U.S. Markets closed

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

Q1 2019 Nuvo Pharmaceuticals Inc Earnings Call

MISSISSAUGA May 21, 2019 (Thomson StreetEvents) -- Edited Transcript of Nuvo Pharmaceuticals Inc earnings conference call or presentation Tuesday, May 14, 2019 at 12:30:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Jesse F. Ledger

Nuvo Pharmaceuticals Inc. - President & CEO

* Mary-Jane E. Burkett

Nuvo Pharmaceuticals Inc. - VP & CFO

================================================================================

Conference Call Participants

================================================================================

* David C. Martin

Bloom Burton & Co., Research Division - MD & Head of Equity Research

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Good morning, ladies and gentlemen, and welcome to the Nuvo Pharmaceuticals Inc.'s First Quarter Results Conference Call. (Operator Instructions) This call is being recorded on Tuesday, May 14, 2019.

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

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Thank you. Good morning, everyone. 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 to download the file.

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.

Today's presentation also includes reference to certain financial measures that do not have 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 helpful in understanding Nuvo's financial performance. For a description of how Nuvo defines these non-IFRS financial measures, please refer to the written presentation materials as well as Nuvo's management discussion and analysis filed on SEDAR.

The agenda for today's discussion will focus on 3 areas. Mary-Jane will discuss the financial results for the first quarter, which were announced earlier today. I will provide a key products and business update. And lastly, I will take you through the upcoming milestones and growth drivers for the Nuvo business in 2019.

Mary-Jane?

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Thanks, Jesse. Before I get started, listeners should note that adjusted total revenue and adjusted EBITDA are non-IFRS measures that should not have any standardized meaning prescribed by IFRS. Nuvo believes that shareholders, investment analysts and other readers of financial statements find such measures useful and helpful in understanding Nuvo's financial performance and interpreting the facts of the Aralez Transaction and the digital financing on the company. For further details on the reconciliation of these Nuvo non-IFRS measures, please review Slides 17 and 18 of this presentation.

The company defines adjusted total revenue as total revenue plus amounts billed to customers for existing contract assets, less revenue recognized upon recognition of a contract asset. Management believes adjusted total revenue is a useful supplemental measure from which to determine the company's ability to generate cash from its customer contract that is used to fund its operations.

Adjusted total revenue increased to $17.1 million for the 3 months ended March 31, 2019, compared to $4.5 million for the comparative quarter. 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 $12.6 million increase in adjusted total revenue in the current quarter primarily related to an increase in revenue from the company's Production and Service Business segment and the timing of the Aralez Transaction, which provided an incremental $6.8 million of adjusted total revenue contributed from the Commercial Business segment; $4.7 million primarily attributable to the Vimovo royalties related to the U.S. and ex-U. S. territories.

The company defines adjusted EBITDA as net income before net interest expense, depreciation and amortization and income tax expense, plus amounts billed to customers for existing contract assets, inventory step-up expense, stock-based compensation expense, other expenses, less revenue recognized upon recognition of a contract asset and other income. Management believes adjusted EBITDA is a useful supplemental measure from which to determine the company's ability to generate cash available for working capital, capital expenditures, debt repayments, interest expense and income taxes.

Adjusted EBITDA increased to $5.2 million for the 3 months ended March 31, 2019, compared to $0.6 million for the 3 months ended March 31, 2018. The increase in adjusted EBITDA for the current quarter was primarily attributable to the Aralez Transaction. An increase in gross profit was partially offset by an increase in sales and marketing and G&A costs.

Gross profit on total revenue was $9 million for the 3 months ended March 31, 2019, compared to a gross profit of $2.5 million for the 3 months ended March 31, 2018. 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. In the current quarter, the company's gross profit was reduced by $1.2 million of inventory step-up expense for the sale of inventory that was acquired by the company as part of the Aralez Transaction.

I will now turn the call back to Jesse.

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Thanks, Mary-Jane. Our Canadian Commercial Business is one of the key growth drivers for Nuvo moving forward. Over the next 4 slides, I will provide you with a summary of the Q1 performance of our key Canadian growth products, Blexten and Cambia.

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. Since its initial commercial launch in December 2016, Blexten has continued to take market share from the market leader, cetirizine, a product more commonly known as REACTINE. To date, Blexten has taken over 11% market share in the prescription antihistamine market, nearly all of it from cetirizine.

Furthermore, Q1 2019 total prescriptions, or TRx, are up 78% over Q1 2018. It's important to remember that the Blexten business experiences seasonality, with peaks in Q2 and Q3 during the annual allergy season. Historically, nearly 60% of prescriptions within the antihistamine market are written in Q2 and Q3.

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 little as 15 minutes. Year-to-date, Cambia total prescriptions are up 28% over the comparable period in 2018. This is exceptional year-over-year growth for a product that has been on the market for 7 years. Cambia continues to demonstrate consistent growth, both from a total prescription and market share standpoint.

During our 2018 year-end conference call, I previewed some of the anticipated milestones for the Nuvo business in 2019. I'm pleased to say that we have already achieved 2 of our key pipeline development milestones this year. First, our Pennsaid 2% registration dossier was accepted for review by AGES, the Austrian Health Authority, in April of this year. We anticipate AGES will complete their review during the first half of 2020.

Second, the submission of our Suvexx registration dossier has been accepted for review by Health Canada. We anticipate Health Canada will complete its review during the first half of 2020.

Achieving these regulatory submission milestones is very important to the downstream growth potential of our business in Canada and internationally. Without marketing authorizations for our products, we cannot generate revenue in new markets. I commend our scientific affairs and technical operations teams for their hard work in achieving these regulatory submission milestones.

Preparations are now underway for the commercial launch of Resultz in Germany through our commercial partner, Heumann. Germany is the largest head lice market in Europe and will be the largest market we have launched Resultz in to date. Background, our commercial partner in the Belgian, Netherlands and Luxembourg, or Benelux, regions has now initiated their commercial launch in the Netherlands, in addition to the relaunch in Belgium last year. This small opportunity is anticipated to provide incremental production and service revenue as well as royalty revenue to our business.

During the second half of the year, we anticipate filing the pediatric versions of Blexten with Health Canada. This includes both an oral syrup as well as an orally disintegrating rapid-dissolve tablet format.

Finally, we anticipate a review decision in India for Pennsaid 2% during the second half of the year. If successful, this would be the first Asian market that has approved the Pennsaid portfolio product.

Coming back to Suvexx. As mentioned previously, Suvexx is now under review by Health Canada. Suvexx is a patent-protected fixed-dose combination of naproxen, also known as Aleve or Naprosyn, and sumatriptan, also known as IMITREX, 2 commonly prescribed treatments for migraine headache. If approved, Suvexx will enhance Nuvo's presence in the $130 million Canadian prescription migraine treatment market. It's worth noting that 96% of prescriptions in the migraine market are written for triptan class medicines, like sumatriptan. A Suvexx commercial launch will provide our commercial team with another clinically differentiated products and one more product to enhance our overall market share in this growing therapeutic category. We have established a significant presence in the migraine space, including strong relationships with key prescribers and opinion leaders. A commercial launch of Suvexx would benefit from our existing commercial presence and health care provider relationships for a more cost-effective commercial launch.

Looking forward, we will continue to be focused on 3 areas of our business. First, we will continue to invest in the core growth products of our Canadian commercial business. This includes Cambia, Blexten, Resultz and assuming Health Canada approval, Suvexx. Investing in these products means our sale force -- sales force will continue to promote these products in Canada. We will continue to provide educational programs and support to health care professionals who are treating patients in our target therapeutic areas. And we will look at ways in which to enhance our products through value-added life cycle management strategies.

Second, we will continue to expand our global business with a particular focus on Pennsaid 2% and Resultz. Our enhanced international infrastructure in Dublin and our manufacturing facility in Varennes are well positioned to support this growth.

Third, we continue to seek out new business development opportunities that leverage our enhanced commercial platform. We have a strong financial partner in Deerfield to support potential transactions in the future and have a $25 million acquisition line available to us to deploy towards these value-creating opportunities.

In conclusion, 2019 is off to a great start. Our Commercial Business is performing as we had expected, we are well on our way to achieving key pipeline development milestones and the integration of the Aralez business is proceeding smoothly. We have all of the pieces in place to continue to grow our business in Canada and globally, and look forward to sharing our achievements in the quarters to come.

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.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) Your first question is from David Martin from Bloom Burton.

--------------------------------------------------------------------------------

David C. Martin, Bloom Burton & Co., Research Division - MD & Head of Equity Research [2]

--------------------------------------------------------------------------------

The first question I have is more a housekeeping question. The inventory step-up that you're incurring now, how long do you expect that, that will last?

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Dave, thanks for your question. So we expect that, that step-up cost will be recognized over the course of the next 2 years on a declining trajectory.

--------------------------------------------------------------------------------

David C. Martin, Bloom Burton & Co., Research Division - MD & Head of Equity Research [4]

--------------------------------------------------------------------------------

Sorry. 2 years or 3 years?

--------------------------------------------------------------------------------

Mary-Jane E. Burkett, Nuvo Pharmaceuticals Inc. - VP & CFO [5]

--------------------------------------------------------------------------------

2 years.

--------------------------------------------------------------------------------

David C. Martin, Bloom Burton & Co., Research Division - MD & Head of Equity Research [6]

--------------------------------------------------------------------------------

2 years. Okay. On Suvexx, the sumatriptan and naproxen, what will be the advantage of the combined product over buying the 2 generics individually? Will it be at par cost twice and then just the convenience advantage? Or is there something that will just apply a higher price?

--------------------------------------------------------------------------------

Jesse F. Ledger, Nuvo Pharmaceuticals Inc. - President & CEO [7]

--------------------------------------------------------------------------------

Sure. Well, I'm not necessarily going to comment on pricing right now, but certainly, there is a convenience factor there. We do have as well a significant amount of clinical data that shows that this fixed-dose combination is highly effective and certainly more effective than either the individual components on their own.

I think the other part that is worth noting is that in the migraine treatment guidelines that are published in Canada and supported by the key opinion leaders in Canada and around the world, second-line treatment option for acute migraine headache recommends the combination of an NSAID -- a prescription NSAID and a triptan. And so because this is a well-established method of treating acute migraine, the combination makes total sense and sort of fits very nicely into the established treatment guidelines.

--------------------------------------------------------------------------------

David C. Martin, Bloom Burton & Co., Research Division - MD & Head of Equity Research [8]

--------------------------------------------------------------------------------

Okay. Over to Resultz, you have been looking for a partner in the U.S. and that hasn't come about as quickly as we had thought. Is the U.S. not moving to non-pesticidal lice treatment the way Europe has? What -- like, what have been the barriers you've come up against in your search for a partner there?

--------------------------------------------------------------------------------

Jesse F. Ledger, Nuvo Pharmaceuticals Inc. - President & CEO [9]

--------------------------------------------------------------------------------

I think we continue to be in active discussions. I think sort of what has happened there, the barrier has really been identifying a partner that has a strong presence in this category and not necessarily the head lice category. But in the U.S., these products are on the shelf in the first aid and in the pediatric section of the pharmacy. And so what we're trying to find and identify is a partner that has a presence or an interest in those spaces in that category and -- so that they can leverage existing relationships for other products in that category. So we've got a number of ongoing discussions. I know -- recognize that we've had ongoing discussions for a while, but they -- we do legitimately have active discussions, we're continuing down the path, and it's just obviously taken longer than we had expected.

--------------------------------------------------------------------------------

David C. Martin, Bloom Burton & Co., Research Division - MD & Head of Equity Research [10]

--------------------------------------------------------------------------------

Okay. And last question. Your Varennes facility wanted to leveraged that by manufacturing more products there. What -- do you have definite plans to bring products into that facility among the ones that you've acquired through the Aralez assets?

--------------------------------------------------------------------------------

Jesse F. Ledger, Nuvo Pharmaceuticals Inc. - President & CEO [11]

--------------------------------------------------------------------------------

So first of all, obviously, work is underway for the Resultz tech transfer, and the initial market that will be targeting to manufacture in that -- in the Varennes facility is for the U.S. market. We're also obviously looking at the Canadian market as well.

As far as some of the other products that we acquired in the Aralez Transaction, we are looking at some line extension opportunities for a few of our products that we could manufacture in that facility. And so there is work underway as we speak in that regard, but it's still a little preliminary in terms of being able to talk about time lines or when those products might come to market, but that was certainly one of the benefits of doing this transaction is as we look at the internal pipeline that came with this business, we're able to leverage the manufacturing facility in Varennes, which is great.

--------------------------------------------------------------------------------

Operator [12]

--------------------------------------------------------------------------------

(Operator Instructions) At this time, we have no other questions. You may proceed.

--------------------------------------------------------------------------------

Jesse F. Ledger, Nuvo Pharmaceuticals Inc. - President & CEO [13]

--------------------------------------------------------------------------------

Okay. Well, thanks, everyone for joining us this morning. Appreciate your time. And as always, feel free to reach out through our investor contacts on the website if you have any other questions after the fact. Thanks, and take care. Bye.

--------------------------------------------------------------------------------

Operator [14]

--------------------------------------------------------------------------------

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