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Radius Health (NASDAQ:RDUS)
Q2 2020 Earnings Call
Aug 10, 2020, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Ladies and gentlemen, thank you for standing by, and welcome to the second-quarter 2020 Radius Health earnings conference call. [Operator instructions] Please be advised, today's conference may be recorded. [Operator instructions] I would now like to hand the conference over to your host today, Ms. Elhan Webb, VP of investor relations at Radius.

Please go ahead, ma'am.

Elhan Webb -- Vice President of Investor Relations

Thank you, Liz. Hello, everybody. Thanks for joining us today. Our press release and presentation for today can be found in the investors section on our website.

A replay of the call will also be available on our company website three hours following this call. Before we begin, I'd like to remind you with our safe harbor slide that will have some forward-looking statements and include non-GAAP financial measures in our presentation today. You can find a reconciliation of GAAP to non-GAAP at the end of this presentation. Our 10-Q and subsequent filings identify factors that could cause our actual results to differ materially from those indicated by these forward-looking statements.

Any forward-looking statements represent our views as of today only. In today's call, Kelly will provide a business update and Pepe, a financial update. After Kelly's concluding remarks, we will open it up for questions. I would like to now turn the call over to Kelly.

Kelly Martin -- Chief Executive Officer

Thanks, Elhan. Good morning, everybody. And on behalf of our chairman, Owen Hughes and myself, welcome to the call for the second-quarter results of Radius. As Elhan said, I'll give a brief update from the overall business point of view.

Pepe will go through the financials in a bit more depth. I'll have a few added closing comments, and then we're happy to entertain and answer your questions. As Elhan said, the presentation is available. I'm going to refer to a number of pages.

On Page 5, just again, highlighting our second-quarter accomplishments, first and foremost, and Pepe will go into this in a bit more detail. TYMLOS did deliver 50 million in net revenues, which was a nice rebound, if you will, from the first quarter and through all of the COVID activity and market dislocation. We feel that TYMLOS rebounded nicely. We were laser-focused with Charlie Morris, our Head of -- Chief Medical Officer on our clinical programs.

We're pleased to say that the ATOM trial, which is male osteoporosis, should be completed within the week approximately. The WearABLe is on track for enrollment late Q3, and EMERALD is on track for enrollment in Q4. Again, significant focus by the organization on traction and execution of the trials. Last but certainly not least, the elacestrant transaction was agreed with Menarini -- the Menarini Group, which is an Italian global company.

We're very pleased to have reached an agreement around that transaction. It took a tremendous amount of work by the entire team at Radius. Obviously, the entire team at Menarini. Menarini is certainly an up and coming global oncology business and company.

We're pleased to partner with them on this very important asset and molecule for both us and obviously themselves. On the next page, page 6, some additional areas of focus for us commercially. We are beginning to shift our focus. The company has accomplished what it originally had set out to do, which is a significant dominant market share in the anabolic product space.

We can check that box that has been accomplished. With our new head of commercial, Sal Grausso, we're looking at high-risk patients, very high-risk patients now as the next bucket, if you will, of potential patients for us and TYMLOS, both injectable and prospectively, we would certainly hope the patch so we're beginning to shift and tilt, and I would suspect on the third-quarter update, we'll give a bit more details around some of our commercial adjustments. We also established a digital group in this world of virtualness, I think there's been a significant change and shift in some medical practice and therapeutic acquisition. So we are looking at, from a digital point of view, how do we deliver TYMLOS, not just TYMLOS, but Radius to our broad customer base.

Then internally, again, from a commercial point of view, we're zeroing in on total number of patients. How many patients are we in contact with? How many patients around TYMLOS? And how long are those patients on drug? And again, on their third-quarter earnings, I think we can give more detail around that. We're also looking at global markets. We've had some reverse inquiry over the near-term here on our molecule.

Obviously, we have a Japan partnership, which is exceptionally important, given the size of that market and the opportunity, but we also have other markets that, if you look at them from an epidemiology point of view and a macro and microeconomic point of view, looked like they would be of some interest to us. So we're exploring those things. From a science point of view, obviously, Radius has been very focused on commercial, commercial execution and launch of an existing molecule. We will have some initiatives to make sure that we have an establishment or reestablishment, if you will, of a science presence in the market.

Both academic hospitals, teaching hospitals and academic institutions, are all doing some interesting things in the intersection of bone, orphan bone and bone endocrinology space, and we want to make sure that we're in that flow of innovation and discussion. Last but not least, like almost every other company that I know of, the world is still mostly virtual. So we are thinking through and discussing, analyzing and thinking about our future. Our people are almost all virtual as we speak.

We do have some real estate that we're assessing and looking at, again, as most of the commercial world is. We're using technology to a tremendous amount, both in-depth and breadth. So technology for us is going to be a critical part of both working internally and delivering ourselves externally. And from an external point of view, between patients, HCPs, hospitals, payers, all of them -- all of that whole network of folks are adjusting their business to be virtual and digital, and hence, our digital group from a commercial point of view is very important.

On the next page, just briefly, the backdrop or the backbone of our shift or investigation of shifting or somewhat adapting our commercial focus are some recent ACE guidelines that came out talking very specifically about anabolics and high-risk and very high-risk patients, i.e., patients who have osteoporosis because of a single fracture or the potential -- the very high potential for a fracture. We are working very closely internally from both a science and medical affairs point of view, our commercial folks are also looking at where those patients are, who treats those patients. And so again, as we evolve and slightly adjust and change our commercial focus, we will come back to you on that. But the overarching umbrella up under which we are making that shift, is being driven by external patient need and that recognition, as outlined by the ACE guidelines, which were released a couple of months ago.

So with that that's my brief business update. I'd now like to turn it over to our chief financial officer, Pepe, and Pepe will walk us through the financials for the quarter. So Pepe?

Pepe Carmona -- Chief Financial Officer

Thanks, Kelly. On Slide 9, we show our Q2 revenue bridge versus the same quarter of 2019. TYMLOS in Q2 delivered 50 million in net sales, which represents a growth of 22% versus prior year. The revenue growth was driven primarily by continued increase in demand and net price improvement versus prior year.

On the next slide, I walk through the income statement focusing on non-GAAP basis figures. You can see the reconciliation between our GAAP and non-GAAP measures in the appendix. Radius on a non-GAAP basis for Q1 2020 had an adjusted net loss of $31.2 million or $0.67 per share as compared to an adjusted net loss of $25.4 million or $0.55 per share for Q2 2019. Key points on the income statements are: First, our gross margin has slightly increased to 92% driven by efficiencies in our manufacturing and net price.

Second, R&D expenses grew as we continue to enroll patients in the three Phase III trials. This quarter, we increased our investment in the WearABLe program as we also completed the build-out of the abaloparatide patch manufacturing site at Thermo Fisher. Last, SG&A decreased, driven by our productivity initiatives. On Slide 11, we show the cash and cash equivalent balance reconciliation to 2 -- to $126 million at the end of Q2 2020.

TYMLOS continues to fund the SG&A of the company and partially fund the investment in our clinical programs. As explained before, we continue to expect to drive TYMLOS growth and drive operational leverage. In the next slide, we have the terms of the elacestrant agreement with Menarini. The economic terms strengthened our financial position with a $30 million upfront milestone up to $20 million of development and regulatory milestones and expense reimbursement of over $100 million.

The structure of the deal provides Radius significant participation in the economics of the asset with $300 million in sales milestones and low- to mid-teen percentage royalty on elacestrant revenues. The milestones and expense reimbursement will be recognized as revenues according to ASC 606. The reimbursed expenses will be built and collected in the quarter after the expenses are incurred. I look forward to your questions at the end of the call.

With that, I will pass the call back to Kelly for closing comments.

Kelly Martin -- Chief Executive Officer

Thank you very much, Pepe. On Page 14 of the deck, some key takeaways as we close up some important themes to emphasize before we take your questions. First and foremost, we believe that TYMLOS -- particularly as we shift or begin to shift to high-risk patients, TYMLOS has growth embedded in it, and we hope to outline again in detail our thoughts and opportunities as the new commercial adjustments are made over the course of the third quarter, No.1. No.2, the shift that we're going to make, again, is driven by patient, patient need and the overall market segmentation.

I think from an original molecule launch and initial commercial strategy, the company has achieved its original goals. And now our job is to expand the pie, expand the patient access and the team is in the process of doing that as we speak. Thirdly, three pivotal trials under our roof. One of them is now owned by the Menarini Group, as myself and Pepe went through.

Nonetheless, we still have three clinical and pivotal trials to complete from an enrollment point of view. As I said previously, we are laser-focused through Charlie Morris' group on the completion and the execution from a patient enrollment point of view on those three trials. Last but not least, again, having three pivotal trials, very significant business challenge for a rather small company. So again, the importance of doing the elacestrant transaction with Menarini for us from an overall point of view, we believe reduces our risk appropriately, allows us to focus very specifically on completing both the mEn trial and the WearABLe-patch trial, while at the same time with our now-partner, Menarini Group, completing the enrollment for the oncology trial.

I will say that from a guidance point of view because we have lots of different pieces of the puzzle, I know previously, Pepe and the company have given one- and two-year outward guidance. For now, while we get all the pieces in place, we're not going to have that kind of long-term guidance as we assist and adjust our business, both from a commercial point of view and patient segment point of view, the patch trial, etc., Nonetheless, we're happy to talk for the balance of this year about what we -- how we project the business. So with that, operator, I will like us to have you open it up for any questions that people may have and any combination of Elhan, Pepe or I would be available to answer those questions. So operator, if you can open it up for Q&A.

Questions & Answers:


Operator

[Operator instructions] Our first question comes from Mohit Bansal with Citi. Your line is now open.

Keith Tapper -- Citi -- Analyst

Hi, guys congrats on the quarter. This is Keith on for Mohit. First question is just really now that you have moved the focus away from oncology, could you help us understand how you're thinking about developing the pipeline beyond the patch? Should we expect early stage business development deals in the future? And what's your capacity to do such deals?

Kelly Martin -- Chief Executive Officer

I'll start, and then Pete can please chime in. Our focus right now is internal -- predominantly internal. As we said, shifting or slightly adjusting the TYMLOS focus from a commercial patient segmentation point of view, I would say, is focus No.1. Focus No.1a, is completing what we have in front of us, which is enrollment in three trials.

And then I would -- but I would also add that an additional focus or, frankly, responsibility that we have is to be in the flow of what's happening outside of our four walls. There's a lot going on in small biotech, private biotech, non-U.S. biotech or biopharmaceuticals, and I think that it's important for us just to be in the flow of different things. It's not to say that that's our main focus.

But just to be in the flow of activity, molecules, programs are all part of what we need to do, and we'll do some of that. But our overriding focus remains TYMLOS at its slight adjustment to patient segmentation for growth and completing the trials that we have currently on the books. And I don't know, Pepe, if you would like to add anything to that, please do.

Pepe Carmona -- Chief Financial Officer

Yes. The only addition I would have is that after the Menarini deal, financially speaking, we have a much stronger position in which to operate. So the priority No.1 is to execute, but we are in a much stronger position to be on the flow, as Kelly call it.

Keith Tapper -- Citi -- Analyst

OK. That's great. That's helpful. And then just a second question.

We were looking at Amgen's EVENITY launch. It seems like that product is growing pretty rapidly. Could you talk a little bit more about the market dynamics at this point in terms of where identity is in terms of gaining market share, how you think about that in the long-term outlook for TYMLOS, especially in the off chance that there's a patch failure? And then lastly, could you just talk about how you're seeing the balance of 2020 in terms of TYMLOS revenues?

Kelly Martin -- Chief Executive Officer

I think maybe, Pepe, you take the lead on EVENITY, and I could chime in on -- add some things, but why don't you take the lead on that?

Pepe Carmona -- Chief Financial Officer

Yes. The -- we see the EVENITY launch as something complementary for the category. There's more opportunities for the patient and there's a broader set of drugs that prescribers can apply. What we have seen is that there has been no impact to TYMLOS growth.

So we're fine competing with EVENITY being in the market. Now on the balance of the year, right now, in the first half of the year, we delivered $98 million, where it's growing strongly, and we will -- we expect to continue to grow. So we're not changing trajectory here, the shift or slide shift on going for a broader patient population just provide upside to the company. In the longer run.

Kelly, do you want to add anything there?

Kelly Martin -- Chief Executive Officer

The other thing I would add is on the first question, Pepe, is you answered well. I'm relatively new to the space. There seems to us, it seems to me and seems to everybody else that there's quite a significant patient need in this disease, and anabolics, in particular, would seem be well positioned as the ACE guidelines outline very explicitly to high-risk patients. There's approximately 2.5 million to 3 million high-risk patients, and therefore, our internal work of some adjustments, a slight shifting of the TYMLOS positioning with that patient category is currently what we're doing.

So we see the category, as Pepe said, as one that has a lot of room from the TYMLOS point of view, and that's what we're focused on.

Keith Tapper -- Citi -- Analyst

All right that's great guys. Thanks, and congrats on the quarter.

Kelly Martin -- Chief Executive Officer

Thank you.

Operator

Our next question comes from Nick Rubino with Stifel. Your line is now open.

Nick Rubino -- Stifel Financial Corp. -- Analyst

Good morning all. This is Nick on for Annabel Samimy. And congrats on the advancements this quarter. On the payment side of things, what are your expectations for net price going forward, including possible expectations for greater co-pay card use and the state of unemployment.

And then given the anabolic market dynamics between Part B and Part D drugs, do you have an opportunity to push more into the Medicare business, and does the Part D status make it expensive to compete there?

Kelly Martin -- Chief Executive Officer

I think, Pepe, you take the lead, and I'll add things.

Pepe Carmona -- Chief Financial Officer

Yes, for sure. So what we show in last quarter and this quarter is our net price increase against prior year after a price increase at the beginning of the year. And we have adjusted our go-to-market model to take kind of the middleman in the chain and go directly to SPs, which have significantly improved our net price. So we don't expect that to materially change going forward.

The Part B and Part D. So just to make sure that we're clear, we are a Part D product. So for Part D product, there are certain dynamics on what the patient pays and what the plan pays, but we are -- we're competitively positioned there with a price that is half of that of teriparatide branded product, and from a commercial perspective, we do provide significant support to the patient. So the out-pocket cost goes down to zero.

Operator

Our next question comes from Doug Tsao with H.C. Wainwright. Your line is now open.

Unknown speaker

Hi, Chris on the line for Doug. We just got two quick questions for the WearABLe-patch studies. We want to know if there's any change in the protocol due to COVID. And also, are there any regional differences in TYMLOS sales? Or is it pretty uniform? Just trying to know how COVID affects different geographies?

Kelly Martin -- Chief Executive Officer

I can start. There's no change in the protocol because of COVID for the WearABLe, at least as far as I know. I think I would have known or we would have known it. So I don't think that the COVID situation has changed that at all.

And Pepe, maybe you might want to comment on that geographic piece?

Pepe Carmona -- Chief Financial Officer

Yes. There's definitely no change in the protocol. We -- and we're following all the guidelines provided by the FDA to be able to properly file the asset, the MDA. From a geographic perspective, as we said before, we have an ongoing plan in the U.S.

that has been enrolling patients or recruiting patients. And then late last year, we expanded the recruitment efforts in Europe. And that's undergoing right now. So we have over 100 sites open in Europe that has started to screen patients.

So progress is on track as committed previously.

Unknown speaker

Cool. Thank you.

Pepe Carmona -- Chief Financial Officer

You're welcome.

Operator

Our next question comes from Brad Canino with SVB Leerink. Your line is now open.

Brad Canino -- SVB Leerink -- Analyst

Thank you, good morning. It looks like the Japan opportunity could be occurring soon. So could you comment on the size of the market there? And maybe the share between the FORTEO brand and generics now and then your confidence in the partner competing in that market?

Kelly Martin -- Chief Executive Officer

Sure, Brad. I'll start, and then Pepe, you again, chime in. Japan market -- the antibiotic market, obviously, in Japan is quite significant. And frankly, the treatment protocols focus from a clinician point of view, it's a bit different from the U.S.

Just broadly speaking, the main clinician who is the point person for osteoporosis is the orthopedic, which, in general, is different from the U.S., not exclusively, but in general. And from a treatment protocol point of view, anabolics -- as per the ACE guidelines released a couple of months ago, anabolics are routinely or openly utilized in the first instance, particularly for high-risk patients. So a very interesting market for us to look at and study, frankly, in some detail, as we think about the U.S. and anabolic opportunity or at least partial opportunity for high-risk patients.

Teijin Pharmaceuticals is an excellent company. They have a broad and deep and long history in both pharma, biopharma within the Japan domestic market and are -- seem to us, it certainly seemed to me and the senior team, to be exceptionally good on execution. They will release the data from their Phase III pivotal trial, I think, in a fairly near term. Within that trial, they had both male and female.

And again, they'll release all that data shortly. They ran the trial exceptionally well. And from an execution, regulatory and then prelaunch, and at some point, launch, we feel extremely good about Teijin and what they've demonstrated to us and their ability to move things forward from an asset point of view. I don't know if you want to add anything to that, Pepe, but please feel free.

Pepe Carmona -- Chief Financial Officer

Yes. And just for clarity, Teijin program achieved the primary endpoints on the study, and they've submitted the filing in May of this year. And we will continue to update on those regulatory time lines. And on the Japan opportunity, this is over $3 billion revenue market.

And TYMLOS, as assessed by HCPs and patients, is positively seen to penetrate this market. And last but not least, this is a market that SC has been partnered with Teijin, but the patch is also a significant opportunity on top of that. And this -- that's where we believe this disruptive technology can provide significant growth in that large market.

Brad Canino -- SVB Leerink -- Analyst

Thank you.

Operator

[Operator instructions] Our next question comes from Paul Choi with Goldman Sachs. Your line is now open.

Paul Choi -- Goldman Sachs -- Analyst

Thank you and good morning everyone. I want to ask maybe a little bit about your thoughts preliminarily on 2021 and specifically with regard to payer discussions. Have you entered into any discussions where you thought about contracting in order to expose your -- increase your exposure or rates for TYMLOS there? And then I had a follow-up.

Kelly Martin -- Chief Executive Officer

Yes, Paul, we -- as I explained before, our market access team it's -- has done a tremendous job on -- from an access and penetration perspective, as well as contracting and having multiyear contracts, so that would include 2021. We're well positioned to get into next year, and we don't see any major change going forward.

Paul Choi -- Goldman Sachs -- Analyst

OK. Great. And then just one on financial follow-up, Pepe, if I may. Just with regard to the financing with your new partner there.

Just in terms of the accounting treatment there, will that be on a one quarter delay basis? Or how will you recognize the R&D reimbursement and so forth?

Pepe Carmona -- Chief Financial Officer

Thank you, Paul, for the question and clarification there needed. Yes, the revenue recognition of the reimbursement will be matching the expense. So it will happen on the quarter. The cash will be -- will have a cash inflow in the following quarter as we submit the invoices, if you want to call it to Menarini.

Kelly Martin -- Chief Executive Officer

And I'd just add, Paul, to Pepe's comments, nonaccounting comments, which is the Menarini deal for us. Obviously, there's there's some significant upside potential with participating with success in the molecule down the road in the near term. But there's also the very significant P&L or balance sheet part of the equation. The $100 million plus cost avoidance for us is very significant and gives us, as Pepe said well in his comments, a lot of flexibility from a company point of view, balance sheet point of view, P&L point of view.

So I'm not sure people quite have grasped that. That's a very large number for us and something that we -- was an extremely important part of the transaction. So more to come on that, but it gives us a lot of flexibility financially.

Paul Choi -- Goldman Sachs -- Analyst

Great. Thank you very much.

Operator

I'm showing no further questions in queue at this time. I'd like to turn the call back to Kelly Martin for closing remarks.

Kelly Martin -- Chief Executive Officer

Thank you, Liz. Again, thank you all for your time and interest and participation in the following of our progress here at Radius. On Page 14, again, just to have some commentary, which I went through before. We're very focused on TYMLOS.

And as Pepe said and as Sal is working on from a commercial point of view, across sales, marketing, market penetration, segmentation and reimbursements, we think we're very well positioned there. Having the ACE guidelines as an umbrella upon which to segment the patients from a patient-risk point of view, is something that, obviously, we are very focused on. Completing the trials and enrollment from an execution point of view, laser-focused on that. And last but not least, from a science point of view, having some participation and/or some voice in the innovation going on in bone, orphan bone and endocrinology, I think, is important for us.

So we'll be positioning organizationally, just to make sure we're in that flow. And last but not least, we very much look forward to reviewing with you the third-quarter performance and the balance of the year performance beyond that, as we adjust and make some changes to the success of the company to date and look forward again to sharing those things with you. So with that, we'll sign off and appreciate your focus on us and participation in the call this morning. So thank you very much.

Operator

[Operator signoff]

Duration: 34 minutes

Call participants:

Elhan Webb -- Vice President of Investor Relations

Kelly Martin -- Chief Executive Officer

Pepe Carmona -- Chief Financial Officer

Keith Tapper -- Citi -- Analyst

Nick Rubino -- Stifel Financial Corp. -- Analyst

Unknown speaker

Brad Canino -- SVB Leerink -- Analyst

Paul Choi -- Goldman Sachs -- Analyst

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