This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk05: Good afternoon, ladies and gentlemen, and welcome to the Osmotica Q3 2021 earnings call. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. If anyone should require assistance during the conference, please press star then zero on your touchdown telephone. As a reminder, this conference call is being recorded. I would now like to hand the conference over to your host, Ms. Lisa Wilson. Ma'am, you may begin.
spk00: Thank you, Christian. Welcome to Osmotica Pharmaceutical's third 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, Andy Einhorn. This afternoon, the company issued a press release detailing financial results for the three months ended September 30th, 2021. This press release and a webcast of this call can be accessed through the investor section of the Asmodica website at Asmodica.com. Before we get started, I would like to remind everyone 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 Osmotica's management as of today and involves 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 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 is held and recorded on November 15, 2021. Since then, Osmatica may have made announcements related to the topic 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's CEO, Brian Markison.
spk07: Thank you, Lisa, and good afternoon, and thank you for joining us on our call today. We are pleased to share that the strong response and momentum we noted for APNIC on our last earnings call has continued. Feedback on APNIC, the first and only FDA-approved ophthalmic solution for the treatment of acquired blepharitosis or low-lying lids, continues to be uniformly positive, and today we are excited to share some of the latest metrics and update you on our commercial program. With the mid-year divestiture of our legacy business now in the rearview mirror, we are singularly focused on growing our APNIC franchise and creating what is essentially a a brand-new category of ocular aesthetics. We have seen tremendous growth in the years since we first introduced APNIC into the eye care market. Through September, we had over 9,800 unique prescribers, with optometry now accounting for just over 60% of our customer base. This is exactly where our market research indicated we would be. On September 13th, we introduced our direct dispense program to eye care practitioners in those territories where it is permitted, and early responses are highly encouraging. We will be introducing a virtual version for most of the remaining states, particularly New York and Texas in January. This program has already begun to revolutionize our relationship with providers, allowing us to partner directly with our customers as they serve their patients. While our initial focus has been on building a market in eye care and establishing safety and efficacy for APNIC, we believe that ocular aesthetics offers a similar, if not larger, market opportunity. Our medical aesthetics business unit is well underway for our build, and we're starting the onboarding of a highly experienced sales leadership team. In Q4, we will begin piloting our approach with a full launch expected in early in the first quarter of 22. Our recently announced debt and equity financings were essential to help us unlock the value of UpNIC, and as we streamline the company, all of our energy is directed to growing this one-of-a-kind asset. Also, with respect to our Baclofen, last month we received a constructive response from the FDA to our special protocol assessment submission for a new phase three trial of our Baclofen extended release tablets. We are encouraged by the feedback and will continue to work with the agency to come to an agreement on a path forward for the development program. It appears that the next trial will be focused primarily on improvements to spasticity as a primary endpoint. What I'd like to do now is turn the call over to Andy to discuss our financial results.
spk06: Thank you, Brian. Similar to last quarter, our financials do not break out the results of our legacy business, which, in accordance with the accounting rules, is collapsed into single line items on our base financial statements. Our 2021 operating results generally consist of revenue and expenses related to UPNIC, including the general and administrative expenses of running the business, while 2020 results also include the results for Osmolex, which we sold in early January 2021. Third quarter 2021 total revenues were $2.2 million, consisting entirely of UPNIC sales, which grew approximately 47% over the second quarter of 2021. Total revenues in the third quarter of 2020 were $25.8 million, which included $25 million of milestone revenue from the UPNIC license to Santan Pharmaceuticals, and approximately 600,000 of product sales, substantially all of which related to Osmolex. As a reminder, UpNIC was launched late in the third quarter of 2020 to a limited number of eye care professionals. Cost of goods sold were $1.1 million during the third quarter, attributable to UpNIC. Gross profit for the quarter was $1.1 million. Selling, general, and administrative expenses consisted of promotional activities related to the UPNIC launch and the running of the company. SG&A expenses during the third quarter reflected the expansion of our field force in the second quarter of 2021 and greater marketing spend as we expanded launch of UPNIC and rolled out the direct dispense program to eye care professionals. The increase in SG&A expenses also reflected an increase in share compensation expense triggered by the divestiture of the legacy business. Going forward, we expect up-neek promotional expenses to increase in the quarters ahead as we deepen our penetration of the eye care market and launch into the medical aesthetics channel. Additionally, the divestiture of the legacy business is providing us an opportunity to comprehensively review our non-promotional spending to ensure that as much of our resources as possible are devoted to the commercialization of UPNIC while efficiently and appropriately supporting the operations of a single product company. Research and development expenses of $1.4 million in the third quarter consisted of project spending on our baclofen and a follow-on RVL 1201 candidate, and also included the acceleration of share compensation expense, as noted earlier. Net income from the discontinued operations of our legacy business was 8.5 million in the third quarter, while overall we had a net loss of 26.3 million. Adjusted EBITDA loss for our continuing operations for the third quarter of 2021 was 20.3 million, compared to adjusted EBITDA from continuing operations of $9.1 million for the third quarter of 2020. As of September 30th, 2021, we had cash and cash equivalents of $8.4 million and approximately $30 million aggregate principal amount borrowed under our term loans. In October 2021, we refinanced our term loans with the issuance of $55 million aggregate principal amount of senior secured notes and additionally 35 million gross proceeds of ordinary shares issued in a follow-on offering. With that, I'd like to turn the call over to J.D. J.D.
spk02: Thanks, Andy, and good afternoon, everyone. Today, I'll update you on the recent highlights with our launch of UpNIC and provide additional details on volume trends and market insights. To start, we continue to meaningfully expand our prescriber base. with cumulative prescribers since launch totaling over 9,800 at the end of the third quarter, an increase of more than 2,670 prescribers over Q2. A more recent data point continues to highlight the growing awareness and market opportunity. And as of last week, that number has grown to almost 11,000 since launch. we are still seeing 35 to 40 first-time prescribers per day on average and would expect that trend to continue over the course of this quarter as well. As Brian alluded to earlier and as expected, we continue to see an increasing proportion of our prescriber base coming from optometry. Similarly, total prescriptions in Q3 grew about 30 percent over Q2. totaling almost 12,000 for the quarter. We are seeing prescription mix still hover around 60-40 between 30 count and 90 count and are also continuing to see a growing stickiness from refills. Those still early to have a holistic view on patient utilization, the first cohort of patients, those who filled their first prescriptions in September October and November of last year, are averaging about 120 paid days of therapy per start. Importantly, we delivered another key milestone with the rollout of the direct dispense program in the third quarter. As we've previously described, where allowed, practices now have the ability to purchase product directly from us and, in turn, provide up-neat prescriptions directly at the point of care. The early receptivity has been tremendous, and we continue to see this capability as an inflection point in our market build. After a small pilot early last quarter, we began the rollout in earnest during the last two weeks of September, and as of the end of Q3, had enrolled more than 400 eye care practices in the program, an overwhelming response in just a couple of weeks' time. Of those initial practice partners, About two-thirds are optometry, a specialty that we see as a meaningful driver of continued growth for the brand. For added context, much of the optometric community is also still excluded from this current model by law. And early next year, we expect to expand this capability to include a virtual option, whereby optometrists can leverage RVL Pharmacy as a dispensing partner while maintaining a virtual inventory with us, similar to how many patients receive contact lenses in this practice setting. Obviously, we are thrilled by the overall adoption and early utilization by so many of our ECP partners, and moving forward, remain focused on continuing to reach an expanding group while at the same time working with existing prescribers and practices to help them implement formal process and protocols directed at systematically screening for ptosis and assessing lid position as a daily routine. Beyond the numbers, we have also seen an increased level of interest at recent scientific meetings with multiple posters, case studies, and educational events around ptosis and APNIC, indicative of the profound impact APNIC is having within the eye care community and the more than 25,000 patient starts since launch. All of our efforts through the first year have us poised to accelerate the build in eye care and imminently in aesthetics. With regards to aesthetics, we are quickly building another best-in-class business unit as we have recently onboarded the entire sales leadership team, representing an incredible breadth and depth of experience. Over 95 years of direct aesthetic experience from some of the most well-respected organizations in the industry. Over the next eight weeks, we intend to complete the build-out of our approximately 50-person sales team, many of whom have already accepted an offer to start. Moreover, we have been deepening our engagement level with a growing group of influential clinicians across the core and non-core specialties. Their shared enthusiasm combined with their insights and feedback helping to sharpen our launch strategy has us well positioned to execute on this expanded launch. Experientially this quarter and towards the end of January with the entire sales team onboarded and trained. As we look ahead, the continued expansion of our direct dispense capability, both as is and with the introduction of a virtual component, combined with the expanded share of voice from our aesthetic launch, are expected to further accelerate growth and expand market penetration. In closing, with the full weight of our organization behind UpNIC, a strong foundation from our early launch in place, we are excited to expand the market build and continue to deliver on the incredible opportunity in front of us. With that, I'll turn the call back to Brian.
spk07: Thanks, J.D. Thanks, Andy. So, operator, with that, that concludes our prepared remarks, and we'll turn it over to you for Q&A.
spk05: Ladies and gentlemen, if you have a question at this time, please press star, then the number one key on your touch-tone telephone. Again, that is star one. We'll pause for just a moment to compile the Q&A roster. Your first question is from David Steinberg from Jefferies. Your light is open.
spk07: David, are you on the line? Yes, can you hear me? Yep, now we can hear you.
spk03: Okay, sorry. I'm many time zones away. So now that the product's been out there for a number of quarters of NIC, that is, could you talk about, and you mentioned, J.D., that you're seeing some refills. Do you have a better sense of how many prescriptions per year a patient might a patient might use. And secondly, with regard to price, you have a three-month supply and a one-month supply. Do you feel like you have the right price, or is it something where there's flexibility to go higher? And then thirdly, with regard to the buy-in bill, can you give us some more granularity on that, how that will work, particularly for cosmetic dermatologists and How much money will they make on it? How much money will you make on it? And, you know, would this be a similar approach to, say, Botox, where they buy in bulk, particularly the high prescribers, and then they market up for their patients? And how much do you think they'll market up by? Thanks.
spk07: All right. So, David, what I'll do is I'll answer the middle question first because that's the easier one, and then I'll turn it over. to JD for number one and three. So with respect to price, we're very comfortable that the price we have out there today is pretty solid, and we also believe we have room to go up as well. And we're exploring that option, you know, real time, and we may take a modest increase in the not-too-distant future. We've had very little to no pushback on pricing.
spk02: And I think your first question, David, was around refills and what we're seeing. You know, look, I think it's something we pay attention to in terms of, you know, the forward-looking value potential beyond just new patient starts. What we have seen, and I alluded to this briefly in prepared remarks, That first cohort of patients, so if you think back to September, October, and November of last year when we were just starting to get underway, who have now had, looking back, 12 months since that first prescription was filled, on average, that group of patients has paid for about 120 days of therapy per start. So I think that's sort of the working assumption that we're using right now. We look at it every month, both just to get a sense for the average patient as we move forward over a 12-month period, but similarly, I think the lifetime value of a patient becomes a really important metric as we get out more than another few quarters as well. And then I think you're The third question was around a little bit more granular on the buy and bill and pricing. So, look, I think specific to the aesthetic channel, that will be the commercialization foundation. The entire model for the aesthetic launch will be buy and build, direct dispense, partnerships with the practice, I think the importance of the virtual model there in key states like New York and Texas are really important as well. And from a margin standpoint, I think we're going to be right in line with a lot of products that these clinicians are already using, both from an in-office treatment standpoint but also from a retail medicine standpoint, be it high-end skin care or even products like Latisse, where, you know, somewhere between 75% and 100% margin, depending upon the volume running through an office. Okay, great.
spk03: Thank you very much.
spk05: Okay, David, thanks. Operator, next question, please. Your next question is from Louise Chen from Cantor. Your line is open.
spk01: Hi, this is Wayne for Louise. Congrats on all the progress this quarter, and thank you for taking our questions. Just a couple from us. The first one is if you could provide us some updates on your Stanton partnership. What is the latest progress in the China, Japan, and EMEA market, and will they only be looking at therapeutics, or they will look into aesthetics as well? And then maybe another housekeeping question is if you could tell us a little bit about how we should think about the operating expense for the remainder of this year and maybe into 2022. Thank you.
spk07: Okay, great. So Santan is marching along with their commitment to develop and commercialize APNIC. We know they were down at the recent ICARE meeting in New Orleans talking to some of our KOLs, They're preparing a regulatory discussion for the EU. They've had a great meeting with the Japanese regulatory authorities and have actually a more simplified phase three primary endpoint than we did. They only have to look at MRD1 and its improvement over baseline versus placebo. Whereas in the U.S., we had the Lester peripheral field test as our primary and MRD1 as our secondary. So They are also moving aggressively into other territories, possibly Korea, Vietnam. So they're full speed ahead, great partnership thus far, and they've been very thoughtful in putting together their development plans and getting really good input from KOLs with experience. J.D., I don't know if you want to add to that at all.
spk02: No, I think all I would add, Wayne, is I think We, with San10, view this as a global brand. And by that I mean I think their intention is both foundational as a first-in-class treatment in eye care, but also along the more mild end of the ptosis spectrum as an aesthetic treatment as well. And so we're excited to work with them to see that through both regulatory and clinical development in those markets, but also support their efforts from our learnings and experience here in the U.S. so that they can position themselves for success abroad.
spk06: Wayne, I'll take the second question, which talks about the OPEX for the remainder of the year, basically the fourth quarter. And we would see that coming out at just a slightly lower level than what we saw in the third quarter. I think in our disclosures and in my remarks, I mentioned a couple of one-timers. At the same time, we are ramping up the field force and getting ready to launch So you have puts and takes in that direction. But I think, you know, I think that's basically what you should expect for the balance of the year.
spk07: And then, Wayne, if you go to the investor website for Santan and their R&D section, you can see the ptosis indication and how they've listed up neat there. where they've started preparation for filing in Asia. So pretty far along with those guys. Got it. Thank you so much. Okay, thanks, Wayne.
spk05: Operator, next question. And as a reminder, if you wish to queue up for a question, that is star, then the number one on your telephone keypad. Again, that is star one. Your next question is from Greg Fraser from Truva Securities. Your line is open. Good afternoon, folks.
spk04: Thanks for taking the questions, and congrats on the progress. Yeah, Greg, go ahead. Yep. So on the Salesforce expansion, can you speak to the background of the folks that you're interviewing and how much prior experience and mistakes that you're looking for? It sounds like the leadership team is very experienced, but curious to hear about the reps.
spk02: Yep.
spk07: By the way, that's a great question.
spk02: Yeah. Look, I think we've gone into this with a very specific profile. in terms of B2B experience. I think obviously, you know, aesthetic experience, direct aesthetic experience is a plus. And what I would tell you through the first handful plus or couple handfuls of territories where we've got an offer letter signed, we're seeing an incredible amount of aesthetic experience. And not just years on paper, but successful aesthetic experience. And I think we're drawing from a number of different players in the aesthetic industry. And really, you know, look, I think it's one of the things that continues to excite us about what we're building here is our ability to attract that type of talent. And I would expect... a larger number of that team to have recent direct aesthetic experience, whether it's from some of the injectable companies or some of the high-end skin care companies that employ B2B business models with these practices as well. Got it. That's very helpful.
spk04: I'm not sure if I missed this, JD, but did you comment on prescription demand so far in the fourth quarter?
spk07: We have not commented yet on the fourth quarter. But, you know, what I can tell you is we are seeing meaningful growth already over the prior quarter. So we're pretty excited about that. But we're tempering our enthusiasm. You know, we've got a lot of holiday time coming up. So we will see growth for sure. Just need to see how high is up.
spk02: Yeah, I think the helpful context for you, Greg, would be, you know, this growth in prescriptions is also occurring against the backdrop of an expanding group of writers who are now opting to purchase from us directly and dispense out of their office. So I think, look, as we go through the next couple of quarters, there's going to continue to be a shift from prescriptions traditionally through the pharmacy to prescription demand being generated directly at the point of care with our offices. And early on, you know, given what I think we've seen from the first 400 plus accounts and the impact to what would have been prescribing behavior, to see continued growth here through the first four or five weeks of the fourth quarter into the pharmacy is really, really encouraging about just underlying momentum.
spk04: Got it. Okay. Then just a couple of questions for Andy, and following up on the expense question, has your view on operating expenses for 2022 changed from the range that you laid out a couple of months ago? And then where do you expect gross margin to reach over time as up-need volumes grow?
spk06: Sure, Greg. Generally, our view on operating expenses for 2022 have not changed. That said, as I mentioned in my remarks, now that the divestiture of legacy is behind us, that does provide us an opportunity to really critically review our spending in non-promotional areas to see where we can be more efficient and to see where we can devote more of the spend to the commercialization of UpNIC and really drive growth there. So those are projects, plural, that we're undertaking now and will continue to undertake to see where we can drive spending efficiency. And then in terms of the gross margin, yeah, as volume increases on APNIC, of course, there are more of the fixed costs that do get absorbed. Where we see gross margins heading is probably more towards the mid-'70s, from where it is today, which I think is 50%.
spk04: Thank you.
spk05: And I'm showing no further question at this time. I would like to turn the call back to CEO, Mr. Brian Markison, for any additional or closing comments.
spk07: Operator, thank you, and thanks, everybody, for joining us today. We're thrilled with the progress that we have made and are making with APNIC. We're really at the beginning of this journey. It's exciting, and we are looking forward to continue to grow this story and partner with the eye care and aesthetic community. Thank you all.
spk05: Ladies and gentlemen, this does conclude today's conference. Thank you for your participation, and have a great day.
Disclaimer