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Edited Transcript of NRI.TO earnings conference call or presentation 14-Aug-19 12:30pm GMT

Q2 2019 Nuvo Pharmaceuticals Inc Earnings Call

MISSISSAUGA Sep 7, 2019 (Thomson StreetEvents) -- Edited Transcript of Nuvo Pharmaceuticals Inc earnings conference call or presentation Wednesday, August 14, 2019 at 12:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Jesse F. Ledger

Nuvo Pharmaceuticals Inc. - President & CEO

* Mary-Jane E. Burkett

Nuvo Pharmaceuticals Inc. - VP & CFO

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Conference Call Participants

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* Antonia Borovina

Bloom Burton & Co., Research Division - Associate of Equity Research

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Presentation

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Operator [1]

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Good morning, ladies and gentlemen, and welcome to the Nuvo Pharmaceuticals Inc. Second Quarter Results Conference Call. (Operator Instructions) This call is being recorded on Wednesday, August 14, 2019.

I would like to now turn the conference over to Jesse Ledger, President and CEO. Please go ahead.

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Jesse F. Ledger, Nuvo Pharmaceuticals Inc. - President & CEO [2]

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Thank you. Good morning, and thank you for joining our call today. On the call with me this morning from Nuvo Pharmaceuticals is Mary-Jane Burkett, Nuvo's Vice President and Chief Financial Officer; and Tina Loucaides, Nuvo's Vice President, Secretary and General Counsel.

This morning's call makes reference to a presentation on our website that should be viewed concurrently. If you have not downloaded this presentation, I would invite you to do so now by visiting www.nuvopharmaceuticals.com and scrolling down to the bottom of the page. You can then click on the link.

Before we begin, I will remind you that certain matters discussed in today's conference call or answers that may be given to questions asked could constitute forward-looking statements that are subject to risks or uncertainties relating to Nuvo's future financial and business performance. Actual results could differ materially from those anticipated in these forward-looking statements. The risk factors that may affect results are detailed in Nuvo's periodic and annual disclosure documents as well as the news release that we issued this morning. And you can access these documents in the SEDAR database under www.sedar.com. Except as required by law, Nuvo is under no obligation to update any forward-looking statements discussed today, and investors are cautioned not to place undue reliance on these statements.

The agenda for today's discussion is as follows: I will provide a business overview for the quarter; Mary-Jane will discuss the financial results for the second quarter, which were announced earlier today; I will provide a key products and business update, followed by growth drivers for the Nuvo business in 2019.

During the second quarter, our operating segments continue to perform in line with our expectations, and our second quarter financial results reflect the impact the Aralez Transaction has had on our business. The growth of Blexten and Cambia during the quarter was particularly encouraging. We have also identified synergies and efficiencies in our business and have made changes to our operations as part of our integration process, which will yield approximately $7 million in annual savings through our operating budget. Implementation of these changes has already begun but the full impact of the changes to be realized by the end of the second quarter of 2020 and annually thereafter.

Finally, the United States Court of Appeals for the Federal Circuit denied Nuvo's en banc request to the United States Court of Appeals for the Federal Circuit to have the court reconsider the May 2019 decision in relation to certain U.S. patents. I will go into further detail about this decision later in the presentation.

I will now turn the call over to Mary-Jane, who will take you through our financial results for the quarter and year-to-date.

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Mary-Jane E. Burkett, Nuvo Pharmaceuticals Inc. - VP & CFO [3]

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Thanks, Jesse. Today's presentation includes reference to certain financial measures that do not have a standardized meaning under IFRS. These measures include adjusted total revenue and adjusted EBITDA. Nuvo believes that shareholders, investment analysts and other readers find such measures useful in understanding Nuvo's financial performance. For a description of how Nuvo defines these non-IFRS financial measures as well as a reconciliation of these measures, please refer to Slides 21 and 22 of this presentation as well as Nuvo's management discussion and analysis filed on SEDAR.

Adjusted total revenue increased to $19.1 million and $36.2 million for the 3 and 6 months ended June 30, 2019, compared to $6 million and $10.6 million for the comparative 3 and 6 months. As a result of the Aralez Transaction, the company now recognizes 3 operating segments: the Commercial Business, the Production and Service Business and the Licensing and Royalty Business. The $3.1 million increase in adjusted total revenue in the current quarter primarily related to the timing of the Aralez Transaction, which provided an incremental $9.7 million of total revenue contributed from the Commercial Business segment and $4.7 million attributable to the Vimovo royalties related to the U.S. and ex-U. S. territories partially offset by a $1.2 million decrease in Production and Service revenue.

Adjusted EBITDA increased to $5.7 million and $10.9 million for the 3 and 6 months ended June 30, 2019, compared to $2 million and $2.7 million for the comparative 3 and 6 months. The increase in adjusted EBITDA for the current quarter was primarily attributable to an increase in gross profit as a result of the Aralez Transaction partially offset by an increase in sales and marketing and general and administrative expenses, including $1 million for onetime restructuring expenses.

Gross profit on total revenue was $9.6 million or 58% and $18.7 million or 60% for the 3 and 6 months ended June 30, 2019, compared to a gross profit of $3.5 million or 60% and $6.1 million or 59% for the comparative 3 and 6 months. The increase in gross profit for the current quarter was primarily attributable to an increase in gross margin on product sales and an increase in license revenue due to the timing of the Aralez Transaction.

I will now turn the call back to Jesse.

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Jesse F. Ledger, Nuvo Pharmaceuticals Inc. - President & CEO [4]

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Thanks, Mary-Jane. Our Canadian Commercial Business is one of our key growth drivers for Nuvo moving forward. Over the next 3 slides, I will provide you with a summary of the year-to-date performance of our key Canadian growth products: Blexten and Cambia, which have continued to perform as expected throughout the second quarter.

Blexten is a clinically differentiated second-generation oral antihistamine that is approved in Canada for treatment of seasonal allergic rhinitis or allergies and chronic spontaneous urticaria or hives. The second quarter marked the beginning of the important allergy season across most of Canada. While allergy season started early in the West of Canada with unseasonably warm weather towards the end of Q1, the East and Central parts of the country saw a delayed beginning to allergy season due to the cool and rainy spring. By the end of the quarter, allergy season was in full swing, and this is reflected in our prescription volume and market share growth.

Blexten demonstrated continued year-over-year growth of total prescriptions, or TRx, and TRx market share during the quarter. Blexten Q2 2019 TRx increased 64% over Q2 2018. And for the first half of 2019, TRx increased 69% over the first half of 2018. Blexten year-to-date TRx market share has increased to 12% compared to 6.8% in the comparable 2018 period.

Since commercial launch, Blexten has continued to take market share away from REACTINE or cetirizine. In fact, to date, cetirizine has lost over 14 percentage points of market share according to data from IQVIA. Furthermore, Blexten's TRx market share in June of 2019 has achieved a record peak of 15.1%. In the second half of the year, we anticipate a slight tapering of prescriptions, consistent with historical seasonal trends in the antihistamine marketplace. However, we expect continued year-over-year growth of TRx, consistent with the trend in the first half of this year.

Turning to our second key growth product. Cambia is an innovative prescription treatment for acute migraine. Cambia, which is the only prescription NSAID approved in Canada to treat acute migraine, acts fast and begins to work in as low as 15 minutes.

Cambia Q2 2019 TRx increased 30% over Q2 2018. And for the first half of 2019, TRx increased 29% over the first half of 2018. Cambia year-to-date 2019 TRx market share has increased to 4.1% compared to 3.4% for the comparable 2018 period. Cambia's role as a first-line treatment of acute migraine continues to expand with new patients being added every week. We anticipate continued prescription growth through the second half of the year, consistent with historical trends, culminating at the end of the year with the traditional peak migraine holiday period.

Our most advanced pipeline asset, Suvexx, is moving through its Health Canada review, and we continue to expect a review decision in the first quarter of 2020. Suvexx is a patent-protected fixed-dose combination of sumatriptan and naproxen. This unique combination provides patients with a dual mechanism of action to treat migraine. Suvexx uses a proprietary RT formulation technology to optimize drug delivery and enhance the clinical effect of these medicines. Suvexx represents a compelling treatment option for Canadian physicians and patients because of its strong clinical efficacy.

The next 4 slides highlight some of the results from the pivotal Phase III studies that were completed on Suvexx. First, our data for headache relief at 2 hours post-dosing was 65% and 57% of Suvexx patients in the 2 clinical trials highlighted here, achieving headache relief at 2 hours post-dosing. A key endpoint for acute migraine clinical trials shows Suvexx provides statistically significant headache relief compared to placebo as well as 85-milligram doses of sumatriptan or 500-milligram doses of naproxen alone.

While headache relief at 2 hours is important, sustaining that pain relief over a 24-hour period is equally important and is another important acute migraine clinical endpoint. In the Suvexx pivotal Phase III trials, 72% and 74% of Suvexx patients who achieved headache relief at 2 hours maintained that relief through 24 hours.

The aim of acute migraine treatment is to allow patients to achieve relief and get back to their day-to-day activities. The Phase III data on Suvexx demonstrates statistically significant results, again, in comparison to placebo as well as sumatriptan and naproxen alone in sustained pain relief over 24 hours without the use of rescue medication.

Keeping with the theme of rescue medication, significantly fewer Suvexx patients required rescue medication in Phase III studies. Only 22% and 23% of Suvexx patients required rescue medication compared to 53% and 58% of placebo patients and even more importantly, 32% to 38% of the sumatriptan or naproxen monotherapy patients. These results are statistically significant against placebo and the individual components of Suvexx. Reducing the use of rescue medicine, which is a patient's use of additional pain relief medicines because the initial migraine treatment is ineffective or does not provide sufficient pain relief, is important as one of the causes of migraine in the first place is the overuse of pain medications.

Finally, Suvexx treatment has also demonstrated statistically significant effectiveness in patients who are poor responders or are intolerant to triptan therapy. This data is particularly interesting as we will be launching Suvexx into a market that already contains a number of well-established triptan migraine therapies. The fact that a patient is a triptan nonresponder will not be a deciding factor when a physician is making a prescribing decision on Suvexx.

Approximately 30% to 40% of migrainers do not respond adequately to triptan therapy. This is a relatively large patient population that represents an interesting commercial opportunity for Suvexx. We believe that the data presented here as well as other clinical data, which we anticipate will be present in our prospective labeling, will be very helpful in differentiating Suvexx from other acute migraine treatments and to carve out a market position for Suvexx in Canada.

With respect to our U.S. Vimovo business, on May 15, 2019, we made an announcement regarding the U.S. Federal Court decision, which invalidated 2 patents protecting the U.S. Vimovo royalty stream. Since that time, Nuvo management, working closely with our U.S. partner, has considered every possible legal strategy to ensure the validity of our patents was maintained.

In June, Nuvo, along with our U.S. partner, requested that the U.S. Court of Appeals for the Federal Circuit reconsider their May decision relating to the invalidity of the 2 patents on Vimovo. On July 30, the U.S. Court of Appeals denied our request to reconsider their May 2019 decision.

This recent decision by the U.S. Court of Appeals now permits the U.S. Food and Drug Administration to approve a generic version of Vimovo. Nuvo still owns other valid patents, so any generic company that launches a generic version of Vimovo prior to the expiration of these other patents would be launching into what is referred to as an at-risk launch. This means that if Nuvo's other patents are found to be valid and infringed through litigation, we can sue for damages.

While it is possible that a generic version of Vimovo will not be launched at risk in the U.S. market, Nuvo anticipates that this could occur during the second half of this year. Once a generic competitor enters the market, we will no longer be entitled to our minimum annual royalty payment from our U.S. partner, USD 7.5 million a year. But we'll continue to receive a 10% royalty on net sales, which is subject to a step-down provision once the generic competitors achieve a certain market share percentage.

Another legal option that Nuvo and our U.S. partner consider is a further appeal of the U.S. Court of Appeals' recent decision to the U.S. Supreme Court. While the development surrounding the Vimovo patents in the U.S. were unforeseen and very disappointing, Nuvo and our U.S. partner continue to monitor the situation very closely. As of the end of business yesterday, a generic version of Vimovo has not been launched in the U.S. market.

In parallel to efforts to defend our U.S. Vimovo patents, we've been focused on ensuring our overall business remains healthy and we can continue to grow our business and reduce our debt levels moving forward. Despite the eventual loss of the Vimovo royalty stream, our remaining overall business continues to perform as expected. When we combine our underlying business with the approximately $7 million in operating efficiencies and changes we have identified, we remain well positioned for continued growth and the creation of shareholder value.

Our focus areas have not changed in light of the events of the second quarter. We will continue to invest in the core growth products of our Canadian Commercial Business: Cambia, Blexten, Resultz and assuming Health Canada approval, Suvexx. We will continue to expand our global business with particular focus on Pennsaid 2% and Resultz. Furthermore, our manufacturing facility in Varennes is now ready to produce results for the U.S. market, subject of course to securing a license partner.

Finally, we continue to seek out new business development opportunities that leverage our enhanced commercial platform and have a number of unique pipeline opportunities under evaluation today.

In conclusion, while the Vimovo events of the second quarter have caused some headwinds, our underlying Canadian Commercial Business, Manufacturing and Services Business and Global Royalty Business continues to perform to plan. We are pleased with our financial results year-to-date and look forward to further developments during the remainder of this year.

As always, thank you for your continued support. That ends our formal remarks, and I will now turn this back to the operator for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from Antonia Borovina of Bloom Burton.

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Antonia Borovina, Bloom Burton & Co., Research Division - Associate of Equity Research [2]

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Antonia on the line for Dave. Just wondering, 2 quick questions. Could you provide us with any updates on the Resultz partnering discussion in the U.S. and whether you plan to change your strategy on that front? And then also if you could let us know whether your partner for Resultz in Germany has launched the product? And if there are any other updates for approvals and launches of either Resultz or Pennsaid in international markets?

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Jesse F. Ledger, Nuvo Pharmaceuticals Inc. - President & CEO [3]

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Sure. Okay. Thanks for the questions, Antonia. As far as the U.S. partnering situation is concerned, I made reference to the fact that our manufacturing facility is now ready to manufacture. We made that decision to prepare the facility because of advancing partnering discussions that we've had. So as always, it's difficult to pinpoint the time line as to when a deal would be finalized or announced. But we've made the decision to move forward with preparing the facility to manufacture, and we continue to have very active discussions on U.S. partnering for Resultz.

And then as far as the German question, so the commercial -- the actual first commercial sales have not yet occurred. Commercial launch preparations are underway. There is a bit of a delay as a result of the German authorities required to change to the trade name of the product that was going to be used in Germany. They needed a German trade name. And so now that, that's been finalized, packaging has been finalized and designed, and we're ready to go. So all of the prelaunch activities are underway, and we'll be looking at a commercial launch in the second half of this year.

And as far as additional commercial launches, the most near-term one would be Pennsaid 2% in India. And so we have received the marketing authorization from the Indian authorities. There are 2 additional, I guess, approvals that are required, and these are really in relation to an import permit and a pricing approval. And so those approvals we're expecting or anticipating over the course of this quarter that we're in now. And so we're anticipating that we may be in a position to start shipping products later this year. But obviously, that's all subject to timelines for when these additional registrations or authorizations come through. So I think all in all, we've made good progress with the products. Even looking at the progress that we've made with our registration on Pennsaid 2% in Europe, that continues to go well. We've received questions from the regulators, and we're answering those questions and moving forward. So I think everything is moving forward quite nicely on our international business.

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Operator [4]

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(Operator Instructions) And there are no further questions at this time. Please proceed.

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Jesse F. Ledger, Nuvo Pharmaceuticals Inc. - President & CEO [5]

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Okay. Well, thank you, everybody, for dialing in or logging in and listening to the call today. Appreciate your support. And as always, if there are any additional questions or comments, feel free to reach out to us through our Investor Relations e-mail on our website. Thanks, and enjoy the rest of your summer.

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Operator [6]

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Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.