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Eagle Pharmaceuticals Inc (NASDAQ:EGRX)
Q3 2019 Earnings Call
Nov 12, 2019, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, and welcome to today's program. My name is Keith and I'll be your conference operator. At this time, I'd like to welcome everyone to Eagle Pharmaceuticals' Third Quarter 2019 Earnings Results Conference Call. [Operator Instructions]. As a reminder, this conference call is being recorded today, November 12, 2019. It is now my pleasure to turn the floor over to Ms. Lisa Wilson, Investor Relations for Eagle Pharmaceuticals. Please go ahead.

Lisa Wilson -- Investor Relations

Thank you, Keith. Welcome to Eagle Pharmaceuticals third quarter 2019 earnings call. This is Lisa Wilson, Investor Relations for Eagle Pharmaceuticals. With me on today's call are Eagle's Chief Executive Officer, Scott Tarriff; and Chief Financial Officer, Pete Meyers. This morning, the company issued a press release, detailing financial results for the three months ended September 30, 2019. This press release and a webcast of this call can be accessed through the Investors section of the Eagle website, at eagleus.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 Eagle Pharmaceutical's management as of today and involve risks and uncertainties, including those noted in this morning'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. Eagle specifically disclaims any intent or obligation to update these forward-looking statements, except as required by law. A telephone replay will be available shortly after completion of this call. You'll find the dial-in information in today's press release. The archived webcast will be available for one-year on our website, at eagleus.com.

For the benefit of those who may be listening to the replay or archived webcast, this call was held and recorded on November 12, 2019. Since then, Eagle 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 Eagle's CEO, Scott Tarriff.

Scott Tarriff -- Founder, Chief Executive Officer, Director

Thank you, Lisa, and good morning, everyone. If I cough my way through the morning, I apologize in advance to all of you. We sure have had a busy last few months and let me start off by saying that we continued making significant investments in our pipeline this quarter and we have been doing now for the last several quarters.

In Q3, we invested $12 million or $0.77 per share, which includes R&D and external legal expense to advance our pipeline. $8 million of that was for vasopressin, PEMFEXY, and exertional heat stroke for which frankly we believe we are not currently getting appropriate credit from our investors.

Importantly, as announced earlier, we believe that we are beginning to see positive results from these investments. This is demonstrated by our news release today regarding exertional heat stroke or EHS, the treatment of brain damage secondary to nerve agent exposure, the planned initiation of our next clinical study of fulvestrant in the next few weeks and their ongoing optimism about PEMFEXY.

We believe these late-stage products could provide significant upside for the company going forward. We are confident that the money was well spent and ultimately, we expect to unlock the intrinsic value of this pipeline.

Now, turning first to the progress with our RYANODEX portfolio, which we are very pleased about. I'll start with EHS. As you may recall, we are investigating RYANODEX, with a treatment of EHS in addition to the current standard of care, which is comprised of body cooling and supportive measures. There is no currently approved drug product for the treatment of this serious and often fatal condition.

Over the course of the development program, we had met with FDA multiple times to determine the appropriate steps to address the complete response letter we received back in 2017. As noted in our press release this morning and as a result of our dialogue with FDA, we conducted an additional controlled clinical study of EHS patients during the 2019 Hajj pilgrimage that took place earlier this year from August 9 through 14 in Saudi Arabia to continue evaluating RYANODEX. We enrolled an additional 10 exertional heat stroke patients bringing the total number of patients recruited in 2015, 2018, and 2019 now up to 41. We have submitted a plan to FDA that proposes reviewing the data collectively for all 41 patients. If the FDA agrees with this plan, we intend to resubmit the NDA for EHS and will provide a further update when we have one to share.

We're also very pleased with the clarity we now have around RYANODEX for the treatment of brain damage secondary to nerve agent exposure following our recent dialogue with FDA as well. After the positive results of our JALP study in Rodents, FDA has recommended that as stated in the animal rule, we should conduct an additional animal study in the second species.

We plan to work with FDA expeditiously to come to agreement on this second species and the final design of the study. We expect to file the supplement to our current NDA in second half of next year. Our development plans to evaluate RYANODEX for the treatment of acute radiation syndrome are also on track. And we continue to make progress in developing EA-111 or our Ryanodine receptor antagonist new chemical entity to be administered as in IM formulation.

Although our current product is a low volume IV push, we believe that we will create significant advantages in certain situations by having an IM formulation, which would protect our military and civilians alike.

In conclusion, as it relates to RYANODEX, we remain hopeful that in the near term we will expand the products label to include heat stroke brain damage secondary to nerve agent exposure and acute radiation syndrome. And as discussed previously, we are likely to announce two additional indications that we would like to pursue in the near future.

Let me now turn to our oncology pipeline, which we are also very excited about. We are delighted that our Japanese licensing partner SymBio Pharmaceuticals announced the filing of its NDA ready-to-dilute bendamustine back in September. Approval is expected in 2020, next year already, at which time we are entitled to a $5 million milestone payment.

SymBio plans to launch in the first quarter of 2021, once approved. Based on the step up in the royalty rate in cumulative sales, we're first launching the 500 ml bag and then the 50 ml bag, we expect that our royalty in milestones could reach $10 million to $25 million per year. We are pleased that we have been able to continue to successfully monetize this important asset by licensing bendamustine in Japan.

Now, turning to fulvestrant. Our program looks highly promising. The data from an extensive 600 subject clinical trial suggest that our product may allow for significant areas of improvement over currently available breast cancer therapies. Let me walk you through why we believe we may have a more efficacious product.

The mechanism of action of fulvestrant hinges on its ability to bind and block estrogen receptors in patient's breast cancer cell. Effectively these tumors that grow in the presence of estrogen, about 75% of breast cancers are estrogen receptor positive. Our novel delivery technology may enhance the blockade of the estrogen receptor. In other words, blocking off the proliferative estrogenic activity that strengthens the tumor. We expect to dose the first subject in our pilot study in December. Study results will help inform our future pivotal study, which we intend to conduct in post-menopausal estrogen receptor positive cancer patients. Specifically, this trial will aim to determine if Eagles' unique fulvestrant product will result in greater addition of estrogen receptors, and better patient outcomes compared to the currently available treatment options. Our expectation is that we could deal the market in the first half of 2022.

Let me now turn to another important oncology asset, bendamustine. This continues to be a highly successful franchise for us providing a long-term royalty revenue stream likely beyond 2025. Importantly, on October 1, our BENDEKA royalty increased from 25% to 30%. This increase in royalty rate offset the current price compression and should positively impact our top and bottom lines going forward.

The royalty rate will continue to increase by 1 percentage point each year on October 1 until it caps a 32% in 2021. Treanda Generics are not expected for another three years. Finally, regarding PEMFEXY, we had four days of trial and we believe it went well. There is a break in the trial now until December 12. As of today, we expect that we will find significant value in the asset.

Turning now to vasopressin, we remain optimistic about our generic filing on Endo's injectable vasopressin product, vasostrict. Eagle is the first paragraph for filing on this product. The trial is scheduled to begin this upcoming May of 2020 already. We feel good about our position and could launch as soon as next October.

We review this as a very attractive market opportunity since vasostrict currently generates around $500 million in annual net sales. We therefore believe that our investment in our vasopressin product will add significant value. We hope to have more tangible news to share in each of these projects in the very near term.

Let me conclude by saying that we are very proud of the progress we have made on our near-term pipeline. We have always prioritized investing our cash flow back into the company to fund the research that we believe will lead to best-in-class oncology and critical care products to improve the outcomes of underserved patient populations.

And with that, I'll turn the call over to Pete, to discuss our third quarter financial results. Pete?

Pete A. Meyers -- Chief Financial Officer, Principal Financial Officer, Principal Accounting Officer

Thank you, Scott. In the third quarter of 2019, total revenue was $41.1 million, compared to $51.3 million in Q3 of 2018. Product sales during the third quarter decreased by $1.5 million year-over-year totaling $14.7 million, compared to $16.2 million in Q3 2018, primarily driven by a $4.6 million decrease in BELRAPZO sales, a $0.9 million decrease in RYANODEX sales, and the discontinuation of nonalcohol docetaxel injection in September 2018.

Those decreases were partially offset by an increase in product sales of BENDEKA of $4.2 million. BELRAPZO product sales were $3.4 million in the third quarter, compared to $8 million in Q3 of 2018. Eagle recognizes BELRAPZO revenue on shipments by Eagle to wholesalers.

As anticipated, third quarter BELRAPZO revenue was down sequentially as a result of the 2Q wholesalers stocking associated with the cut over to the brand name in June. Based on IMS data, Eagle's market share of bendamustine wholesaler shipments to end-users was 5% of the US bendamustine market in the third quarter.

Third quarter RYANODEX product sales were $2.6 million, compared to $3.5 million in Q3 of 2018. RYANODEX market share in the third quarter was 33% in normalized unit terms and 55% share of dollars. Orders for RYANODEX are driven primarily by the expiry cycle with very few customers requiring dantrolene unless their stock is expiring.

We anticipate that the fourth quarter will also be low on expiry with an expected uptick in 2020. Q3 royalty revenue was $46.5 million [Phonetic], compared to $35.2 million in the prior year quarter. BENDEKA royalties were $26.2 million compared to $33.8 million in the third quarter of 2018. Q3 BENDEKA royalty revenue was negatively impacted by pricing trends. As we discussed in our prior earnings call, IMS data suggest that since Eagles launch of BELRAPZO in the second quarter of 2018, BENDEKA's GTN is compressed by approximately 10 points. At a 25% royalty rate, 10 points in GTN translates into approximately $60 per vial in incremental Eagle EBITDA.

However, as you know, beginning on October 1, 2019, Eagles' royalty rate on BENDEKA increased from 25% to 30%. Five points of royalty rate translates into approximately $70 per vial in incremental Eagle EBITDA. In 2019, we expect BELRAPZO sales to increase year-over-year and RYANODEX sales to be down year-over-year, due to the expiry cycle.

Gross margin was 64% during the third quarter of 2019, as compared to 75% in the third quarter of 2018. The compression in gross margin in the third quarter of 2019 was driven by an increase in BENDEKA product sales to our marketing partner on which Eagle are into no profit, and the decrease in BENDEKA royalty revenue.

On the expense front, R&D expenses were $10.2 million for the third quarter compared to $6 million in the prior year quarter. The year-over-year increase is largely attributable to vasopressin and fulvestrant. Excluding stock-based compensation and other non-cash and non-recurring items, R&D expense during the third quarter was $9 million.

As Scott mentioned upfront, in Q3, we invested $12 million to advance our pipeline. $9 million in non-GAAP research and development expense, plus legal expenses of $3.3 million on vasopressin and pemetrexed. We are reiterating expense guidance with expected 2019 R&D spend on a non-GAAP basis of $32 million to $36 million, as compared to $38 million in 2018.

Lower fulvestrant spend in the 2019 budget accounts for the expected decrease in year-over-year expenses. Offset in-part by spending on vasopressin and PEMFEXY to bring those products to market and EA-111 CMC scale up and IND enabling toxicology costs. SG&A expenses in the third quarter of 2019 increased to $18.5 million, compared to $13.9 million in the third quarter of 2018. External legal expenses associated with litigation of PEMFEXY and vasopressin and higher stock compensation expense account for the year-over-year increase. Excluding stock-based compensation and other non-cash and non-recurring items, third quarter 2019 SG&A expense was $13.4 million. We are reiterating expense guidance with expected 2019 SG&A spend on a non-GAAP basis of $51 million to $54 million, as compared to $43 million in 2018.

The year-over-year increase is largely attributable to increased levels of external legal expense, as well as higher sales and marketing payroll. Net loss for the third quarter was $2.4 million or $0.17 per basic and diluted share, compared to net income of $14 million or $0.94 per basic and $0.91 per diluted share in the prior year period due to the factors discussed above.

Adjusted non-GAAP net income for the third quarter of 2019 was $3.7 million or $0.27 per basic and $0.26 per diluted share, compared to adjusted non-GAAP net income of $18.3 million, or $1.22 per basic and $1.18 per diluted share in the prior year quarter. For a full reconciliation of non-GAAP net income to the most comparable GAAP financial metrics, please see the tables at the end of our press release.

Our EBITDA for the third quarter of 2019 was $4 million, compared to $23.9 million in the prior year quarter. For the first nine months of 2019, EBITDA was $38.3 million, compared to $49.3 million in the first nine months of 2018.

For the first nine months of 2019, cash flow from operations, excluding shifts in receivables was $37.5 million, compared to $38.9 million in the first nine months of 2018. For the 12-months ended September 30, 2019, EBITDA was $60.4 million. Cash flow from operations, excluding shifts in receivables was $63.7 million.

Last week, we executed and amended extend on our senior secured credit facility. Our prior facility consisted of a $40 million term loan, plus a $50 million revolver, which had remained undrawn. The amended facility consists of a $40 million term loan, plus $110 million revolver. The pricing remains unchanged at LIBOR plus 225 [Phonetic] on a joint component. And in exchange for removing the senior secured net leverage covenant, the maximum total net leverage covenant decreased slightly from 3.5 times to 3.25 times.

As of September 30, 2019, the company had $117.2 million in cash and cash equivalents and $44.8 million in net accounts receivable, $34.4 million of which was due from Teva. The company had $40 million in outstanding debt. Therefore, as of September 30, 2019, the company had net cash plus receivables of $122 million. We did not buy back any stock in the quarter. With that, operator, please go ahead and open the line for questions.

Questions and Answers:

Operator

[Operator Instructions]. We'll take our first question from David Amsellem with Piper Jaffray. Please go ahead. Your line is open.

Unidentified Participant

Everyone, this is [Indecipherable] on for David. Thanks for taking my questions. We just had a couple of quick ones on the bendamustine products here. First, what -- we just wanted to sort of pick your brand on your latest thoughts in terms of peak share for BELRAPZO, particularly after Treanda Generics entered the market, and then similarly for BENDEKA. Also, in terms of just what your thoughts are on a share decline once the Treanda Generics enter your market? Thank you.

Scott Tarriff -- Founder, Chief Executive Officer, Director

Yes, thanks. So, when Treanda Generics ultimately enter the market, we're staying with where we have been that we believe that we'll keep the large majority of the care over there of our products largely because of the way the reimbursement works. And so, BENDEKA we believe because of that -- its value to the marketplace will continue to hold the majority of the market share along the way. And there's nothing that we've seen to give us any reason to think that our historical view on what's going to happen three years from now, it's any different than what we've been saying along the way.

Unidentified Participant

Thank you.

Scott Tarriff -- Founder, Chief Executive Officer, Director

Thank you.

Operator

And we'll take our next question from Brandon Folkes with Cantor Fitzgerald. Please go ahead.

Brandon Folkes -- Cantor Fitzgerald -- Analyst

Hi. Thanks for taking my questions. And first, I just wanted to talk about RYANODEX EHS. You mentioned you've got 41 patients now that you're going to go to the agency with, I thought yet 41 patients post the 2018 trip to the Hajj. So, can you just talk about if there are any patients that have been excluded now and if this change in inclusion criteria was agreed with the agency? And then secondly, maybe one for Pete, sorry, just to clarify, on BELRAPZO sales, you said $4.6 million decline was at year-over-year? Thank you.

Scott Tarriff -- Founder, Chief Executive Officer, Director

Hi, Brandon. It's Scott. Let me take the first one. So, we had 31 previously, there's no change. So, we had 31, we added 10 and now we have the 41 patients. And then, Pete, do you want to take the second question?

Pete A. Meyers -- Chief Financial Officer, Principal Financial Officer, Principal Accounting Officer

Yeah, hi Brandon. The BELRAPZO revenue of $3.4 million was as compared to $8 million a year ago.

Brandon Folkes -- Cantor Fitzgerald -- Analyst

And maybe one just, sorry, just to clarify, so, you had it, you think you had 51 dose patients on RYANODEX or total enrolled historically? Thank you.

Scott Tarriff -- Founder, Chief Executive Officer, Director

Yes. No, no, we have -- everything is very consistent. We had 24 coming out of the first time and then seven last year and another 10 this year. So nothing is changed. We've been very consistent. There haven't been anything dropping out. It's just as we've been speaking about.

Brandon Folkes -- Cantor Fitzgerald -- Analyst

Okay, thank you very much.

Operator

And we'll go next to Randall Stanicky with RBC Capital Markets. Please go ahead.

Randall Stanicky -- RBC Capital Markets -- Analyst

Great. Thanks, Scott. First on, if all goes well, do you have a sense of what you would like the pivotal endpoints to look like? And could that include any other head-to-head or comparable data to the brand FASLODEX? And then what is it with respect to your formulation that provides improved estrogen blocking? In other words, specifically, what I'm asking is, why wouldn't another company pursuing a 505(b)(2) fulvestrant also not able to show some improved or differentiated estrogen blocking? And then I have a follow up.

Scott Tarriff -- Founder, Chief Executive Officer, Director

Yes, good questions. So, the endpoint of the study will ultimately be to show that we're actually blocking more estrogen or less estrogen will be produced. That is the one of the primary functions of how we're going to approach things. In terms of potential competitors, I would tell you is that, we have a unique technology that we are using. And we believe we have proprietary capability that is unique to our particular formulation that allows this to all happen.

Randall Stanicky -- RBC Capital Markets -- Analyst

And when are we going to get detail on the pilot and whether or I guess, timelines around moving forward into the pivotal?

Scott Tarriff -- Founder, Chief Executive Officer, Director

Yes. So, the -- it's all coming into play now. As we mentioned this morning, the pilot study is starting over the next few weeks. In the first half of December, we'll start dosing. And we haven't committed to a date publicly yet when the pivotal study will start. Though, when we map it out, we believe that will have the product approved in the first half of 2022 already. We'll provide more information on the timelines that we have.

The other important point is -- and let me just give you a rough date. So, we see how recruiting goes. We won't know for certain, but I believe that we'll have tangible, meaningful data on the pilot around the April timeframe. And I think, it'll be very informative of what the pivotal will look like. So, I believe come April-ish, we'll know a lot about the future success of this project.

Randall Stanicky -- RBC Capital Markets -- Analyst

Okay. And then my last question, clearly, there's going to be debate around how much value the pipeline can deliver, I mean, that's not new. But when we step back, I mean, you generated cash, I think, you have $117 million in cash on the balance sheet right now. You've got a clean balance sheet. Why not be more aggressive on business development? Evaluations depressed, companies need funding, it just seems to me that the landscape here is prime for you guys to get a little bit more aggressive, either across oncology critical care or somewhere else?

Pete A. Meyers -- Chief Financial Officer, Principal Financial Officer, Principal Accounting Officer

Well, that's another good question Randall. We agree with you. We're very aggressively evaluating a whole host of opportunities. And fortunately for us, the pipeline seems to be coming together really well now, but we're very interested in using our balance sheet and our cash and we spend a lot of time on it. And I believe that, ultimately, we'll make a transaction or multiple transactions to continue to expand our product offering in a financially and strategically wise way. So, let's just stay tuned and see how it goes. But we're very active, at least, in evaluating opportunities for the company.

Randall Stanicky -- RBC Capital Markets -- Analyst

And, Scott, should we think -- my last question, should we think about the platform now being oncology and critical care? And those are the two areas that you guys are most interested in, is that the strategic path here for the next three to five years? Thanks.

Scott Tarriff -- Founder, Chief Executive Officer, Director

Yes, definitely, Randall. As we spoke over the last couple of years to the investor base when asked that, we always said in the past, we'd have to see how the pipeline would unfold. To know are we an ecology company or critical care companies, we sit here today with the conversation we had this morning, we're under the belief that we're going to have significant success in both sides of our business. And so right now, we consider ourselves to be both an oncology and critical care company, and we'll be going forward and we're looking for assets externally to fit both of those legs to the business. And then we'll probably announce additional internal development candidates that fit both sides of the business and we'll continue to round out our business and hopefully grow pretty significantly over time.

Randall Stanicky -- RBC Capital Markets -- Analyst

Okay, great, thanks guys.

Operator

[Operator Instructions] We'll go next to Tim Lugo with William Blair. Please go ahead.

Lachlan Hanbury-Brown -- William Blair -- Analyst

Hi, this is Lachlan for Tim. Thanks for taking my question. I was just wondering if you can sort of ride inside or give us your thoughts on the broader end market? And what do you expect going forward? I know we've seen some weakness this year. Do you expect to see sort of further weakness next year, or is this the current rate? And secondly, in terms of the TREAKISYM, sort of commercialization, what should we be thinking about in terms of the national infrastructure you would need to build out that is successful and you can't proceed with commercialization, and then sort of -- what sort of time point would you be looking to fill that out?

Scott Tarriff -- Founder, Chief Executive Officer, Director

Yes. Thank you. So, let me take the, the infrastructure piece first and turn it over to Pete for bendamustine. But, as I mentioned, we are expecting to bring the product to the market in the first half of 2022. We'll probably need in terms of sales support, somewhere between 70 and 90 people to call on that particular marketplace. The difference for us a little bit will be calling on specifically on colleges. We do that now with our BELRAPZO product. We already have sales reps in that category, so we will need to hire some more people. But we think the opportunity for the sale is well warrants the additional headcount in the sales force, everything else we do here at Eagle, we already have in place.

So, we're not going to need a tremendous additional number of people to launch. This is a company that's prepared to add products to the product offering without significant infrastructure demands on it. So, it'll be rather efficient. And we're also hoping that we have other oncology products in the portfolio by then as well, that could make it even that much more efficient.

So, I'd say, maybe we need, give or take an extra 60 salespeople to run it and some internal people, but nothing out of the ordinary or that can't be supported by the size of the opportunity. Then, Pete, you want to take the.

Pete A. Meyers -- Chief Financial Officer, Principal Financial Officer, Principal Accounting Officer

Yes, thanks for the question, Lachlan. So, on the bendamustine market, the data suggests that the unit's volume was down 4% year-over-year in the third quarter. We'd expect to see a deterioration perhaps another 5% in 2020. The diminution in our royalty revenue was largely attributed to price, not volume. And so, the market is actually hanging in there quite well frankly, in the face of some novel therapies approved in syndications. But candidly, we have seen some substantial price deterioration. And on the pricing of BENDEKA, our data source is the same as yours, Lachlan. Based on IMS, one would deduce that the GTN has come in by about 10 points since we launched our BELRAPZO. And that has obviously significantly affected our royalty in the near-term. So, it's important to note, of course, that the royalty step up we just commenced this quarter largely offset that degradation.

Lachlan Hanbury-Brown -- William Blair -- Analyst

Great, thank you.

Pete A. Meyers -- Chief Financial Officer, Principal Financial Officer, Principal Accounting Officer

And I guess one more point we should make is that this is public information. We've, we have increased the price of our product. The whack has been increased starting October 1, so that will help on the BELRAPZO front, obviously we cannot comment on the pricing of BENDEKA since we have no knowledge.

Lachlan Hanbury-Brown -- William Blair -- Analyst

Thank you.

Operator

Thank you. It does appear we have no further questions, I'll return the floor to Scott Tarriff for closing remarks.

Scott Tarriff -- Founder, Chief Executive Officer, Director

Well, thank you everyone for joining the call and for your ongoing support. We're pleased with our decision to continue investing in our pipeline to drive long-term growth and remain excited about the opportunities ahead and hope to have more information to share with you in the short term. Thank you again.

Operator

[Operator Closing Remarks]

Duration: 33 minutes

Call participants:

Lisa Wilson -- Investor Relations

Scott Tarriff -- Founder, Chief Executive Officer, Director

Pete A. Meyers -- Chief Financial Officer, Principal Financial Officer, Principal Accounting Officer

Unidentified Participant

Brandon Folkes -- Cantor Fitzgerald -- Analyst

Randall Stanicky -- RBC Capital Markets -- Analyst

Lachlan Hanbury-Brown -- William Blair -- Analyst

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