Osmotica Pharmaceuticals plc

Q1 2021 Earnings Conference Call

5/13/2021

spk01: Good day and thank you for standing by. Welcome to the Osmotica Pharmaceuticals Quarter 1, 2021 Earnings Conference, Earnings and Business Update Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. And if you require any further assistance, please press star 0. I would like to hand the conference over to your speaker today, Ms. Lisa Wilson, Investor Relations for Osmotica Pharmaceuticals. Please go ahead.
spk00: Thank you, Operator. Welcome to Osmotica Pharmaceuticals' first quarter 2021 business update call. This is Lisa Wilson, Investor Relations for Osmotica. With me on today's call are Osmotica's Chief Executive Officer, Brian Markison, Chief Operating Officer J.D. Schaub, and Chief Financial Officer Andrew Einhorn. This afternoon, the company issued a press release detailing financial results for the three months ended March 31st, 2021. This press release and a webcast of this call can be accessed through the investor section of the Osmotica website at osmotica.com. Before we get started, I would like to remind everyone that that any statements made on today's conference call that express a belief, expectation, projection, forecast, anticipation, or intent regarding future events and the company's future performance may be considered forward-looking statements as defined by the Private Securities Litigation Reform Act. These forward-looking statements are based on information available to Osmatica's management as of today and involve risks and uncertainties including those noted in this afternoon'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. OSMOTICA specifically disclaims any intent or obligation to update these forward-looking statements except as required by law. During this call, we refer to non-GAAP measures such as adjusted EBITDA. For a reconciliation of adjusted EBITDA to net income or loss, please see the tables at the end of our press release. The archived webcast of this call will be available for 30 days on our website, osmatica.com. For the benefit of those who may be listening to the replay or archived webcast, this call was held and recorded on May 13, 2021. Since then, Osmatica 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 Osmatica CEO, Brian Markison.
spk06: Good afternoon, and thank you for joining our call today. We have good news to share, and I'd like to begin with APNIC. First, paid prescriptions through our exclusive pharmacy continue to ramp. In the first quarter, paid RXs grew 74% over Q4 2020, and April prescriptions grew 17 percent over March. This is the beginning of a growth trajectory that we can expect as we move forward. Another data point of note is at the end of 2020, we had sampled over 4,000 eye care providers. As of the end of April, we have nearly doubled that number to over 8,000 eye care providers sampled. This is a particular note for two reasons. We have worked down our early launch distribution of nearly 12,000 30-count equivalents, and perhaps more importantly, our trained selling organization has grown steadily through the first quarter and numbers 77 active territories with another 20 in the pipeline. Coming out of May, we plan to field 100 active territories as we grow the prescriber base. When looking at the market opportunity, that we see for APNIC, this level of Salesforce spend can only be viewed as modest. However, we are building a market that has no analogs and no competition. Our approach is strategic considering that we're about to test an unbranded direct-to-consumer campaign and our medical education initiatives are still ramping up. We are also getting real-time organic exposure from social influencers and great publications such as the March edition of Elle, the April edition of Vogue, and also in April, we were featured on newbeauty.com, just to name a few. Additionally, our two YouTube ad videos have reached one million views each. We need to see the effect of these different tactics as we titrate our spend in this launch. As we've said before, we're just beginning this journey. Looking outside the U.S., our partner Santan had a highly productive meeting with the PDMA, the Japanese version of the FDA, and are rapidly advancing their plans for the Japanese, Chinese, Korean, and European markets. When examining our first quarter performance in general, the company exceeded its expectations. Andy will provide more detail, but our excellent customer service and manufacturing network ensured that and uninterrupted supply chain during the pandemic. Our team is to be congratulated. Arbaclofen continues to make progress. We are finalizing plans to submit a revised phase three protocol to the FDA under a special protocol assessment in the coming weeks. We will consider advancing this program after we receive feedback from the FDA, but we are very excited about its future prospects in the treatment of MS spasticity. And finally, our strategic process is well underway with keen interest in our legacy portfolio expressed by a number of qualified parties. We hope to update you in the near future with progress on this front. And now, I'd like to turn the call over to Andy. Andy?
spk07: Thank you, Brian. Before going into the company's overall performance for the first quarter, I'd like to highlight some additional data points on UpNIC. Since launch, as Brian mentioned, we have sampled over 8,200 eye care professionals, and as of the end of April, nearly 5,000 have prescribed UpNIC at least once. During March, we saw a 76% increase in new-to-brand prescribers, and we continue to add new prescribers in April, to see sequential growth in paid prescriptions month-over-month, with April coming in 17 percent higher than March. This performance reinforces our enthusiasm for UpNIC, as we believe we've only begun to penetrate the potential market for this product. Finally, we anticipate receiving another milestone payment of $10 million from Santan Pharmaceuticals in the second quarter. Now, onto the company's overall performance for the first quarter. Total revenues for the three months ended March 31st, 2021, were $23.9 million compared to $48.6 million for the three months ended March 31st, 2020, primarily due to a decrease in net product sales. Net product sales decreased to $22.5 million for the three months ended March 31st, 2021, from $47.3 million for the comparable period in 2020. Approximately $8.8 million of this decrease is attributable to lower net realized prices, and $16 million was due to lower volumes of products sold. Cost of goods sold decreased $7.1 million to $13.5 million during the quarter, primarily due to lower amortization expense, royalty and sample expense, partially offset by higher production costs and inventory reserves. Gross profit for the quarter was $10.4 million as compared to $28.1 million in the three months ended March 31st, 2020. Selling, general, and administrative expenses decreased $2.3 million during the three months ended March 31st, 2021 to $18.9 million as compared to $21.2 million in the three months ended March 31st, 2020. The decrease in our selling, general, and administrative expenses reflects Salesforce reductions in the three months ended March 31, 2020, offset by higher marketing expenses related to APNIC. Research and development expenses decreased by $2.4 million in the three months ended March 31, 2021, to $3.3 million, as compared to $5.7 million in the comparable period in 2020. The decrease primarily reflects lower spending on our Baclofen UPNIC and other R&D projects, and lower headcount-related expenses during the quarter. During the three months ended March 31, 2021, we recognized a gain on the sale of product rights for Osmolex of $5.6 million. Net loss for the first quarter of 2021 was $9.6 million, compared to a net loss of $3.1 million in the first quarter of 2020. Adjusted EBITDA loss for the first quarter of 2021 was $5.8 million, compared to adjusted EBITDA of $11.1 million for the first quarter of 2020. As of March 31st, 2021, we had cash and cash equivalents of $109.2 million and borrowing availability under the revolver of $50 million. We also had $219.8 million aggregate principal amount borrowed under our term loans. With that, I'd like to turn the call back to Brian.
spk06: Thanks, Andy. Operator, if you don't mind, we'd like to open up the call to questions.
spk01: As a reminder, to ask a question, you will need to press star one on your telephone. And to withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. Our first question comes from Greg Fraser from Tourist Securities. You may begin.
spk03: Thanks. Good afternoon. First of all, how many paid prescriptions were there in the quarter, if you can provide that?
spk06: Yes. I'll be back up.
spk04: I'm going to give you, Greg, this is JD. It was about 4,700 for the first quarter. Okay.
spk03: And can you speak to some of the feedback that you've been hearing from the field on efficacy and tolerability?
spk06: Oh, yeah. This is Brian, Greg. I should let JD pile on, but efficacy and tolerability have all been fantastic. I mean, some of the efficacy stories we're getting are nothing short of spectacular. As far as safety is concerned, there are very, very, very, very few reports of any adverse events whatsoever. So the drug is as well tolerated as we had hoped. In fact, it's quite soothing as an eye drop. And the efficacy is being borne out every single day that we go to work. So, J.D., it's
spk04: Yeah, I mean, look, what I would add, Greg, is it's been, what, about six weeks since we last gave an update to you guys about things. And if anything, we've just continued to accelerate off of that. You know, new prescribers starting to see some turn around the depth within prescribers and offices. where every month they start to get more and more comfort and utilization with this product. And I think a lot of that stems from the safety and efficacy we've seen. I mean, remember, this is still one of those, and we think about it If you go back in time, think about the launch of a product like Restasis, the first to hit the market in dry eye as a prescription treatment. And out of the gate, a lot of that utilization is in grade 3, grade 4 dry eye patients, the most severe, the train wrecks. And I think you attribute that just classically to training and education. They're the most obvious, they're the most difficult to treat, and now you've got a solution, you're going to throw it at them. And it took a lot of education on Allergan's part, and obviously, you know, over 15 plus years, they've done a tremendous job of building that, but shifting the continuum. And I think I would liken kind of where we're at and the progress that we're making very similar. I think the difference being the efficacy in the more severely totic population, we're still tracking around 61 on average in terms of patient age, has been tremendous.
spk03: Got it. That's very helpful. A question on our backlist, then. Are you planning to fund the new Phase III study yourself? And if so, can you comment on how much the study might cost?
spk06: Yeah. The study range that we're looking at right now is anywhere from, say, $7 to $10 million to complete a new Phase III clinical trial. And we're not going to commit at this time until after we talk to the FDA about And we are agreed on the endpoints. So as of now, we're not going to spend a dime on it other than our own sort of, you know, thought process. But if we get a green light with the agency and a program that we believe we could be successful with, then we'll either look at it internally or look for it externally.
spk03: Got it. Okay. And then just a question for Andy. How should we think about SG&A's spend in the coming quarters as you wrap up the investment behind UpNink?
spk07: Yeah, good question, Greg. Thanks, Steve. A way to think about that is going into the first quarter, coming out of last year and going into the first quarter, from there we are increasing the size of the sales force and really starting to invest more significantly in UpNIC. So what we would anticipate seeing over the coming year is an uptick in the selling expense as well as the uptick in the marketing expense as we expand the field force and begin to roll out some of the tactics to really grow this brand.
spk03: Great. Thanks very much. I'll jump back into the queue.
spk06: Okay.
spk01: Thank you, Brent. And once again, star one for questions. On the question comes the line of Daniel Busby from RVC Capital Markets. You may begin.
spk02: Hey, good afternoon. A couple questions on APNIC. First, can you talk about your strategy to further penetrate the mild to moderate patient categories? What needs to happen there to drive greater uptake? And second, how are you thinking about the aesthetics opportunity? I think in the past you talked about a potential opportunity mid-year launch, that's right around the corner. Has that changed, and is that an opportunity that you would look to commercialize yourself, or are you likely to seek a partner in that market?
spk06: So with regard to seeking a partner, not interested. The market potential, we believe, is very, very meaningful to us. I mean, don't get me wrong. If someone comes along and wants to help us out, if the terms are right, we're going to do what's best for the shareholders. But we believe so wholeheartedly in the value proposition for this product that we don't see a need to trade off the value to a third party. So, JD, mild to moderate?
spk04: Yeah. So, I'll start with kind of an anecdote, Dan, that I think captures exactly what you're getting at. And You know, we had a doctor, an eye doctor that I have a lot of respect for, has been at it for a long time, you know, has been a sounding board, more of a dry eye specialist, you know, big, big practice. And, you know, as we were gearing up to launch this product, you know, it's like interesting, you know, I think you've got, you know, a neat little product here. You know, good luck. I'll be anxious to see how it goes as you guys go. And more recently, he happened to have a patient who was in his office for dry eye treatment. And she finished treatment and asked him about Upneek. And he sort of stopped for a second and, you know, I think processed mentally and then started going through what he knew about the drug and all those things. And she asked if she could have it. And, you know, I talked to him after this occurred, and he was very surprised, but it completely shifted his perspective about Upnik. And he said, don't underestimate the power of looking awake. And I think that's the exact process that we're going through and working on strategically to shift this paradigm and behavior with a new market and a new condition that most eye doctors have paid little attention to beyond the most severe over time. So hopefully that gives you a perspective.
spk02: Yeah, I got it. Okay, and I guess on the first question, just to clarify, is aesthetics a near-term launch opportunity? And then I do have another follow-up. Can you talk a little bit more about which products drove the sequential decline in revenue from the fourth quarter to the first quarter? Should we think of that as the new run rate for the base business going forward? And just lastly on this point, I have to believe that that level of erosion would have some impact on strategic interest in the legacy portfolio. So could you just comment on that?
spk06: Yeah, so we'll start with finishing off the question on OPNIC, and then we'll bounce over to the second part of your question. And, you know, we're pretty much on track heading into the aesthetic market, but we are fine-tuning a bit still as we're going. You know, I think one of the things that we are perfecting as we go are, What type of guidance do we want to give to clinicians in that market that are traditionally not used to or accustomed to giving an eye drop? So on the surface, it seems really simple and obvious. You know, you give a drop and it lifts the lid and people look more awake. However, how do you use this in the backdrop of all the other products that are being sold through an esthetician's office, right? So we have to give them a little more guidance, a little more thoughtfulness there. So I'd say we're pretty much on track as our plans evolve. And I, you know, I really can't tell you much more than that right now. It's, we've had a number of advisory boards. They were great sessions. You know, a number of aesthetic practices really want to embrace this product. And a few have already in sort of our test market phase. So it, It looks very good and very promising. We're pretty much on track is what I would say.
spk04: J.D., anything to add? No. I think important context, though, is we are actively working with some more aesthetic-leaning companies. thought leaders teasing out the total package, if you will, right now. And I think we're seeing everything that you want to see in terms of validation of the opportunity and the market potential within that setting. And it's encouraging because the intersection of patients and a target demographic for this type of product is frequent and often in these settings. And so I think, Dan, we are moving as fast as possible, understanding that we are going to continue to be very deliberate and thoughtful to ensure that when we're there, we're launching into the highest orbit possible.
spk07: And, Dan, just to get to, I think, the first part of your question, the large drivers quarter over quarter of the decline were really in methyl and venlafaxine were the primary drivers, nitrofurantoin as well. And I think those markets are now very, very crowded. And so what we would expect is that, you know, this is going to be kind of a steady state for the base business. And, you know, this has been anticipated by us, and it's what forms the basis of, you know, anybody who's been taking a look at it.
spk06: Yeah, and just to add to that a little bit, you know, in the strategic process, we have some very well-informed parties looking at it. And as you would imagine, we already reflected this trend in our analysis and theirs. So it's a very complete picture. But, again, as Andy said, you know, we believe we're pretty much at steady state here and, again, have differentiated ourselves with the quality of our supply chain.
spk02: Okay. Thanks for all the color, guys.
spk01: Okay. Thank you. Our next question comes from David Steinberg from Jefferies. You may begin.
spk05: Hi there, guys. It's Ed Chung on for Dave. Actually, we've noticed some recent magazine covers and articles about UpNIC, and I don't know if you guys can speak to the impact on the recent prescription trends you're talking about, or is it still too early for to see any impact from that.
spk06: Yeah, no, Ed, it's, uh, we think we're seeing the impact. It's early. You know, we had a nice article in Vogue, another one in Elle magazine, uh, goodbeauty.com and a few, actually a few others as well. And every day there's another influencer on Instagram posting a great, you know, before and after picture and a great outcome. Um, it's building. I think it's early. Um, You know, it's organic. We're not paying a whole lot for much of this other than our YouTube ads, which have quite an interesting hit rate. I mean, J.D., you're a little closer to that aspect of it.
spk04: That's great noise. You know, this is raising the awareness and conscience level. not just in the ECP community, but also spilling over into the aesthetic community and obviously the broader consumer base. You know, I can tell you, I think we're seeing more patients coming in asking for it. And I think when we look at kind of the continued growth, maybe beyond growth, acceleration in the number of new prescribers every week. You know, we're adding more new prescribers in recent weeks than we had through the first part of launch when we were really in a very controlled setting, Ed. And I think those types of things, you know, the Vogue cover and Elle magazine, some of the social activity that's going on, and some of the investments that we're also making in that side certainly contribute. Moreover, allow us to continue to focus on driving depth within the office, getting these doctors comfortable with the protocol change, getting the entire office behind what has to happen to assess LIDS and really make this a daily part of everything that they're doing.
spk05: That's super helpful. And I think Brian alluded to a DTC program that you're looking to roll out. Is that going to coincide with your push into aesthetics? And can you speak a little bit more about the timing, how this might unfold?
spk04: Yeah. Separate, no direct correlation to the push into aesthetics, but the plan right now is to begin piloting some of those efforts through the end or second half of this quarter. I actually just got a chance to see some of the draft cuts recently, and it's great. Look, this is about raising awareness educating and elevating the consciousness of both the consumer and the practitioner. And I think it all helps, whether it's the eye care side or the functional aesthetic and aesthetic side. And the one thing we've learned early here is this product has broad applicability across a wide range of patients, age, demographic, and also clinician. And so I think when we look at that and how we best kind of build and capture momentum as we go, it's all going to be important.
spk06: You know, and Ed, we're also completing a fairly extensive round of consumer market research as well, which is what we're using to feed and inform our DTC pilots And I think we're going to be presenting at your conference in first of June, and we'll be able to come out with a lot more data, a lot more results from this effort at that June meeting, which we chose to switch to a presentation rather than a fireside. So hopefully we'll make a big splash at your event.
spk05: Hey, thanks so much for the color, and yeah, definitely looking forward to the presentation come June.
spk02: Yeah.
spk05: Thanks.
spk01: Thank you. Once again, that's star one for questions. I'm not showing any further questions in the queue. I'd like to turn the call back over to Brian for any closing remarks.
spk06: Great. Operator, thank you, and thank you, everybody, for listening in today. and taking part in our journey as we continue to advance SUPNIC. Thank you.
spk01: This concludes today's conference call. Thank you for participating. You may now disconnect.
Disclaimer

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