officer.

Thanks, Mark. Hi, everyone. Thank you for joining our call today. As Mark mentioned at the beginning of the call, total revenues for the fourth quarter were $3.5 million compared to $550,000 reported for the same period in 2014. 2015 revenues were $9.7 million for the year, representing a 485% increase compared to $1.66 million for 2014.

Total cost of sales for the fourth quarter 2015 was $1.95 million, yielding a gross profit of approximately $1.55 million compared to a gross profit of about $170,000 last year. Operating and interest expenses totaled $6.68 million, yielding a net loss of about $5.1 million for the fourth quarter compared to the fourth quarter last year, which reported operating expenses of $2.9 million and a net loss of $2.75 million. Backing out certain expenses and income line items, we recorded an adjusted EBITDA loss of approximately $2.97 million for the fourth quarter of 2015 compared to $1.48 million for the fourth quarter last year.

During the fourth quarter 2015, we saw gross margins decrease compared to the prior quarter. This decrease is mostly related to the addition of opening our Pennsylvania pharmacy, which took a couple months to begin operating at an efficient level. And also, we absorbed some costs at our Texas facility related to dormant periods as we made improvements to it.

We are confident this decrease in gross margins is temporary and will improve during 2016 as we reap the benefits of the investments we have made in 2015 and continue to make as we implement efficiency measures at our compounding facilities and increase sales of our proprietary formulations.

Our operating expenses increased as a result of adding personnel to enhance our client services and pharmacy operation departments to support expected demand. We also made changes to our sales and marketing departments in Q4 to help decrease that future expense. Following our $12 million capital raise that closed in March, we currently have about 13.1 million shares of common stock outstanding.

We are excited about our prospects in 2016 and expect our revenues to continue to grow and our operating expenses to begin to stabilize. As we open the doors of our outsourcing facilities in the first half of this year, we believe this will open up new lines of revenue opportunities as we build a new type of customer base and further our existing customer and payer relationships.

I will now hand the call back to Mark.

Thanks, Andrew, and thanks for your interest in our truly special pharmaceutical company. You have a great team working for you. We are committed to our mission, vision, and values, and we are doing great things every day for patients.

There is no playbook to read from for what we are doing. And we make mistakes, we learn, and we become a better and stronger company. The opportunity for us is massive and the need is real and it is growing. We can't do what we do without our shareholders' support. So on behalf of our 113 employees and growing, I want to thank you. We'll continue to work hard and smart in order to grow and generate stockholder value.

Lastly, if you are a new shareholder, a prescribing physician, or one of the more than 100,000 patients we served in the fourth quarter of last year, I want to personally thank you for your trust.

At this time, I'd like to open up the call to questions from our participants. Operator?

(Operator Instructions) Donald Besser, Manchester Management.

I may have -- I missed the first part of your comments. Did you update the unit volume and sales volume for the ophthalmological -- for the drops and drop and LessDrops?

We are sort of giving a more general measure. We are not breaking out dropless versus drops, but what I did say is that we are now supporting north of about 9,000 cataract surgeries per week. So we are making a drug for north of 9,000 surgeries per week. We also put out a presentation that we made at ROTH last week that showed that in the month of February, we were in the 9,500-, 9,600-cataract-surgery-per-week range.

Right. In the previous press release, an earlier press release, you stated that in -- you stated that you expected unit volume to nearly double in the quarter versus the previous quarter. The fourth versus the first. Can you update us on that?

The unit volumes from the end of December up until the end of February did in fact more than double. And the good news is is they've continued to tick up in the month of March. So that's good, and that's really what's happened for the last 18 months, by the way.

But our unit volumes have picked up. And what's nice and what's really encouraging for our team is that we are not yet in an outsourcing facility area. So what's important is 9,600 prescriptions were procured the last week of February. We had to get names, addresses, phone numbers, drug allergies, all this information for 9,600 people.

Now, when we move to an outsourcing environment, which is happening very soon, none of that will be required. We'll be able to get orders from our customers. They will say I need 200 units this month. We'll take 200 units from inventory, put it in a box, and ship it. So it allows us to become much more efficient administratively.

And I also believe it allows us to take on new customers. And the result of that at Imprimis is going to be I believe a more accelerated pace of growth within our ophthalmology space servicing the cataract surgery market as well as the LASIK market.

Just two other questions. You've invested the money in the facilities in Texas and New Jersey. Can you outline how much you put in there and what kind of sales volumes you expect to come out of those two facilities?

Sure. What we are doing -- what I can say is the New Jersey facility alone is going to have five clean room suites that are very streamlined clean room suites. Everything that we are doing right now is being done in two -- so all of the units that we're producing are being done system-wide in two clean room suites.

So when we open the New Jersey facility, that facility alone will have five clean room suites. Our Folcroft, Pennsylvania, facility will have three clean room suites. The Dallas facility has one large clean room suite and our Irvine facility is going to have a total of two clean room suites.

So we are increasing our capacity. If you think about the unit volumes that we produce with basically two clean room suites now, we are going to north of 10 high-quality, streamlined, state-of-the-art clean room facilities. And that's happening literally in a matter of months.

We are doing that and we've been making those investments over the last four or five months because we've seen the increases in order volumes coming. So the capacity that we'll have is significant here shortly.

Okay. The Texas facility is supposed to be licensed by when?

It's -- we have nearly completed the construction. I mean, the construction inside the facility is actually complete. It is fairly imminent. So without giving you any exact dates, it's very soon.

Okay, thank you.

And if there are no further questions, I'd like to turn the floor back over to management for any closing remarks.

Sure. Thank you for everybody who is on the call. Really appreciate your interest in our Company. If you are a stockholder, I want to thank you again for your investment and the trust that you've placed in our Company and me personally as the guy that's at the tip of the spear.

If you do have any investor-related questions, please contact our Director of Investor Relations Bonnie Ortega. Her direct number is 858-704-4587. So thanks again and this will conclude our conference call. Thank you.