SWK Holdings Corporation

Good day and welcome to the SWK Holdings, Inc. Third Quarter 2021 Financial Results Conference Call. All participants will be in 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 and then one on your telephone keypad. To withdraw your question, please press star then 2. Please note this event is being recorded. I would now like to turn the conference over to Jason Rando from TBRN Strategic Advisors. Please go ahead.

Good morning, everyone, and thank you for joining SWK Holdings' third quarter 2021 financial and corporate results call. After the close of the market on November 12th, SWK Holdings issued a press release detailing its financial results for the three months ended September 30th, 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 certain forward-looking statements about future expectations, plans, events, and circumstances including statements about our strategy, future operations, and 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 our 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 filed 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 Winston Black, Chairman and CEO of SWK Holdings, who will provide an update on SWK's third quarter 2021 corporate and financial results. Winston, go ahead.

Thank you, Jason, and everyone for joining our third quarter conference call. The SIPK Holdings business strategy is focused on providing non-dilutive financing opportunities to small and mid-sized life science companies with differentiated commercial stage products. This has been our mission from inception to today, producing solid returns for our company and shareholders during that time. It is an uncomplicated business and one that, when executed with discipline and care, works well because the small to mid-sized companies fueling innovation in the life sciences industry invariably require access to capital to bring the resulting therapies, products, and technologies to market. We have been successful at finding those opportunities where our financing products provide the right capital infusion at the right time, empowering companies to unlock the value of their technologies, and in turn, enable SWK to realize a positive return on our investment. Since 2012, the SWK team has successfully deployed approximately $600 million of capital into 42 investments, with 23 realizations that generated an IRR of 20%. Earlier this year, in partnership with our largest shareholder, SWK formed a Strategic Review Committee to identify, review, and explore strategic alternatives for SWK with a view to maximizing stockholder value. As we announced earlier this month, the committee and its financial and legal advisors completed its review and determined that our specialty finance business, as just described, is a very good business, ideally suited to drive the company's future growth and shareholder value going forward. Board's decision was informed by our own internal evaluation of the company's assets, as well as by an independent third-party evaluation that supported our belief that SWDA's core specialty finance assets have value in excess of our gap-carrying value. Illustrated of this analysis is the third quarter performance of the specialty finance portfolio. It produced an 18.8 realized yield with strong underlying credit trends, despite the overhang of the review process. As you can appreciate, the review's outcome and the team's ability to deliver these results is very gratifying, and for our shareholders, a clear sign that what we are doing works. With the strategic review now completed, SABK is squarely focused on our specialty finance business segment, Though we temporarily paused New Deal originations during the strategic review process, we have continued to closely monitor life science investment environment and expect New Deal originations to return to their historic levels over the next few quarters and foresee multiple opportunities to deploy capital. We will be pursuing opportunities from a position of financial strength with our current liquidity profile of roughly $80 million of cash and revolver availability, further adding to our liquidity muscle. SFPK's Board of Directors has committed to prudently increase leverage as we scale the business to help improve capital allocation and improve returns for stockholders. We now anticipate restoring normalized deployment levels during 2022. The third quarter and recent weeks also marked the continued progress of our subsidiary in Terrace Biopharma, highlighted by advances in the clinical program for one of its internal 505 products and the signing of one more of more Pepteligence feasibility studies. The peptologins and proprimate technologies developed by Antares enable the oral delivery of peptides in BCS class 234 small molecules, respectively. These drugs are typically administered via injections due to poor bioavailability or permeability. The ability to develop safe and effective oral formulations is a game changer that could enhance the commercial markets for myriad drug candidates, reshaping therapeutic categories and treatment paradigms, and provide improved treatment options for patients. Last month, Interis announced the successful completion of a Phase I clinical trial of optimized Peptelgen Scanda oral Luperlide, demonstrating delivery of drug levels comparable or greater to subcutaneous or depo injection. Interis is advancing the program to the next round of clinical development. We will provide additional details when warranted as the program advances. Meanwhile, Interis CEO Rajiv Khosla and his team continue to execute a dual-arm growth strategy to maximize the value of the company's Peptelgen and ProPerma technologies It's a new manufacturing and CDMO business. So far this year, Interis has signed six Pepteligence feasibility studies in which Interis partners with a peptide therapeutics developer to engineer their drug for oral delivery. The goal of this process is to advance the development of the oral peptide to where Interis and the prospective company enter a license agreement for the newly developed oral product. An example of this strategy in action is Care Therapeutics and its Oral Cursiva product, which is developed using Enteris' peptalogen technology across multiple patient populations. Oral Kusuba is now subject to four separate clinical programs, and CARA expects to initiate phase three programs for the treatment of moderate to severe pruritus, both atopic dermatitis and non-dialysis-dependent chronic kidney disease patients during the first quarter of 2022. During the past 12 months, Enteris has received three milestone payments related to Oral Kusuba program. More milestones are anticipated in the quarters to come. Turning to our finances, As of September 30th, 2021, SWEK's portfolio of royalties and structured credit backed by royalties totaled approximately $206.2 million across 26 partners, which compares favorably to $187.1 million for the year-ago period. During the quarter, SWEK did not deploy any capital with existing companies. On June 30th of this year, SWEK did close the $9.5 million financing with Trio Healthcare Limited, with $5.1 million funded at closing. During the quarter ended September 30th, 2021, the company collected $7.1 million of principal payments, and more recently, we collected $31.6 million in facility repayment proceeds from Masonics' $518 million acquisition by BioVentus. We also received $1.9 million in cash and 71,361 shares of BioVentus common stock. The gain on the transaction will be recognized in the fourth quarter. As of November 8th, 2021, SWK had $6.4 million of unfunded commitments. SWK reported a book value per share of $20.36 as of September 30, 2021, which includes a $0.05 per share of negative impact from the amortization of interest intangibles and $0.08 per share of negative impact from legal and financial consulting expenses associated with our strategic review. This compares favorably to $18.44 as of September 30, 2020. Tangible financing book value per share, which excludes the deferred tax asset and tangible assets, goodwill, and contingent consideration payable, totaled $17.50 a share, a 12.7% increase over $15.52 per share from the same period last year. Management views tangible financing book value per share as a relevant metric to value the company's core specialty finance business. For the third quarter of 2021, SVK reported total revenue of $9.6 million compared to $10.6 million for the third quarter of 2020. The decrease in revenue is primarily due to a $2.6 million decrease in revenues on our pharmaceutical development segment due to a milestone payment from CARE in the third quarter of 2020. This is partially offset by a $1.5 million increase in interest and fees earned on our finance receivables. Gap-bent income for the third quarter ended September 30, 2021, totaled $2.2 million, or $0.17 per diluted share, compared to 4.3 million or 34 cents per dilute share for the third quarter of 2020. For the third quarter of 2021, non-GAAP adjusted net income was 4.3 million compared to 6.7 million for the third quarter of 2020. Lastly, for the third quarter of 2021, non-GAAP net income generated by the specialty finance business totaled 7.7 million as compared to 6.6 million for the prior period. SWK remains well positioned to harness our expertise to deploy capital for compelling value-adding investment opportunities. The prudent addition of leverage will, we believe, optimize SWK's capital structure. Further going forward, SWK will evaluate other measures to improve shareholder returns, including a dividend policy. As for interest, Rajiv and his team continue to work on partnership agreements in advancing its 505 pipeline. In conclusion, The 2021 fiscal year has so far continued what has been a period of consistent performance for SWK. All this is made possible by the diligent efforts of the SWK Holdings team. I once again like to thank our employees for their dedication and loyalty and our stakeholders for their continued support as we evolve our model and grow SWK. With that, I will now open the call to your questions.