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Edited Transcript of OPNT earnings conference call or presentation 12-Nov-19 9:30pm GMT

Q3 2019 Opiant Pharmaceuticals Inc Earnings Call

SANTA MONICA Dec 5, 2019 (Thomson StreetEvents) -- Edited Transcript of Opiant Pharmaceuticals Inc earnings conference call or presentation Tuesday, November 12, 2019 at 9:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* David D. O'Toole

Opiant Pharmaceuticals, Inc. - CFO

* Rahsaan Thompson

Opiant Pharmaceuticals, Inc. - General Counsel

* Roger Crystal

Opiant Pharmaceuticals, Inc. - CEO & Director

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Conference Call Participants

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* Carl Edward Byrnes

Northland Capital Markets, Research Division - MD & Senior Research Analyst

* David Bautz

Zacks Investment Research, Inc. - Senior Biotechnology Analyst

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Presentation

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Operator [1]

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Greetings and welcome to the Opiant Pharmaceuticals Third Quarter 2019 Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Rahsaan Thompson, General Counsel of Opiant Pharmaceuticals. Thank you, Rahsaan. You may begin.

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Rahsaan Thompson, Opiant Pharmaceuticals, Inc. - General Counsel [2]

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Thank you, operator, and thank you all for joining us this afternoon. On the call today are Opiant's CEO, Chief Executive Officer, Dr. Roger Crystal; and Chief Financial Officer, David O'Toole. This afternoon, Opiant issued a press release announcing financial results and providing a corporate update for the third quarter ended on September 30, 2019.

Please note that certain information disclosed -- excuse me, discussed on the call today is covered under the safe harbor provisions of the Private Securities Litigation Reform Act. We caution listeners that during this call, Opiant management will be making forward-looking statements. Actual results could differ materially from those stated or implied by these forward-looking statements due to risks and uncertainties associated with the company's business. These forward-looking statements are qualified by the cautionary statements contained in Opiant's news releases and SEC filings, including our annual report on Form 10-K for the year ended December 31, 2018, and subsequent filings. This conference call also contains time-sensitive information that is accurate only as of the date of this live broadcast, November 12, 2019. Opiant undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this conference call.

Now I'd like to turn the call over to Roger.

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Roger Crystal, Opiant Pharmaceuticals, Inc. - CEO & Director [3]

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Thank you, Rahsaan. And thank you to everyone for joining us this afternoon.

Before I provide you with the operational update, I'd like to begin with a discussion of opioid addiction and overdose in the United States. As I said before, the opioid crisis has evolved into a fentanyl crisis, and provisional CDC data for 2018 indicates a 20% increase in opioid overdose deaths that contain fentanyl when compared to 2017. Furthermore, there have been multiple news reports over the past several months involving fentanyl. Many states are citing that fentanyl deaths are on the rise in their communities, and there have been many large-scale seizures of illegal fentanyl.

For example, in October, more than 40 pounds of fentanyl was seized in Ohio. State officials said that this was enough to kill the entire population of Ohio many times over. In addition, last month in Southern California, 18 pounds, enough to create 4 million lethal doses, were seized in Orange County. Clearly, this is a critical and growing public health crisis in the U.S. However, Opiant is well positioned to address this challenge.

While access to naloxone is critical to save lives, a substantial need exists for stronger, longer-acting opioid antagonists due to the rapid increase in fentanyl-related overdoses. We are developing OPNT003 nasal nalmefene to help address this issue. At our recent R&D Day, we highlighted why we believe nasal nalmefene may be better suited to treat fentanyl-related overdoses than naloxone. Although naloxone is effective against opioids, according to multiple recently published papers, successful rescue of fentanyl-overdosed victims may require more naloxone than is often available to first responders. For example, a study published in 2017 evaluated a cohort of 18 patients who overdosed on alprazolam, Xanax, laced with fentanyl. Despite receiving a naloxone administered by first responders, for those who survived, substantial additional naloxone was required and administered upon arrival to the ER. And many of these victims also needed a continuous intravenous naloxone infusion for over 24 hours. Because of its potency and rapid onset of action, a fentanyl overdose is far more likely to result in a fatality as compared to overdoses that arise from heroin and prescription opiates.

Nalfemene's pharmacological properties makes it better suited to treat fentanyl-related overdoses. We believe that the high affinity of nalmefene at mu opioid receptors, allowing for potency 5x greater than that of naloxone, combined with a rapid absorption and long half life of OPNT003, increases the probability of a successful rescue while reducing the probability of a renarcotization event, making it particularly well suited to treat opioid overdoses caused by fentanyl and related synthetic opioids.

With that, let me now provide you with an update on our 003 development program. While we had initially targeted the third quarter to complete the PK study, we are now aiming to initiate the study this quarter. I should note that this is a 2- to 3-week study in healthy volunteers, and I'm pleased to report that we now have IRB approval to conduct the study. While we now expect the PK data to be available in the first quarter of 2020, we remain on track to file an NDA next year. So from a commercial standpoint, we remain on schedule.

As a reminder, the FDA previously confirmed the 505(b)(2) regulatory pathway for OPNT003, similar to the development pathway for NARCAN Nasal Spray. In addition, OPNT003 has been validated by the U.S. government through a $7.4 million grant from NIDA and the contract for up to $4.6 million from BARDA to accelerate its development as a medical countermeasure in the event of a fentanyl chemical attack.

In addition to government funding, our programs are well funded with a revenue stream via royalties from net sales of NARCAN Nasal Spray. We licensed NARCAN to adapt pharma in 2014, which was subsequently acquired by Emergent BioSolutions, or EBS, for $735 million last year, highlighting the value of NARCAN Nasal Spray. Under this licensing agreement, based on EBS's achievements of net NARCAN sales in excess of $200 million, which they recently announced, Opiant has earned a onetime gross payment of $13.5 million. David will provide further details here shortly, but we are obviously pleased with this milestone payment. EBS's updated full year 2019 sales guidance of $275 million to $285 million for NARCAN Nasal Spray further validates the significant addressable market opportunity for opioid overdose reverse agent.

Moving on, I'd like to discuss drinabant, OPNT004, our acute cannabinoid overdose program, or ACO. As a reminder, we in-licensed drinabant for the treatment of ACO from Sanofi in December 2018 and subsequently expanded our relationship with them to include its manufacturing. ACO is most often linked to the ingestion of edibles containing large quantities of THC and synthetic cannabinoids such as K2 and Spice. As a reminder of the opportunity here, ACO resulted in approximately 1.3 (sic) [1.3 million] emergency department visits in the United States in 2016, the latest year for which data are available. The number of reported emergency room visits to 2017 and 2018 is expected to rise with the increasing legalization of cannabis in North America. As the legalization of cannabis increases, we anticipate a potential cannabis crisis for which society is not prepared. Importantly, there are no currently approved treatments for ACO, and we are unaware of others that are currently in development. This increasing need for ACO treatment has us excited about our OPNT004 development program. Drinabant has been shown to be safe and well tolerated when taken orally. In Phase I and Phase II studies conducted by Sanofi, more than 700 volunteers and patients received oral drinabant for up to 24 weeks. In addition, in a study establishing proof of principle, 36 subjects were given oral drinabant and then inhaled THC. Both the subjective and objective effects of THC were blocked.

Opiant will reformulate drinabant as an injection so it can rapidly reverse the symptoms of ACO in an emergency room setting. We intend to initiate formulation development study shortly, and we'll expand those activities in 2020.

Moving on to OPNT002, nasal naltrexone, which we are developing for alcohol use disorder or AUD. Our dose selection study has been completed, and the data have allowed us to select a suitable dose for the Phase II clinical trial. We expect to initiate patient recruitment for the Phase II study later this year and complete patient enrollment within 12 months. The trial will be conducted in a number of countries in Europe and the U.K. with enrollment targeted at 300 patients.

Finally, I'd like to welcome Aziz Mottiwala, our new Chief Commercial Officer; and Rahsaan Thompson as our new General Counsel. Aziz is critical in helping us determine our commercial strategy. He has more than 20 years of leadership experience in the biopharmaceutical industry across all areas of commercialization. Prior to joining Opiant, Aziz was Senior Vice President and Head of Commercial at Avanir Pharmaceuticals. He also spent over 10 years at Allergan. Rahsaan will be responsible for all legal aspects of corporate strategy, intellectual property, transactions, compliance and regulatory matters. He most recently served as Vice President of Law for Actelion, which was acquired by J&J for $30 billion.

With that, I will now ask David to discuss our financial results. David?

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David D. O'Toole, Opiant Pharmaceuticals, Inc. - CFO [4]

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Thank you, Roger. Before I review our financial results, I'd like to highlight the onetime $13.5 million milestone payment we have earned based on net sales of NARCAN Nasal Spray, exceeding $200 million through the third quarter of 2019. This milestone payment will significantly strengthen our balance sheet, though, as you may recall, pursuant to Opiant's license agreement with EBS, EBS will reduce the amount payable to Opiant by the remaining $2.7 million of the license fees payable. Therefore, the net amount we will receive in the fourth quarter of 2019 will be $10.8 million.

I'll further discuss our balance sheet in a moment. First, though, a brief discussion of the results for the third quarter ended September 30, 2019. We recognized $20.6 million in revenue during the 3 months ended September 30, 2019, compared to $4.4 million in the corresponding period of 2018. For the third quarter, we recognized approximately $20.5 million of revenue from the license agreement with EBS for the sale of NARCAN Nasal Spray compared to approximately $4.2 million in the comparable period of 2018. While $13.5 million of this $20.5 million is related to the onetime milestone payment, the remaining increase of $7 million in royalty revenue represents an increase of 67% year-over-year and was driven by higher net NARCAN sales of approximately $75 million in the third quarter of 2019 as reported by EBS.

G&A expenses were $3.2 million and $2.9 million for the 3 months ended September 30, 2019 and September 30, 2018, respectively. The increase was primarily due to a $400,000 increase in personnel and related expense, a $300,000 increase in royalty expense and a $100,000 increase in consulting fees, partially offset by a $500,000 decrease in stock-based compensation expense. R&D expenses were essentially flat at $1.8 million for the 3 months ended September 30, 2019 and September 30, 2018. Sales and marketing expense for the 3 months ended September 30, 2019, were approximately $140,000 compared to none in the comparable period of 2018. The increase was primarily due to compensation expense.

Royalty expense for the 3 months ended September 30, 2019, was approximately $4.9 million compared to approximately $0.5 million in the comparable period in 2018. The increase was primarily due to a $3.1 million increase in payments due to Net Profit Partners for the royalties and sales milestone earned from the net sales of NARCAN Nasal Spray, and $1.3 million for payments made to buy out the net profit interest in nasal nalmefene held by investors who had initially supported the development of NARCAN Nasal Spray.

Net income for the 3 months ended September 30, 2019, was approximately $10.7 million or $2.64 per basic and $1.97 per diluted share compared to a net loss of approximately $0.9 million or a loss of $0.32 per basic and diluted share in the comparable period of 2018.

Now let's focus on the results for the 9 months ended September 30, 2019. We recognized $32.9 million in revenue during the 9 months ended September 30, 2019, compared to $9.2 million in the corresponding period of 2018. For the 9 months ended September 30, 2019, we recognized $30.4 million of revenue from the agreement between us and EBS as compared to $8.9 million in the comparable period of 2018. As discussed previously, $13.5 million of the revenue of $30.4 million is related to the onetime milestone earned in the third quarter of 2019. The remaining increase of $16.9 million in royalty revenue represents an increase of 90% year-over-year and was driven by higher net NARCAN sales of approximately $213.5 million in the 9 months ended September 30, 2019, as reported by EBS.

G&A expenses were $9.4 million and $8.7 million for the 9 months ended September 30, 2019 and September 30, 2018, respectively. The increase was primarily due to a $700,000 increase in royalty expense, a $700,000 increase in legal and professional fees and a $700,000 increase in personnel and related expense, including recruiting, offset by a $1.4 million decrease in stock-based compensation expense.

R&D expenses for the 9 months ended September 30, 2019, were approximately $7 million compared to approximately $5.9 million in the comparable period of 2018. The increase was primarily attributable to $1.5 million increase in third-party expenses associated with Opiant's research and development programs and a $400,000 increase in employee-related compensation expense, partially offset by a $400,000 (sic) [$800,000] decrease in stock-based compensation expense.

Sales and marketing expense for the 9 months ended September 30, 2019, were approximately $140,000 compared to none in the comparable period of 2018. Again, the increase was primarily due to compensation expense.

Royalty expense for the 9 months ended September 30, 2019, was approximately $6.1 million compared to approximately $0.5 million in the comparable period in 2018. The increase was primarily due to a $4.3 million increase in payments due to Net Profit Partners for the royalties and sales milestone earned from the net sales of NARCAN Nasal Spray, and the $1.3 million payment made to buy out the net profit interest in nasal nalmefene held by investors who had initially supported the development of NARCAN Nasal Spray.

There were no license fees recorded for the 9 months ended September 30, 2019. We recorded $5.6 million of license fees during the 9 months ended September 30, 2018. These third-party license fees related to our obligation under the license agreement with EBS for certain payments made by EBS to third parties.

Net income for the 9 months ended September 30, 2019, was approximately $10.5 million or $2.64 per basic and $1.98 per diluted share compared to a net loss of approximately $11.7 million or a loss of $4.32 per basic and diluted share for the comparable period of 2018.

As of September 30, 2019, we had cash and cash equivalents of $23.2 million compared to approximately $24.6 million at December 31, 2018. The cash balance at September 30, 2018, (sic) [September 30, 2019] does not include the net payment (sic) [onetime payment] of $10.8 million (sic) [$13.5 million] due to Opiant from EBS based on net sales of NARCAN exceeding $2 million (sic) [$200 million] through the third quarter of 2019. In addition, the current cash balance does not include the full impact of the NIDA grant of approximately $7.4 million or the BARDA contract of approximately $4.6 million. Based on our updated outlook for the remainder of the year, including the net payment of $10.8 million due to Opiant in the fourth quarter, we now project the cash balance in the range of $28 million to $30 million at the end of 2019 versus our prior estimate of $17 million to $20 million.

We are in a strong financial position as we head into 2020 and a unique situation of having our advancing pipeline funded through multiple government sources and a growing revenue stream via royalties from net sales of NARCAN.

With that, I'd like to turn the call back to Roger for closing remarks.

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Roger Crystal, Opiant Pharmaceuticals, Inc. - CEO & Director [5]

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Thank you, David. We are excited about the growth of our company and our strong financial position, which allows us to continue to address, particularly in the U.S., the continued addiction and drug overdose crisis, which has taken countless of lives already. In conclusion, with a compelling late-stage pipeline and expanding royalty revenue base and a solid balance sheet, Opiant is well positioned, operationally and financially, to enhance long-term shareholder value.

With that, I will now ask the operator to open up the call for questions. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question today comes from Brandon Folkes with Cantor Fitzgerald.

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Unidentified Analyst, [2]

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This is [Brian] on for Brandon. Can you talk about the drivers and need you see in the market for a longer-lasting opioid overdose medication given how the opioid crisis has gone very much of a fentanyl crisis? And how this could grow the overall market?

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Roger Crystal, Opiant Pharmaceuticals, Inc. - CEO & Director [3]

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Thank you. This is Roger. So first of all, we see the overall market expanding for opioid overdose reversal agents. And in particular, that's being driven by the rise in fentanyl and related compounds being so heavily involved in these overdoses now. So fentanyl, super potent opioids, 50x stronger than heroin, and it can be further derivatized and changed into even more potent compounds such as carfentanil, sufentanil, et cetera. And these are far more dangerous. They are much more potent, as I said, but it results in a far more rapid overdose. We talk about the window of intervention for a heroin overdose being minutes to tens of minutes, whereas a fentanyl-related overdose is probably more in a tens of seconds, if not less. So it really is a different paradigm. And because of the longer action of compounds, such as fentanyl, we need to counteract that with longer-acting opioid antagonist as well to make sure that someone doesn't fall back into an overdose situation. And that's why we think that this product, this nasal nalmefene, is particularly well suited because it has greater potency and, therefore, potentially greater ability to offset compounds such as fentanyl. And it also has a much longer half life. So again, preventing what we describe as this renarcotization where naloxone has worn off, but there's still high levels of fentanyl around in the patient.

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Unidentified Analyst, [4]

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Great. And then 1 more, if I can. Can you provide some color around the development program for OPNT004 for cannabinoid overdose, just in terms of timing of data, we can -- may see? And how should we think about the addressable market for that product?

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Roger Crystal, Opiant Pharmaceuticals, Inc. - CEO & Director [5]

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Well, see, the development program, I mean, we get to meet with the FDA on this to confirm exactly what they would buy into. I will say that we have a lot of encouraging data already in terms of the compound's safety, tolerability, certainly as an oral compound. And also, there's been extensive Phase I and Phase II studies in 700 subjects for up to 24 months that really give us that encouragement. Combined with this proof of principle I mentioned in the call where we could -- put more simply, we -- this comment has shown already to prevent people getting high if you take it already. What we need to do, though, is make it better suited for use in the emergency department, which we'll then talk about in terms of the addressable market. So to make it better suited to the emergency department, we need to convert this from an oral compound into an injectable compound.

The typical patient is overdosed on cannabinoids whether it's from edibles or these -- again, these synthetic cannabinoids such as K2 and Spice. They end up in the ER hallucinating. They are extremely unwell. They're not going to willingly take an oral compound. So it needs to be given parentally. So an injectable is the desired modality to treat them. And so we need to reformulate it. And that work is underway, and we will be announcing next year the progress on that reformulation. If we don't see this being a hugely onerous difficult task. It's just work to be done. We would then look to go into clinical studies, because although we have the proof of principle to show we can prevent, if you like, someone getting high from THC, what we need to do is, with the injectable version, reverse that. So if someone's already high from THC, can we bring them back down again with the injection? So that will be an important proof of principle.

So it's those key features that we can expect in the next year or 2 that will, I think, really set this program up for success and then determine exactly what registration studies we don't need to be doing. However, because this is an acute use compound rather than a chronic use, the duration of clinical studies won't be too long. And we're very encouraged with the data that's out there already.

In terms of the addressable market, this is an ER play initially. So this, again, would be administered by ER physicians to anyone who they suspect has undergone an acute cannabinoid overdose.

I'll also add that from what we can tell about the mechanism of action, we don't necessarily see it being an issue if someone hasn't overdosed on a cannabinoid. But in that situation, it would actually be a useful diagnostic as well. If you suspect someone's overdosed on a cannabinoid, you try and reverse it with the reversal agent and they remain the same, it can then more likely that it might be something else instead. And there's a few thousand ER departments in this country, so not on a crazy high number, if we were looking at a potential avenue of self commercialization as well.

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Operator [6]

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(Operator Instructions) Your next question comes from David Bautz with Zacks.

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David Bautz, Zacks Investment Research, Inc. - Senior Biotechnology Analyst [7]

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So my first question is about the IP position for 003. And is this the same intellectual property that covers NARCAN Nasal Spray as well? Or is it separate?

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Roger Crystal, Opiant Pharmaceuticals, Inc. - CEO & Director [8]

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This is separate. There's IP related to the excipient that we have licensed from the company, Aegis Therapeutics, which has now been acquired by Neurelis. And the -- it's called Intravail. So there's ideas around that. And then there's quite a lot of other additional IP on file as well, so that -- that's the position there.

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David Bautz, Zacks Investment Research, Inc. - Senior Biotechnology Analyst [9]

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Okay. And to follow up on 004, I'm curious what would an outcome in a clinical trial for that drug look like. Like how do you quantitate that the drug works and in the way that you want it to?

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Roger Crystal, Opiant Pharmaceuticals, Inc. - CEO & Director [10]

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Well, there's subjective and objective measurements of THC intoxication. So while we haven't yet met with the FDA in terms of endpoints, and this would be the first compound of its class to be or will be approved, if we're successful. So the point would be to sit down with the FDA and propose certain objective and subjective measures of THC intoxication, and those would be the endpoints that we would pursue. For example, there's objective measurements such as change in body temperature through to self-reported measurements of how's one feeling and a whole range of these would be well suited. So we haven't set exactly what we're looking to do yet, but I'm confident that there's an avenue forward.

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Operator [11]

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Your next question comes from Carl Byrnes with Northland Securities.

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Carl Edward Byrnes, Northland Capital Markets, Research Division - MD & Senior Research Analyst [12]

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Congratulations on the quarter. How much you characterize or quantify the growth in demand for NARCAN? Mandatory co-prescribing United States and public programs and first responders, how might we kind of look at this in the hierarchy? And how might you expect that to sort of continue going forward?

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Roger Crystal, Opiant Pharmaceuticals, Inc. - CEO & Director [13]

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So in terms of -- if I just recapture your question, perhaps, Carl, correct me if I'm wrong, but you're looking at really how the addressable market for NARCAN Nasal Spray and how do -- how should we think about that. Is that how I read your question?

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Carl Edward Byrnes, Northland Capital Markets, Research Division - MD & Senior Research Analyst [14]

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That's right, yes.

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Roger Crystal, Opiant Pharmaceuticals, Inc. - CEO & Director [15]

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Yes. I mean when we look at the addressable market for any opioid overdose reversal agent, there's 2 main areas that we see, and it appears to be consistent with how EBS also talk about it being institutional, and then it's like prescription-based. So the institutional segment, predominantly, appears to be government-based users, particularly the police departments, EMS departments, fire departments, and there's other organizations as well that are public interest groups, I think, is how they characterize it, who are needing NARCAN Nasal Spray currently, but in general, opioid overdose reversal agents available wherever there may be an opioid overdose. And that market, from what we learned from EBS report, these are about 50% of the market at the moment. And then there's the prescription market, which we look at in terms of patients with addictions, who are high-risk of an opioid overdose because whether they're still abusing or whether they are in formal treatment alongside people who are receiving prescriptions for opioid pain medication who aren't necessarily abusing but are still determined to be a higher risk of an opioid overdose. For example, if they're also taking benzodiazepine medication, which appears to be the most recent data I'm aware of. 30% of people taking opioids are also taking benzodiazepine medication. So being co-prescribed naloxone for a situation like that is appropriate. And in fact, there's 9 states that have some form of co-prescribing legislation. And interestingly, the most recent state to come online is New Mexico, appears to have the most stringent co-prescribing laws, whereby, if you're on an opioid for 5 days or longer, then you ought to be co-prescribed naloxone.

The other area of the addressable market, which we think is particularly well suited for nasal nalmefene is the chemical attack, probably a way of saying it, but essentially, the concern of the U.S. government HHS around the use of fentanyl in chemical attacks. It's happened in the past in Russia. And for that reason, developing a suitable countermeasure in case there is a chemical attack on U.S. soil. And that reflects the $4.6 million BARDA contract we have because they're interested in how they can support our nasal nalmefene development with the potential that this could be a nasal nalmefene type of medication stockpiled in these hotspots might be considered vulnerable for fentanyl chemical attacks.

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Operator [16]

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There are no further questions at this time. I would like to turn the floor back over to Dr. Roger Crystal for closing comments.

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Roger Crystal, Opiant Pharmaceuticals, Inc. - CEO & Director [17]

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Thank you, operator. To summarize, we are very excited about the prospects for our pipeline and the significant market opportunities we are pursuing. Moreover, our R&D plans are well supported by our financial resources. Most importantly, we truly believe that the medicines we are developing have the potential to impact thousands of lives, and we're excited to continue advancing each in the clinic. As we further develop our pipeline and execute on our key near-term catalysts, including top line data from OPNT003, initiation of the trial for OPNT002 for AUD and continued royalties from NARCAN Nasal Spray, we anticipate additional value creation.

Thank you for joining us today and for your interest in Opiant. We look forward to keeping you updated on our progress in the coming months. Enjoy the rest of your day.

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Operator [18]

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This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.