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Radius Health (NASDAQ:RDUS)
Q3 2020 Earnings Call
Nov 05, 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 Q3 2020 Radius Health Earnings Conference Call. [Operator instructions] Please be advised, today's conference is being recorded. [Operator instructions] I would now like to hand the conference over to your speaker today, vice president of investor relations, Elhan Webb. Thank you.

Please go ahead, madam.

Elhan Webb -- Vice President of Investor Relations

Thank you, Suzanne. Hello, everyone. Thanks for joining us today. Our press release and presentation that we'll use to guide our discussion 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 on Slide 2 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 start with his opening comments; Dan will follow him providing a financial outlook; and Sal, an update on our commercial business. We will then open up for questions. I'd like to now turn the call over to Kelly.

Kelly Martin -- President and Chief Executive Officer

Thank you very much, Elhan. We appreciate everyone joining us this morning for a review of our Q3 earnings for Radius Health. The quarter was a very busy one for the company. I would highlight three main areas of focus and accomplishments.

Number one, the transaction with elacestrant with the Menarini Group which was closed during the quarter. It was a significant focus of the company, a team effort internally with both management and the board, and something that was important to get over the line as was previously outlined by the company in the fourth quarter of 2019. A second major area of focus was the completion from an enrollment standpoint of three very important clinical trials that were all pivotal trials. Number one, elacestrant was completed in late September; number two, the patch enrollment was completed in early September; and number three, the male study was completed in August.

That's after a tremendous amount of work by our clinical development team. These were all global recruitment trials. They were also handled through the vicissitudes and uncertainty of the COVID virus situation. So we view the completion of those three trials as a significant step forward for the company.

And as we outlined in our earnings announcement, what that portrays is in the fourth quarter of 2021, we anticipate three pivotal trial readouts for the company, so over the next 12 months or so. And the third major area of focus is our commercial space. You'll hear from Sal a bit later on that. We pivoted from taking an approach which was basically all-comers from a patient point of view, we pivoted to begin to focus on high-risk or fracture patients, which seems particularly a good alignment relative to abaloparatide and the characteristics of abaloparatide.

You'll hear from Sal later. Before we get to Sal, I'm going to turn the call now to Dan Dolan. Dan will walk you through our financials. I would highlight how we've begun to segment the business.

That helps us both internally and we hope to provide externally our shareholders and analysts with a very transparent way to look at Radius and understand where the business is. So with that, Dan, I'll turn it to you. And if you could walk the folks through our financial update for the quarter, that would be great. So thank you very much.

Dan Dolan -- Principal Financial Officer, Principal Accounting Officer

Thank you, Kelly. For the presentation, we can move ahead to Slide 5. On Slide 5, we see our Q3 2020 P&L on both a GAAP and a non-GAAP basis, a reconciliation of which can be found in the appendix that Elhan mentioned earlier. For the third quarter of 2020, we reported total revenue of $78 million.

TYMLOS had net revenue of $50 million, which reflects an 8% increase versus the third quarter of 2019. The third quarter of 2020 also includes license revenue of approximately $27 million as part of our upfront resulting from our agreement with the Menarini Group. Within the quarter, TYMLOS generated gross margins of 92%. On a non-GAAP basis, R&D expenses increased $7.5 million, reflecting the continued progression of our three Phase 3 programs.

These R&D expenses included the net reduction of costs related to our EMERALD study, which will be reimbursed per our agreement with Menarini. SG&A decreased $4.8 million versus the third quarter of 2019, reflecting our continued focus on disciplined investment in SG&A. On a non-GAAP basis, we reported a net income of $7 million for the third quarter of 2020, which reflects an EPS of $0.15 per share. If we move on to Slide 6, here, we can share some drivers of the underlying growth of TYMLOS net product sales versus the third quarter of 2019.

TYMLOS demand in the third-quarter 2020 increased 6% versus the same quarter from the prior year. We also realized a net price appreciation of approximately 8%, driven by our January 2020 price increase and our change in our distribution strategy. This strategy, it is important to note, did have an impact on our quarter-over-quarter comparisons resulting in some destocking in Q3 2020. As our model shifted to more direct shipments to the specialty pharmacy network, we realized some onetime destocking to reposition the distribution channel.

This had some offset of our growth of the underlying business when comparing to prior-year quarter. If we move on to Slide 7, on a year-to-date basis, TYMLOS net sales of $148 million increased 25% versus the prior year, year-to-date 2019. This was almost driven exclusively by an increased demand of 22% versus the prior year. Additionally, approximately 5% of the year-to-date growth is driven by pricing upside versus 2019.

We can also see some destocking on a year-to-date basis. This is also related to a lesser extent to the shift of a more focused specialty distributor network. Moving on to Slide 8. We can see our cash position is reflecting the continued growth and health of our base business with TYMLOS.

The continued growth of TYMLOS net sales, our disciplined investment in SG&A, and the impact of our deal with the Menarini Group for elacestrant in July, has our cash flow position continuing to trend in a positive direction. We exited the third-quarter 2020 with $126 million of cash and cash equivalents on the balance sheet, holding our cash position flat during the quarter to where we exited the second quarter of 2020. Finally, if we move to Slide 9, we'd like to highlight the strength of our base business with TYMLOS. In the third quarter of 2020, our base business with TYMLOS was profitable on a non-GAAP basis.

This is consistent with our goal of having TYMLOS finance all the SG&A internal R&D of the organization. The TYMLOS life cycle management operating expense reflects the investments made in our abaloparatide patch and male osteoporosis trials. As Kelly noted, both of these trials completed enrollment in the third quarter of 2020 and we now have a clear line of sight on the cash outflow for these trials moving forward. For oncology, the third quarter of 2020 reflects the upfront licensing revenue and partial reimbursement of operating expenses from Menarini from the point when the deal closed in late July.

As a reminder, we have an agreement in place where expenses of approximately $100 million-plus will be reimbursed to Radius by Menarini through completion of the trial and the NDA filing. This agreement gives us additional clarity and line of sight into our cash requirements for the third of our three ongoing Phase 3 trials. With that, I'd like to turn over the presentation to Sal to give an update on our commercial business.

Sal Grausso -- Senior Vice President, Market Access

Thank you, Dan. Good morning, everyone. I'm going to start the update on Slide 11. So I will cover two topics in this update: Number one, the state of our business; and number two, the progress toward our shift in focus to osteoporotic fracture patients.

On Slide 12, you could see that our organization has been hyper-focused on net new patients on therapy. We believe that is the most important driver of our success. So you can see from the charts that in September, that our net new patients on therapy grew 7% versus the prior three-month average of June, July, and August. And in October, we grew 10% versus the prior three-month average.

So we have started to generate some good momentum on net new patients; still, a lot of work to do and very eager to see our progress after we transition from the COVID lockdowns and whatnot. Slide 13. So we believe that the osteoporotic fracture patient is our biggest opportunity. We believe that is the case because it's where our value proposition for TYMLOS is strongest and there's medical community alignment around first-line treatment for bone-building agents for these very high-risk patients.

So looking at the chart on Slide 13, you can see that there's approximately 3 million osteoporotic fracture patients. Of those 3 million, unfortunately, only 900,000 are diagnosed with the underlying disease of osteoporosis and treated, while the other 2 million patients, unfortunately, are either diagnosed and not treated or not diagnosed and not treated. And as you could see, of the ones that are diagnosed and treated, the 900,000, that bone-building agents comprise less than 3% of that patient population. So that, we believe, is our biggest opportunity and where our value proposition is strongest in those patients.

We are executing against a three-pronged strategy to focus on osteoporotic fracture patients: Number one, we've been realigning our customer targeting to focus where these patients show up in the healthcare system; number two, we've completed a shift in our channel strategy, which is going to help improve patient experience and HCP experience in acquiring TYMLOS; and number three, we've been working hard to improve payer access, in particular, for osteoporotic fracture patients. So Slide 14 gives a brief overview of the progress to date here. So you're looking at a chart on the right, which is the percent of covered lives are basically payers covering right now 58% of insured lives now have policies that all osteoporotic fracture patients can access TYMLOS as a first-line agent. And so what that means is that those patients can access TYMLOS without the requirement of a DEXA scan or history of prior therapy.

That has increased dramatically. Before the ACE guidelines, that was 34%. So we've increased 71% to where we are today at 58%. So that's the end of the commercial update.

I will turn it over to the operator, Suzanne, for Q&A.

Questions & Answers:


Operator

[Operator instructions] Our first question comes from the line of Jessica Fye from JP Morgan. Your line is now open.

Jessica Fye -- J.P. Morgan -- Analyst

Great. Good morning. Thanks for taking my questions. I have a couple of specific on TYMLOS.

But first, Kelly, I wanted to start with you. When you say you're working on constructing an attractive equity story for current or future shareholders, can you elaborate on just what that means to you and to what extent you think that hinges on bringing in additional assets into the company?

Kelly Martin -- President and Chief Executive Officer

Yes. Thanks, Jessica. It's really basically a focus on getting to cash flow positive for the current business. We've been chewing through a lot of capital over the last few years on clinical development investments, all of which are almost completed as we speak.

As you know from previous discussions, we're trying to -- we're focused very precisely through Sal and the commercial team on a bigger pool of patients. We have a lot of operating leverage in the business. We just need to uptick and continue the growth of net new patients. So the vast majority of that is -- of that statement is to take our current business and grow it to the point where it's a profitable business.

That's the main focus.

Jessica Fye -- J.P. Morgan -- Analyst

OK. Great. So then sticking with the current business, I appreciate the color on net new patients relative to recent months, but it'd also be helpful to hear how the net new patients added in October, for example, compares to pre-COVID levels. So how far are we from February, for example?

Kelly Martin -- President and Chief Executive Officer

Sal, you want to give kind of rough sort of dimensions of that? I don't have it off the top of my head, but we're obviously down, Jessica, still down on a relative basis from where we were pre COVID.

Sal Grausso -- Senior Vice President, Market Access

Yes. Jessica, it's Sal. So where we're at, we still have not attained our pre-COVID level. So I'd say we're probably around 20% down on new patient starts versus pre-COVID levels.

Keeping in mind, Jessica, as you're well aware, January and February tend to be very high count in terms of net new patients because of the new year and changeover in payer coverage and whatnot. So they tend to be the highest two months.

Jessica Fye -- J.P. Morgan -- Analyst

OK. Then just last one. You've talked about communicating net new patients each month starting in November. Total Radius patients quarterly started with Q1 2021 results, so maybe that will be around May.

And then Radius patient month on therapy quarterly starting with Q2 next year, so next summer. So why wait to give us some of those data points versus just kind of laying the kind of the baseline out here and then showing us the progress along the way?

Kelly Martin -- President and Chief Executive Officer

Well, the main topic is our distribution -- Sal can comment, but Sal is, contemporaneous to fixing these other -- the marketing focus, Sal is adjusting the distribution network. And we, once we have the distribution network reconstituted, then we will have the data more instantaneously and we'll have 90-plus percent of it at the fingertips. So if we can fast-forward that, we will. But Sal, why don't you talk Jessica through the distribution reconstruction? We can't do it, Jessica, the way that our distribution system was originally set up.

There were too many participants and recollecting the data for patients was very challenging, but Sal, why don't you add to my positional part of the answer?

Sal Grausso -- Senior Vice President, Market Access

Sure, absolutely. So as part of this distribution change, we're going to a more limited specialty pharmacy network. So in that regard, we'll be collecting data directly from the SP as we do now. In fact, the charts that I shared earlier today were actually validated shipments to unique patients.

So as you can tell, we today talked about an October number, here we are on November 5. We knew the result of October the moment that October was over. So now we'll have instantaneous access up to over 90% of our data. So we believe that our visibility as we transition in this fourth quarter is going to only increase and our precision on all those aspects of those numbers and those different data points will improve.

Jessica Fye -- J.P. Morgan -- Analyst

OK. So that transition is taking place now or it's already completed?

Sal Grausso -- Senior Vice President, Market Access

It's already completed as of November 2nd.

Jessica Fye -- J.P. Morgan -- Analyst

Thank you.

Operator

Our next question comes from the line of Paul Choi from Goldman Sachs. Your line is now open.

Unknown speaker

Hi. This is Liza on for Paul. Thanks for taking our questions. Two for us quickly.

Have you been seeing regional differences in TYMLOS sales due to COVID? And how have you seen that evolve over this quarter as compared to last quarter?

Sal Grausso -- Senior Vice President, Market Access

This is Sal. I'll take that question. So absolutely, so very consistent with what you probably hear from other companies and see in the press in terms of where the lockdowns are. So as we know, certain parts of the country returned somewhat back to normal earlier than others.

And we saw that many new patients now getting back into the offices in those areas, offices opening. We still see some sluggish activity in some places where the lockdowns are still more significant. So I'd say that what we see is very consistent with what we see kind of in the national press in terms of lockdown and what's probably consistent with what you're hearing from other companies.

Unknown speaker

Great. And one more on the commercial front. With three pivotal readouts expected in the second half of next year, can you talk a little bit about your strategy there? And when we should look for some commercial strategy updates going into new populations?

Kelly Martin -- President and Chief Executive Officer

Look, I'll start. What two of the three will involve us from a commercial point of view, the male study and obviously, the patches, got really intriguing opportunity and potential. So Sal, why don't you talk about both of those? The elacestrant, meaning the third pivotal, is partnered with the Menarini Group and they have global rights. So they are currently, as we are speaking, working on life cycle opportunities with elacestrant from a clinical point of view and commercial launch plans.

But Sal, maybe you want to comment on splicing the male study together with current and some initial thoughts on the patch?

Sal Grausso -- Senior Vice President, Market Access

Absolutely. We're approaching the commercial strategy for abaloparatide as a franchise. So it's very important, and some of the comments I made earlier, as we shift our focus to the osteoporotic fracture patient and we start to identify our new customer segments, this is going to be critically important to do that with an eye toward the future as to how the male indication will flow into that and also the transdermal system. So we believe that those two indications are complementary to the strategy that we are embarking on now to broaden our footprint in osteoporotic fracture patients.

And the success of both of those strategies will hinge on our ability to penetrate this broader market.

Unknown speaker

Great. Thank you so much.

Operator

Next question comes from the line of Geoffrey Porges from SVB Leerink. Your line is now open.

Charles Song -- SVB Leerink -- Analyst

Hi. This is Charles on for Geoff. So maybe two questions. First is, you mentioned the patch will expand the market with the male indication and the transdermal delivery.

Could you quantify there a little bit about how much more opportunities you will see for the market expansion? And my second question is, where do you currently stand for patch manufacturing? Are you manufacturing those patches right now or you're actually holding on to the manufacturing pending the trial results?

Kelly Martin -- President and Chief Executive Officer

Yes. I'll answer those, and then Sal could add. We're not -- the patch opportunity is something that we have dimensionalized internally. We're not prepared to kind of share that externally.

Part of the patch opportunity or the transdermal technology is for new patients and part of it would be for existing patients. So we're not going to put a number on it just yet, because we're still looking at the best way to position it both for existing patients and as we pivoted the business to high-risk patients, entirely new patients to Radius. With regard to manufacturing, pleased to report that we're making great progress there and we're not stopping. We've continued along the process.

The patch manufacturing process is a tri-party effort. It includes ourselves, Thermo Fisher, and Kindeva, all working well together. Thermo Fisher is the manufacturing site; Kindeva, obviously, has the proprietary technology, needle technology; and we provide as a partner, project management, quality control, assessment, etc. So that is well on track with regard to the processes and the time line with regard to intersecting a patch regulatory readout in the next 12 or 13 months.

Charles Song -- SVB Leerink -- Analyst

Thank you.

Kelly Martin -- President and Chief Executive Officer

You're welcome.

Operator

Next question comes from the line of Annabel Samimy from Stifel. Your line is now open.

Annabel Samimy -- Stifel Financial Corp. -- Analyst

Hi. Thanks for taking my question. I want to go back to your three-prong strategy, again, as you transition to more of the osteoporotic fracture patients. So I understand the channel strategy, where you're going more toward the specialty distribution, but the customer strategy and the payer strategy -- so I mean these anabolic pens are not new to the market.

What tools are you using to, I guess, focus on that customer, identify that customer, increase the population that's not treated? Do you have a data set that you're working with? What communication strategy do you have or publication strategy do you have? And then on the payer action, it's great, obviously, to see that payer coverage has increased to 58%. What is going to get them to that next level, given that it's a pretty well-known and understood market? So maybe you can just clarify that point for those strategies for me, please.

Kelly Martin -- President and Chief Executive Officer

Absolutely. So, Annabel, I think on the first question, I think you're exactly right. As we have said, it's a big market opportunity. There's three million patients, unfortunately, that suffer osteoporotic fracture on an annual basis.

We know that this disease area is a bit unorganized. It suffers from apathy. So we have to be able to meet the patients where they show up in the healthcare system. And that is a bit of a departure, in terms of how we looked at the business previously.

So we are using claims data to be more precise to understand where these osteoporotic fracture patients are showing up. And that is a little different, whereas previously, we were very focused on the HCPs in outpatient clinics that wrote teriparatide. So this is kind of broadening our remit and we're doing this in a way without jeopardizing our kind of base TYMLOS business. But in order to grow new patients, we have to find new avenues.

And we believe, given the guidelines, it actually has been a market-changing event that's been a positive development for bone-building therapy as a first-line agent. So the big issue here is that these patients tragically and unfortunately are being treated for osteoporotic fracture and then they get lost in the system. And quite often, they don't end up through an HCP to treat the underlying condition. So we know that secondary fracture prevention is a huge unmet need and there's a lot of focus on it.

And we believe by using claims data that we can target more efficiently. As it relates to the payers, this is a bit of a different point. I think for many years, that it was a bit ambiguous to the payers. So the guidelines were not very specific in the stratification of risk and the guidelines did not carve out these osteoporotic fracture patients and there was not medical community alignment.

So I think that's what's different, is that now that the payers have seen the revised guidelines that they are now more open because -- to allow osteoporotic fracture patients to be treated first line. So that is the big departure. Previously, many patients were forced to get a DEXA scan to confirm the diagnosis, and then also many patients were being forced to have a trial and failure of an oral bisphosphonate first. And what we're saying is now, six out of 10 patients that have osteoporotic fracture will not meet these barriers when they go to get off the therapy.

Annabel Samimy -- Stifel Financial Corp. -- Analyst

OK. Great. And if I could just follow up with a second question. Separately, you noted that you're right now working on reestablishing communications with Europe or strategies with Europe.

I guess it used to be that Europe wasn't a possibility. So what has changed there? And do you have anything new to offer to the European regulators that might make that option open to you again?

Kelly Martin -- President and Chief Executive Officer

Yes. Well, we do. We have a lot more data. There's a lot more data that exists.

We have new data. The histo data that we presented in September is, I think, quite relevant. And post our experience in the EU, FORTEO was approved post us. So there's also, on the sort of class association, there's that part of the equation.

So we have had initial discussions. We are taking, as we said, advice on how to proceed. We think it's worth a shot. And we think that with both more data and some new data, that it's a discussion that would be a constructive discussion to have.

We think it's important for the global franchise of the molecule. So we're spending some time and energy on it because we think it's a piece of the puzzle that would be great to have as part of abaloparatide from a global basis.

Annabel Samimy -- Stifel Financial Corp. -- Analyst

Great. Thank you.

Kelly Martin -- President and Chief Executive Officer

You're welcome.

Operator

Next question comes from the line of Douglas Tsao from H.C. Wainwright. Your line is now open.

Douglas Tsao -- H.C. Wainwright -- Analyst

Good morning. Thanks for taking the questions. Just in terms of the impact that you're trying to manage through with COVID, just curious if you've been able to measure sort of the impact on productivity, or the difference in productivity from sort of like telemedicine visits versus patients actually coming in, in terms of the sort of likelihood or the propensity to write a script? And then also, as you make this shift to the high-risk population from sort of like the existing market, does that change the target prescriber base that much? And is your ability to reach them need more additional investment? You've obviously gained significant efficiency out of the sales infrastructure over the last 12 months or so. So is it time to perhaps reinvest some of that into this much larger sort of revenue opportunity, especially considering the opportunity with the patch upcoming?

Kelly Martin -- President and Chief Executive Officer

Doug, it's Kelly. Look, I'll answer a couple of things and then Sal could add. I'll start with the last question first. The main part of our repositioning of some of the sales and marketing focus is really around well, where are these patients? I think that the marketing approach over the last couple of years by Radius has been sort of let's track FORTEO and the FORTEO footprint and that was totally fine and appropriate.

It helped establish the brand. The challenge for us as a smaller company is that's kind of retail -- more of a retail approach, sort of ones and twosies around the country. As we look at fracture patients, and Sal can comment, it's much easier for us to know where the fracture patients are. There are bone centers and fracture liaison centers that have hundreds of fracture patients.

And so the very simple math is a really good salesperson, a regional person, appropriate complements by medical affairs or science in the right way, of course. Going to one center that has 250 fracture patients as opposed to trying to go to 250 different locations with one patient, I think there's plenty we can do. I think you bring up a slightly different point on the transdermal patch. We're going -- as I answered before, we're going through that topic now over the next few months, is how do we want to position it, with whom, and that probably will take some investments in time, energy, marketing, positioning, and some people, but we're not quite sure yet what that is.

But for our current business, I think the resources we have are, are more than adequate for now. But it's a good question. I'll just also comment, Sal and I and others, we had a multi-hour discussion just last week on digital health. We have the advantage that we're an out-of-office therapy, so that gives us some really interesting opportunities from a growth point of view.

We've had some discussions with various, let's say, nontraditional businesses that have some traction or a lot of traction in digital health. So it's something that we're looking at and continue to think about. But, Sal, I'll turn it to you to add or detract from anything that was laid out.

Sal Grausso -- Senior Vice President, Market Access

Yes. Thanks, Kelly. I'll just add. It's interesting, the market is quite -- shows promise to be quite innovative.

And I would say that everyone is figuring out how to operate in this environment that we are in. I think that our people in the commercial team, in particular, our salespeople, have adjusted very well and have been productive in this environment. And I would say the same thing about the HCP offices. The last point I'd make is, and it's kind of around the topic and the discussion we've been having about payer coverage, one of the operational issues for a patient that has an osteoporotic fracture or let's say, a patient with osteoporosis, is that in a lot of times, there's the requirement for a DEXA scan.

And unfortunately, that's not easy to do in the virtual environment. There still has to be a physical visit in order to do that. So I think that this topic we've had in terms of payers in osteoporotic fracture patients that the DEXA scan is not required, I think also creates some efficiency, where all's you need is to have a history of a fracture. And so that can all be done virtual.

And I know that the medical community is looking at other ways in terms of getting and looking at risk assessment to get patients on therapy. So I'd say there's been an evolution in the positives in that front.

Douglas Tsao -- H.C. Wainwright -- Analyst

OK. Great. Thank you.

Operator

I'm showing no further questions at this time. I would now like to turn the conference back to Kelly Martin.

Kelly Martin -- President and Chief Executive Officer

OK. Well, listen, thank you very much all for calling in. Your questions were great. We enjoy answering questions and being transparent to both where we are and what we're doing and why we're doing it.

So we look forward to continuing to share our progress in the coming weeks and months and continuing the momentum that the Radius team has built over the last -- over summer. And again, we look forward to sharing that as we go forward. So thank you very much for tuning in and we look forward to future updates.

Operator

[Operator signoff]

Duration: 37 minutes

Call participants:

Elhan Webb -- Vice President of Investor Relations

Kelly Martin -- President and Chief Executive Officer

Dan Dolan -- Principal Financial Officer, Principal Accounting Officer

Sal Grausso -- Senior Vice President, Market Access

Jessica Fye -- J.P. Morgan -- Analyst

Unknown speaker

Charles Song -- SVB Leerink -- Analyst

Annabel Samimy -- Stifel Financial Corp. -- Analyst

Douglas Tsao -- H.C. Wainwright -- Analyst

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