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Edited Transcript of EGLT earnings conference call or presentation 16-May-19 8:30pm GMT

Q1 2019 Egalet Corp Earnings Call

Malvern May 31, 2019 (Thomson StreetEvents) -- Edited Transcript of Egalet Corp earnings conference call or presentation Thursday, May 16, 2019 at 8:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* E. Blair Clark-Schoeb

Egalet Corporation - SVP of Communications

* Jesse Neri

* Robert Samuel Radie

Egalet Corporation - 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 Egalet 2019 first quarter Earnings Conference Call. (Operator Instructions) As a reminder, today's conference is being recorded. I would like to turn the conference over to Ms. Blair Clark-Schoeb, Senior Vice President, Communications. Please go ahead.

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E. Blair Clark-Schoeb, Egalet Corporation - SVP of Communications [2]

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Thanks, Sean. Thank you all for joining us today to discuss our first quarter 2019 financial results this afternoon. If you have not already received the press release, you can find it on our website at egalet.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 Egalet'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. Egalet 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 of Egalet's market products, please visit our Product page on egalet.com. A telephone replay of the call will be available shortly after completion through Thursday, May 23. 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, egalet.com. For the benefit of those who may be listening to a replay or the archived webcast, this call was held and recorded on May 16, 2019. Since then Egalet 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, Egalet Corporation - President, CEO, Principal Financial Officer & Director [3]

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Thanks, Blair. Good afternoon, everyone, and welcome to our First Quarter 2019 Earnings Conference Call.

The first quarter of 2019 was transformational for our company. On January 31, 2019, we completed the acquisition of 5 marketed nonnarcotic, nonsteroidal anti-inflammatory drugs or NSAIDs from Iroko Pharmaceuticals. In conjunction with the acquisition, Egalet completed a voluntary plan of financial reorganization. With this transaction, we substantially increased the number of nonnarcotic pain products in our portfolio. The acquisition has led to a more than doubling of our net product sales, while maintaining similar operating expenses to the first quarter of 2018.

We believe that the first quarter results validate the thesis of this transaction. To reflect the intended shift in our focus from being an abuse-deterrent technology company to a broader commercial life sciences business, committed to bringing important products to patients and health care providers, we are changing our name. Our new name Zyla Life Sciences will be implemented in the coming weeks.

Today, our portfolio consists of products for pain and inflammation. We plan to continue to look for development stage and marketed products that will enable us to leverage our commercial infrastructure. The company will continue to trade under the ticker ZCOR on the OTCQX Exchange. Our goal remains to return to NASDAQ, when we satisfy the initial listing requirements.

Through the Iroko acquisition, we added 3 FDA-approved low-dose end-to-end NSAID products to our product offerings. These products were developed using SoluMatrix fine particle technology, the concept of which was to reduce the particle size of the active molecule to promote dissolution and rapid absorption, while providing lower overall systemic exposure. Our SoluMatrix portfolio consists of Tivorbex, the active ingredient indomethacin, which is indicating for the management of mild-to-accurate acute pain, VIVLODEX or meloxicam, which is indicated for the management of osteoarthritis pain and ZORVOLEX, diclofenac, which is indicated for both the management of mild-to-moderate acute pain and osteoarthritis pain.

In addition, we acquired INDOCIN, indomethacin suppositories and INDOCIN oral suspension. There are no other NSAIDs available in suppository form in the United States. All 5 of these products complement our previously acquired and licensed products SPRIX Nasal Spray and OXAYDO. We anticipate that SPRIX, ZORVOLEX, and INDOCIN will be the 3 main drivers of our revenue growth going forward.

Following the acquisition of these assets, we expanded our sales force from 82 territory managers to 87. Within 2 weeks of the close of the transaction, our territory managers had completed the required training and began active educational efforts to our target health care professionals. This is a significant accomplishment in the short period of time. We could have not completed this transaction and effected this transformation without the commitment of our employees. I would like to take a minute to thank our team that has been instrumental in supporting us through this transformational time.

We believe that the financial results for the first quarter support the rationale of the acquisition of the Iroko products. While the first quarter contained 1 month of sales of the legacy products SPRIX and OXAYDO and 2 months of sales of the combined portfolio, it demonstrates the significant impact of the new products.

Due to the complexity of fresh start accounting, please refer to the 10-Q for the detailed financials. In Q1 of 2019, we more than doubled net product sales from the first quarter of last year with $17.6 million in net revenue. Net product sales increased by $11.3 million for the 3 months ended March 31, 2019 compared to the 3 months ended March 31, 2018. First quarter 2019 results consisted of $5.2 million for SPRIX nasal spray, $1.1 million for OXAYDO, $3.8 million for the SoluMatrix products and $7.5 million for the INDOCIN products.

First quarter 2019 SG&A and R&D expenses were $16.9 million comparable to the first quarter of 2018. We were able to bring in the additional 5 products and add little incremental expense because they complement our current products and fit into our existing commercial infrastructure. We expect the progress that we have made in the first quarter to continue. We believe we will have between $80 million and $90 million in net product sales for the year, and our expenses will remain about the same as last year.

We also put into place a $20 million revolving credit facility in the first quarter. Based on the trajectory of the business, we believe with our cash on hand and that available through our revolving credit facility, the company will not have a near-term need to raise capital. Now I will have our Jesse Neri, our VP of Finance provide a more in-depth discussion of our first quarter 2019 financial results. Jesse?

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Jesse Neri, [4]

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Thanks, Bob. As of March 31, 2019, Egalet had cash and restricted cash totaling $10.8 million. Cash used in operating activities for the 3 months ended March 2019 was $15.6 million. Cash provided by investing activities for the first quarter 2019 was $5 million. Cash used in financing activities for the first quarter of 2019 was $14.3 million consisting of $19.1 million of repayments to the former 13% noteholders, partially offset by $4.8 million of net proceeds from the revolving credit facility. Net product sales were $17.6 million for the 3 months ended March 31, 2019 compared to $6.3 million for the same 3 months in 2018. The increase in the period was largely due to the addition of the 5 acquired products at the end of January 2019.

Now moving on to cost of sales. Cost of sales were $13 million for the 3 months ended March 31, 2019 compared to $2.2 million for the same period in 2018. General and administrative expenses were $8.8 million for the 3 months ended March 31, 2019 compared to $7.1 million for the 3 months ended March 31, 2018. The change was due to the increase in stock-based compensation expense of $2.7 million and an increase in regulatory fees related to the acquisition of the SoluMatrix and INDOCIN products of $373,000. We recognized $3.5 million of unamortized stock-based compensation on January 31, 2019 as a result of the reorganization.

These expenses were partially offset by a decrease in ARYMO ER and OXAYDO post-marketing study fees of $687,000 and a decrease in salary expenses of $503,000 due to reduced head count and a decrease in other administrative expenses of approximately $100,000.

Sales and marketing expenses for the quarter ended March 31, 2019 decreased by $1.2 million compared to the quarter ended March 31, 2018. The decrease was primarily because of $817,000 in reduced marketing expenses due to the discontinuation of the promotion of ARYMO ER in September of 2018 and $293,000 decrease in the sales and marketing expenses.

Research and development expenses were $191,000 for the 3 months ended March 31, 2019 compared to $1.3 million for the 3 months ended March 31, 2018. This decrease was driven by discontinuation of operating expenses that do not directly support the growth of our commercial business.

Interest expense decreased by $1.5 million for the 3 months ended March 31, 2019. This decrease was driven primarily by the cancellation of the 5.5% and 6.5% convertible notes. The gain from reorganization was $114.6 million for the 3 months ended March 31, 2019. This was comprised of the gain on extinguishment of debt, revaluation of assets and liabilities and partially offset by professional fees.

Net income for the quarter ended March 31, 2019 was $96.8 million compared to a net loss of $12.4 million for the quarter ended March 31, 2018. The net income increase was driven by the gain as a result of the reorganization.

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

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Robert Samuel Radie, Egalet Corporation - President, CEO, Principal Financial Officer & Director [5]

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Thanks, Jesse. It's been a busy quarter. We closed the transaction and added 5 additional products to our portfolio, and we integrated these products into our existing operational infrastructure, allowing for the commercialization of a total of 7 marketed products. Having substantially transformed the company, we believe now is the time to change the company name. We are committed to bringing important products to patients and health care providers. We look forward to rolling out the Zyla name over the coming weeks. We plan to continue to identify additional business development opportunities that could accelerate our path to profitability.

Thank you, everyone, for joining this afternoon. We appreciate your interest in our business, and we look forward to updating you during our second quarter earnings call. If you had any follow-up questions, feel free to e-mail us at IR at egalet.com.

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Operator [6]

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