SWK Holdings Corporation

Good morning and welcome to the SWK Holdings first quarter 2021 financial results conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note, this event is being recorded. I would now like to turn the conference over to Jason Randow with T. Buran Strategic Advisors. Please go ahead.

Good morning, everyone, and thank you for joining SWK Holdings' first quarter 2021 financial and corporate results call. Yesterday evening, SWK Holdings issued a press release detailing its financial results for the three months ended March 31st, 2021. The press release can be found in the investor relations section of swkhold.com under news releases. Before beginning today's call, I would like to make the following statement regarding forward-looking statements. Today, we'll be making forward-looking statements about future expectations, plans, events, and circumstances including statements about our strategy, future operations, and the development of our consumer and drug product candidates, plans for future potential product candidates, and studies and our expectations regarding our capital allocation and cash resources. These statements are based on current expectations and you should not place undue reliance on these statements. Actual results may differ materially due to our risks and uncertainties, including those detailed in the risk factors section of SWK Holdings 10-K file with the SEC and other filings we make with the SEC from time to time. SWK Holdings disclaims any obligation to update information contained in these forward-looking statements, whether as a result of new information, future events, or otherwise. Joining me on today's call is Wynton Black, Chairman and CEO of SWK Holdings, who will provide an update on SWK's first quarter 2021 corporate and financial results. Wynton, go ahead.

Thank you, Jason, and everyone for joining our first quarter conference call. The first quarter of 2021 continued what has been a sustained period of strong operating performance for SWK, highlighted by the 16.7% realized yield in our finance receivables segment and continued strong credit trends. We've been able to attain consistent quarter-by-quarter and year-over-year returns due to our focus on investing in small and mid-sized life science companies with differentiated, patent-protected commercial stage products. This business model has proven highly effective for us at SurveyKey for two reasons. There continues to be substantial innovation in healthcare, and this innovation requires capital to bring resulting technologies to market. As a result, there is ample opportunity to leverage our expertise in financial offerings to support these growing companies, which yields benefits to the borrower and positive returns for SWK shareholders. Illustrated of our opportunity, were the last two financings made thus far in 2021. In March, we closed a $9 million loan with Sinceris Pharmaceuticals, a 5x3B compounding pharmacy focused on dermatology customers. And in April, we completed a $5 million synthetic royalty transaction with Ideal Implant, a medical device company focused on the aesthetic space. Looking ahead through the rest of 2021, we believe industry dynamics will remain favorable to our business strategy. and that SVPK remains well-positioned to capitalize on these dynamics as we continue to identify compelling investment opportunities. Currently, we have approximately $30 million in cash and revolver availability to support our partner companies and capitalize on potential investment opportunities. The first quarter also witnessed an important milestone with our subsidiary and terrorist biopharma. Interis announced the completion of the expansion of this manufacturing facility, the launch of its contract development and manufacturing business segment. When we first considered acquiring Interis, we viewed the company's manufacturing capabilities as a significant but under-realized growth driver, with a key opportunity being a build-out of its manufacturing operations to accommodate later stage clinical trial and commercialization needs. With the expansion complete, we Interis now boasts a 32,000-square-foot facility that includes 6,000 square feet of clean room space with approximately 2,500 square feet dedicated to the containment and processing of high-potency API. As a result, Interis has the manufacturing capability to produce clinical trial material through Phase III, as well as products for commercial launch. Moreover, the simultaneous launch of its CDMO business enables Interis to offer custom solutions for the formulation, development, and manufacturing of solid-order dose forms. are difficult to formulate BCS3 and 4 compounds, including peptides and highly potent compounds. These enhanced manufacturing capabilities should enable Interis to deepen its existing manufacturing relationships and bolster its ability to secure new high-value relationships with companies seeking CDMO capabilities in the U.S., regardless of whether the product is a solid oral formulation using the company's proprietary oral formulation technologies, Peptelogen and Propera, or other tablet technologies. It should also be noted that Interis delivered on its construction timetable amid the COVID-19 pandemic. No easy feat, and one that deserves to be congratulated. In addition, its manufacturing business CEO, Rajiv Kultham, continues to execute a dual-arm growth strategy to maximize the potential of Interis' PubTelligence and ProPerma technologies through external partnerships and advancing its own internal development pipeline. In that regard, we expect Interis to execute additional feasibility agreements over the coming quarters with one already secured in 2021. Additionally, Antares has initiated a clinical program for one of its internal 505 products. Turning to our finances, as of March 31st, 2021, SWK's portfolio of royalties and structured credit backed by royalties totaled approximately $219 million across 26 partners. That compares favorably with $212.4 million as of December 31st, 2020, and $181 million as of March 31st, During the first quarter of 2021, as we previously discussed, SOBK deployed 7.1 million to Sinceris Pharmaceuticals. On March 31st, 2021, the weighted average projected effective yield of the financial portfolio was 13.8%, including non-accrual positions, versus 13.4% as of the end of the first quarter of the previous year. SMAK reported a book value per share of $19.07 as of March 31, 2021, which also included a $12.5 per share negative impact from the amortization of interest intangibles and a $0.09 per share positive impact from mark-to-market changes on our warrant and equity security portfolio. This compares to $17.96 as of March 31, 2020. Tangible financing book value per share, which excludes the deferred tax asset and tangible assets goodwill in contingent consideration payable, sold $16.31 per share compared to $14.75 per share the prior year. Matter of view is the tangible financing book value per share is a relevant metric to value the company's core specialty finance business. For the first quarter of 2021, SVK reported total revenue of $9.4 million compared to $7.3 million for the first quarter of 2020. Revenue primarily consisted of interest and fees earned on our finance receivables and royalty payments generated by portfolio companies. The increase in revenue is primarily due to higher finance receivables and interest income. Income before taxes for the first quarter of 2021 totaled $4.3 million compared to a $3.4 million loss for the same period of the previous year. The year-over-years The year-over-year $7.7 million increase is primarily driven by a half-million increase in revenue from our pharmaceutical development segment, a $0.1 million reduction in general administrative expenses, a $2.2 million unrealized gain on our derivatives, a $1.8 million unrealized gain on equity investments, a $400,000 decrease in deferred taxes, and a $1.8 million decrease in amortization expenses related to interest and tangible assets. The gap net income for the first quarter ended March 31, 2021, totaled $3.4 million, or $0.26 per diluted share, compared to a loss of $4.7 million, or $0.36 per diluted share, for the first quarter of 2020. For the first quarter of 2021, adjusted net income was $4.7 million, compared to $2.8 million for the first quarter of 2020. In addition, for the first quarter, non-GAAP net income generated by the specialty finance business totaled $6.8 million, which compares to $4.9 million for the prior year's period. Our specialty finance business continues to perform well, and we're working hard to identify new transactions that leverage our areas of expertise and a growing need amongst small and mid-sized life science companies to access the capital for future growth. Lastly, yesterday we announced that we added Marcus Pennington to our board of directors and that Carlson Capital withdrew its offer to acquire the specialty finance portfolio as a role of the conclusion of the special committee process to evaluate the Carlson offer. I welcome Marcus to our board and look forward to working with him and the new strategic review committee of our board that will be focused on exploring strategic alternatives for the company with a view toward maximizing stockholder value. In conclusion, the First quarter of 2021 continued with a sustained period of growth for SWEK. All this would be possible by the diligent efforts of the entire SWEK Holdings team. I once again like to thank our employees for their dedication and loyalty and our stakeholders for your continued support as we evolve and grow SWEK Holdings. With that, I will now open the call to your questions.