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Edited Transcript of EGLT earnings conference call or presentation 13-Aug-19 8:30pm GMT

Q2 2019 Zyla Life Sciences Earnings Call

Malvern Sep 6, 2019 (Thomson StreetEvents) -- Edited Transcript of Zyla Life Sciences earnings conference call or presentation Tuesday, August 13, 2019 at 8:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* E. Blair Clark-Schoeb

Zyla Life Sciences - SVP of Communications

* Jesse Neri

Zyla Life Sciences - VP of Finance

* Robert Samuel Radie

Zyla Life Sciences - President, CEO, Principal Financial Officer & Director

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Presentation

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Operator [1]

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Good afternoon, ladies and gentlemen, and welcome to the Zyla 2019 Second Quarter Earnings Conference Call. (Operator Instructions) As a reminder, today's conference call is being recorded.

I would like to turn the call over to Ms. Blair Clark-Schoeb, Senior Vice President, Communications. Please go ahead.

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E. Blair Clark-Schoeb, Zyla Life Sciences - SVP of Communications [2]

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Thanks, Gary. Thank you all for joining us to discuss our second quarter 2019 financial results this afternoon. If you have not already received the press release, you can find it on our website at zyla.com under the Investors tab.

Leading the call today will be Bob Radie, our President and CEO; who is joined by Jesse Neri, our VP of Finance.

During this call, management will make projections and other forward-looking remarks regarding future events and the company's future performance. Such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, including those noted in this afternoon's press release and Zyla's filings with the SEC. Investors, potential investors and other listeners are urged to consider these factors carefully in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements.

Actual results may differ materially from those projected in the forward-looking statements. Zyla specifically disclaims any intent or obligation to update these forward-looking statements, except as required by law.

In addition, for the full prescribing information, box warnings and medication guides of Zyla's marketed products, please visit our products page on zyla.com. A telephone replay of the call will be available shortly after completion through Tuesday, August 20. You can find the dial-in information in today's press release. The archived webcast will be available for 6 months in the company's website at zyla.com. For the benefit of those who may be listening to a replay or the archived webcast, this call was held and recorded on August 13, 2019. Since then, Zyla may have made announcements related to the topics discussed, so please refer to the company's most recent press releases and SEC filings.

Now I'll turn the call over to Bob. Bob?

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Robert Samuel Radie, Zyla Life Sciences - President, CEO, Principal Financial Officer & Director [3]

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Great. Thanks, Blair. Good afternoon, everyone, and welcome to our second quarter earnings conference call. The second quarter of 2019 represented the first complete quarter with financial performance from all 7 of our products. On January 31, 2019, we completed the acquisition of 5 marketed nonnarcotic nonsteroidal anti-inflammatory drugs, or NSAIDs, from Iroko Pharmaceuticals.

With this transaction, our focus shifted to predominantly nonnarcotic products for pain and inflammation. The rationale for this transaction was to significantly increase our net product sales, while maintaining similar operating expenses. We believe that the second quarter demonstrated that we're on track to validate this thesis.

For the second quarter, we grew net product sales to $22 million. This compares to $7.4 million in net product sales for the same period in 2018, an increase of 196%, almost tripling net product sales for the same period the year before.

Our net product sales year-to-date through June 30, 2019, is $39.6 million. We believe that we are on track to hit annual net product sales of between $80 million and $85 million for 2019.

Our sales and marketing, research and development, and general and administrative costs were $16.6 million, which are comparable to the $16.7 million for the second quarter of 2018. In addition, we reported positive cash flow of $1.7 million for the second quarter of 2019 compared to a cash usage of $4.5 million for the same period in 2018.

Due to product acquisitions, we added 3 FDA-approved low-dose NSAID products to our product offerings. These products were developed using SoluMatrix' Fine Particle technology, which aims to reduce the particle size of the active molecule to promote dissolution and rapid absorption, while providing lower overall systemic exposure.

Our SoluMatrix product -- our SoluMatrix portfolio consists of TIVORBEX, which is indicated for the management of mild-to-moderate acute pain, VIVLODEX, which is indicated for the management of osteoarthritis pain and ZORVOLEX, which is indicated for both the management of mild-to-moderate acute pain and osteoarthritis pain. We also acquired INDOCIN suppositories and INDOCIN oral suspension. All 5 of these products complement our previously acquired and licensed products, SPRIX Nasal Spray and OXAYDO, an immediate-release oxycodone with abuse discouraging AVERSION Technology.

Of the $22 million in net product sales for the second quarter of 2019, 96% came from our nonnarcotic products. Now that we have the expanded commercial portfolio, we are seeking ways to maximize our assets through a multifaceted approach. We are analyzing our distribution model to look for efficiencies as well as new distribution strategies, evaluating our payer contracting strategy. We're working to improve our sales force targeting and assessing new ways to incentivize our sales representatives. Our goal is to maximize net revenue per prescription.

We are targeting the prescribers who have the highest net product sales potential for our medications based upon their historical prescribing patterns and patient insurance mix. In addition, we are arming our territory managers with more advanced Salesforce analytics that deliver real-time, office-specific data in each territory that the sales representatives can utilize on the spot. We believe this will allow us to drive our sales force to be more productive in a meaningful way.

In addition to focusing on commercial growth, we're committed to managing expenses. The second quarter sales and marketing, research and development, and general and administrative costs were $16.6 million comparable to the second quarter of 2018. We were able to bring in additional -- the additional 5 products and at little incremental expenses because they fit into our existing commercial infrastructure.

We continue to look at life cycle management and how we can maximize each of our assets. For example, we've completed some initial reformulation work on SPRIX. We have identified 3 potential new formulations. At this time, we are evaluating our options and assessing whether we will take one of these new formulations forward.

In the second quarter, we completed the buyout of the Iroko royalty associated with the acquisition of the SoluMatrix assets. We agreed to pay approximately $0.8 million to satisfy the royalty payment, terminating any obligation for future payments with respect to this agreement.

We had some important personnel developments in the second quarter. We appointed Dr. Jeff Wilkins as Chief Medical Officer. Jeff brings clinical experience from running a large primary care practice and research and development experience. Importantly, he's worked for years as a medical expert evaluating product opportunities. Jeff's experience here at Zyla Life Sciences will be critical.

In addition, we appointed Dr. Gary Phillips to our Board of Directors. Gary is a valuable addition to the Zyla Board, bringing a wealth of experience from working in the pharmaceutical industry in a range of commercial, business development, strategy and clinical development leadership positions.

Now I will have Jesse Neri, our VP of Finance, provide a more in-depth discussion of our second quarter 2019 financial results. Jesse?

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Jesse Neri, Zyla Life Sciences - VP of Finance [4]

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Thanks, Bob. As of June 30, 2019, Zyla had cash and restricted cash totaling $12.5 million. Cash generated from operating activities for the 3 months ended June 2019 was $2.6 million. Cash used in financing activities was $0.9 million for the second quarter 2019.

Net product sales were $22 million for the 3 months ended June 30, 2019, compared to $7.4 million for the same 3 months in 2018. The increase in the period was due to the addition of the 5 acquired products at the end of January 2019 as well as SPRIX growth.

Now moving on to cost of sales. Cost of sales was $14.2 million for the 3 months ended June 30, 2019, compared to $1.6 million for the same period in 2018. The increase was driven by higher product sales as a result of the 5 new products acquired at the end of January, the revaluation of inventory in connection with the reorganization and the buyout of royalty obligation associated with the SoluMatrix products.

General and administrative expenses were $7.4 million for the 3 months ended June 30, 2019, compared to $6.7 million for the 3 months ended June 30, 2018. The change was due to an increase in administrative expenses of $1.5 million. This was partially offset by a decrease in ARYMO ER and OXAYDO postmarketing study fees and a decrease in salary expense due to reduced headcount.

Sales and marketing expenses for the quarter ended June 30, 2019, were $9.1 million, in line with the $9 million for the quarter ended June 30, 2018.

Research and development expenses were essentially 0 for the 3 months ended June 30, 2019, compared to $1 million for the 3 months ended June 30, 2018. This decrease was driven by discontinuation of operating expenses that did not directly support the growth of our commercial business.

The interest expense for the period ended June 30, 2019, was $3.6 million compared to $3.8 million for the quarter ended June 30, 2018.

Net loss for the quarter ended June 30, 2019, was $19.6 million compared to a net loss of $12 million for the quarter ended June 30, 2018. The net loss of $19.6 million includes the following noncash items: $9.6 million of fair value mark-up of inventory, $3.7 million of depreciation and amortization, $2.7 million of the change in fair value of the contingent consideration and $2 million of noncash interest expense and $0.8 million of stock compensation expense.

Now I'll turn the call back over to Bob.

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Robert Samuel Radie, Zyla Life Sciences - President, CEO, Principal Financial Officer & Director [5]

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Thanks, Jesse. We believe that the second quarter results validate the acquisition of the 5 NSAID products and demonstrate we have successfully integrated these offerings into our commercial portfolio. This has been the first full quarter that we've been able to offer all 7 products for pain and inflammation to the patients and health care providers we are committed to helping. We plan to continue to look for additional business development opportunities that would complement our current portfolio and add to our commercial growth. We anticipate growing through commercial execution and business development.

I want to thank our employees for their continued efforts and dedication to the important work that we do to benefit of patients, providers and our stakeholders. Thank you, everyone, for joining this afternoon. We appreciate your interest in our business, and we look forward to updating you during our third quarter earnings call.

If you have any follow-up questions, feel free to e-mail us at ir@zyla.com.

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Operator [6]

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The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.