U.S. Markets closed

Edited Transcript of PLI.TO earnings conference call or presentation 13-Aug-19 12:30pm GMT

Q2 2019 Prometic Life Sciences Inc Earnings Call

MONT-ROYAL Aug 16, 2019 (Thomson StreetEvents) -- Edited Transcript of Prometic Life Sciences Inc earnings conference call or presentation Tuesday, August 13, 2019 at 12:30:00pm GMT

TEXT version of Transcript

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

Corporate Participants

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

* Bruce Pritchard

Prometic Life Sciences Inc. - International COO & Interim CFO

* Kenneth H. Galbraith

Prometic Life Sciences Inc. - CEO & Director

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

Conference Call Participants

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

* Derren Nathan

Hybridan LLP, Research Division - Director & Head of Research

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

Presentation

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

Operator [1]

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

Good morning. My name is Sharon, and I will be your conference operator today. At this time, I would like to welcome everyone to the Prometic Life Sciences Inc. Second Quarter Results Conference Call. (Operator Instructions) Thank you.

Mr. Bruce Pritchard, Chief Operating Officer, International, and Chief Financial Officer, you may begin your conference.

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

Bruce Pritchard, Prometic Life Sciences Inc. - International COO & Interim CFO [2]

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

Thank you, operator, and good morning, ladies and gentlemen.

On Slide 2, I draw everyone's attention to the safe harbor statement and the fact that this morning's presentation contains forward-looking statements about Prometic's objectives, strategies and businesses that involve risks and uncertainties. These statements are forward-looking because they are based on our current expectations of the markets we operate in and on various estimates and assumptions. Actual events and results may differ materially from those anticipated in these forward-looking statements if known or unknown risks affect our business or if our estimates or assumptions turn out to be inaccurate. Such risks and assumptions include, but are not limited to, Prometic's ability to develop, manufacture and successfully commercialize value-added pharmaceutical products; the availability of funds and resources to pursue R&D projects; the successful and timely completion of clinical studies; the ability of Prometic to take advantage of business opportunities in the pharmaceutical industry; uncertainties related to the regulatory process; and general changes in economic conditions.

You will find a more detailed assessment of the risks that could cause actual events or results to materially differ from our current expectations in the annual information form for the year ended December 31, 2018, under the heading Risk Factors. As a result, we cannot guarantee that any forward-looking statement will materialize, and we assume no obligation to update any forward-looking statement, even if new information becomes available as a result of future events or any other reason, unless required by applicable securities laws and regulations.

All amounts are in Canadian dollars, unless otherwise indicated. Prometic reserves the right to make improvements, corrections and/or changes to this presentation at any time.

So if I can now move forward to Slide 3. During this morning's webcast, I will present the financial highlights for the second quarter of 2019, and Prometic's Chief Executive Officer, Mr. Ken Galbraith, will provide a business update, which we will then follow with a short question-and-answer period for financial analysts.

If I could ask you now to move to Slide 5 in the slide deck and just a quick reminder that this part of today's webcast is based on the condensed interim consolidated statement for the second quarter of 2019 as well as on the audited financial statements for the year ended December 31, 2018. All the figures were prepared under IFRS, and the full annual information and important information can be found online of sedar.com. Everything that I'm talking about today is in Canadian dollars, except where indicated.

Moving to Slide 6. Our graph shows the variability of total revenues quarter-to-quarter by segment. Our bioseparations segment has an overall trend of improved sales with Q2 2019 revenues of $8 million, an increase of $3.2 million -- sorry, $2.3 million or 40% compared to the same quarter in 2018.

The revenues for the plasma-derived therapeutics segment have ordinarily been generated from the sales of specialty plasma to third parties. However, over the past 4 quarters, revenues have also been generated from the sale of excess normal source plasma to third parties as a result of the change in production forecasts due to the delay of the BLA approval for Ryplazim. Revenues from the segment were lower by $13.6 million during the quarter ended June 30, 2019, compared to the corresponding period of 2018 mainly due to a significant sale of excess normal source plasma of $14 million in the second quarter of 2018.

On Slide 7, I'd like to highlight the R&D expenses versus past quarters. As you can see, the overall R&D expenses were relatively stable over the same quarter last year. The increase of $5 million between the second and first quarters of 2019 is largely due to the noncash accounting treatment of changes in the share-based compensation plan, expensing the extinguishment of the old plan and recognizing the new one, but also due to the capitalization of inventory now dedicated to noncommercial use and, therefore, expensed to R&D.

Looking at R&D cost and their main categories. We show that expenditures on bioseparations R&D, the bottom segment of the bars, is consistent quarter to quarter. Expenditure on plasma R&D, which is the middle section of the bar, varies from quarter to quarter based mainly on inventory purchases, but also in this quarter impacted by the stock-based compensation charges. And lastly, small molecule R&D, which is the upper section of the bar, fitting mainly due to the timing of clinical trial-related cost, but, again, also impacted this quarter by stock-based compensation charges.

On Slide 8, I'd like to review selected information from our profit and loss account. I've already provided a breakdown of revenues on an earlier slide, but recapping, total revenues for the second quarter of 2019 were $8.8 million compared to $20.2 million during the same period of 2018, representing a decrease of $11.4 million. That decrease is due to the decrease in sales of excess normal source plasma inventory, partially offset by increases in sales from our bioseparations product of $2.3 million.

Revenues were $17 million during the 6 months ended June 30, 2019, compared to $24.5 million during the corresponding period of 2018, representing a decrease of $7.5 million. The decrease is mainly due to a $13.8 million reduction of excess normal source plasma sales as a result of the change in the production forecast of Ryplazim that I mentioned earlier. This decrease was partially offset by an increase in sales of specialty plasma collected at our plasma collection center in Winnipeg by $2 million and in sales of our bioseparations products of $4.4 million compared to the 6 months ended June 30, 2018.

Cost of sales and other production expenses were $3.9 million during the quarter ended June 30, 2019, compared to $16.4 million for the corresponding period in 2018, representing a decrease of $12.5 million. Cost of sales and other production expenses were $8.2 million during the 6 months ended June 30, 2019, compared to $21.2 million for the corresponding period in 2018, representing a decrease of $12.9 million. This decrease is largely due to the nonrecurring excess plasma cost of sales.

R&D expenses were $24.2 million during the quarter ended June 30 compared to $24 million in the corresponding period of 2018, representing an increase of $0.2 million. R&D expenses were $43.3 million during the 6 months ended June 30 compared to $46.4 million in the corresponding period of 2018, a decrease of $3.1 million. As mentioned on the previous slide, included in the second quarter 2019 amount the impact of the extinguishment of the old share-based compensation plan and the recognition of the new one and also write-down in values for inventory now dedicated to noncommercial activities explained the difference in R&D.

Administration, selling and marketing expenses were $18.6 million during the quarter ended June 30 compared to $6.9 million in the same period of 2018, representing an increase of $11.6 million. Admin, selling and marketing expenses were $26.2 million during the 6 months ended June 30 compared to $14.6 million for the corresponding period of 2018, again, representing an increase of $11.6 million, and the accounting treatment of the stock-based compensation is the explanation for that variance.

So adjusted EBITDA for the quarter ended June 30 was negative $20.5 million compared to the negative $25.1 million in the comparative period of 2018, representing an improvement in adjusted EBITDA of $4.6 million. For the 6-month period ended June 30, 2019, EBITDA was negative $39.5 million compared to negative $53.3 million for the comparative period of 2018, representing an improvement in adjusted EBITDA of $13.8 million. This is mainly due to the increase in margin from sales of goods, the removal of the depreciation of right-of-use assets and the interest expense on lease liabilities as well as a reduction in overall activity as a result of ongoing cost control measures.

Finance costs were $3.4 million for the quarter compared to $5.3 million in the corresponding period of 2018, a decrease of $1.8 million, which is due to the lower level of debt in the quarter ended June 30, 2019, compared to the same period of 2018. Finance costs were $10.9 million for the 6 months of 2019 compared to $9.6 million in the corresponding period of 2018, representing an increase of $1.3 million, and that reflects the higher level of overall debt in 2019 until the April 23 debt restructuring.

Loss on extinguishment of liabilities was $92.3 million and $92.4 million for the quarter and 6 months, respectively. This is principally as a result of the company concluding the debt restructuring agreement on April 23 with SALP. The debt was reduced to $10 million plus interest due in exchange for the issuance of 15,050,312 common shares. The difference between the adjustment to the carrying or accounting value of the loan of $141.5 million and the amount recorded for the shares issued of $228.9 million was recorded as a loss on extinguishment of a loan of $87.4 million. This amount essentially representing the immediate recognition of the accreted and contractually binding interest that would otherwise have been recognized as finance cost over the years until maturity of the long-term debt.

Legal fees related to the debt restructuring of $0.6 million were also recognized as part of the loss on extinguishment of liabilities.

The portion of the loan that was not settled was modified to an interest-bearing loan at 10% stated interest payable quarterly. Modification of the terms was treated as an extinguishment and reissuance of a new loan for accounting purposes. The difference between the carrying amount of the extinguished loan of $4.7 million and the fair value of the new loan of $8.5 million was recorded as a loss on debt extinguishment of $3.9 million. The new one has a higher value mainly because it's interest-bearing loan with regular interest payments, while the previous loan contained implicit interest in the face value payment due upon maturity, and such interest was being accreted over the life of the loan. The expense represents an immediate recognition of a portion of the unrecognized interest expense on the old loan.

As part of the cost to complete the debt restructuring, 168,735 warrants held by SALP were canceled and replaced with an equivalent number of warrants that will be exercisable at an exercise price of $15.21 per common share and expire on April 23, 2027. The increase in fair value of the replacement warrants compared to those canceled of $0.4 million was also recorded as part of the loss on extinguishment of liabilities.

So in terms of net loss, the company incurred a net loss of $133.7 million during the quarter ended June 30, 2019, compared to a net loss of $33.1 million for the corresponding period of 2018, representing an increase in the net loss of $100.6 million. The net loss was $162.5 million during the 6 months ended June 30, 2019, compared to a net loss of $67.7 million for the corresponding period of 2018, representing an increase in the net loss of $94.9 million. This is mainly driven by the impact of the loss on extinguishment of liabilities caused by the debt restructuring, as I've just discussed. It's also attributable to the increase in the share-based payment expenses of $14.2 million and $14.6 million for the quarter and the 6 months, respectively.

If I can now turn to Slide 9 in the deck and the balance sheet. Cash increased by $73.6 million at the end of June 2019 compared to December 31, 2018. Our cash balances are directly influenced by the timing and size of financing events and operating revenues and expenditures. The increased balance at June 30, 2019, is mainly due to the net proceeds of approximately $70 million received from the equity raised on April 23, 2019, and the $39.2 million received from the rights offering completed in June.

Accounts receivable decreased by $3.1 million at June 30 over December 31 mainly due to the collection of trade receivables. Current income tax receivable is consistent with year-end.

Inventories decreased by $4 million at June 30 compared to December 31. And in the second quarter, we expensed additional inventories that are now expected to be used to supply noncommercial activities, such as clinical trials supply.

Capital assets decreased by $2.8 million over the year-end position mainly due to the adoption of IFRS 16 and the transfer of finance leases to the right-of-use assets on January 1, 2019, and the depreciation expense thereon taken during the period.

Accounts payable and accrued liabilities decreased by $14.9 million at June 30 compared to December 31 mainly due to the reduction of accounts payable of $11.6 million as the company caught up on the payment of supplier invoices that were due after a successfully raised financing in the second quarter.

Right-of-use asset and lease liabilities as at June 30 were $36.6 million, and a $41.2 million was -- of lease liabilities were recognized and the long-term portion of operating and finance lease inducements and obligations of $1.9 million were derecognized as a result of the adoption of IFRS 16 at the beginning of the period.

Intangible assets were consistent over year-end. The long-term debt decreased by $116.7 million at June 30 compared to year-end primarily as a result of the debt restructuring on April 23, 2019. We have reduced the carrying amount of the long-term debt to $10.6 million, including interest due.

Total assets at 31st March 2019 were $205.8 million as a result of the increased cash position, and total equity has grown from a deficiency of $63.1 million to $134.3 million of equity.

So that concludes the financial portion of the presentation, and I'd now like to welcome Prometic CEO, Mr. Ken Galbraith, to the call, and I'd like him to provide a business update. Ken?

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

Kenneth H. Galbraith, Prometic Life Sciences Inc. - CEO & Director [3]

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

Thank you, Bruce. I'm very pleased to be reporting to you on my second conference call as CEO of Prometic. After my first 100 days as CEO, I remain optimistic that our situation can be turned around, improvements made in our outlook and that Prometic can become successful in developing new medicines for patients with serious unmet needs around the world, and that hard work is ongoing.

We raised approximately USD 85 million in new equity capital in a series of financing transactions and reduced our outstanding debt to CAD 10 million.

We continue to review and evaluate every aspect of our business to ensure that we're investing in the right products, programs and people for both near- and long-term success.

Our current priorities now are as follows: number one, continuing the manufacturing and related activities to enable a filing of an amendment to our BLA with the FDA in the first half of 2020, seeking marketing approval for Ryplazim in the United States; number two, working with Lazard to assess and complete opportunities for partnering or monetizing assets and businesses outside of our Small Molecule Therapeutics business unit; number three, completing discussions with the FDA and EMA and further necessary preparations to commence our planned Phase III clinical studies of PBI-4050 in patients with Alström syndrome over the next few calendar quarters; number four, commencing Phase I clinical studies in Canada for single ascending and multiple ascending doses of PBI-4547 to be studied in both healthy volunteers and patients; and number five, prioritizing additional R&D investments to pursue in 2019 and 2020 with our available capital resources.

In addition, we've announced certain changes within our management team that will be effective September 1, 2019. Ms. Murielle Lortie will be promoted to Chief Financial Officer, and Ms. Marie Iskra will be promoted to General Counsel. Mr. Patrick Sartore and Mr. Bruce Pritchard will focus on their key roles as Chief Operating Officer, North America and Chief Operating Officer, International, respectively. Also we remain very active on our global searches for 2 additional senior positions to complement the existing leadership team, a head of R&D and a head of regulatory affairs and quality assurance.

In addition, we are continuing the process to commence listing of our common shares on NASDAQ and have also decided to undertake a corporate name change in conjunction with the trading of our common shares on NASDAQ, subject to receiving shareholder approval of the proposed name change in due course. We will provide further information regarding this change of name during the quarter.

I look forward to reporting continued progress on our business goals in the weeks and months ahead, and thank our employees and shareholders for their continued support through this transition for the company. We are continuing on a different and better path for Prometic, and one that we believe will lead to our goal of building a successful global life science company focused on developing new medicines for patients around the world.

We'd now like to address any questions you may have.

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

Questions and Answers

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

Operator [1]

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

(Operator Instructions) Your first question comes from Derren Nathan with Hybridan.

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

Derren Nathan, Hybridan LLP, Research Division - Director & Head of Research [2]

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

It's good to see the bioseparations having the best quarter it's had for a while. I'm just wondering, is this as a result of increased customer numbers? What's the general trend now? Or is it more due to client timings? And what sort of visibility do you have looking ahead for the rest of the year?

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

Kenneth H. Galbraith, Prometic Life Sciences Inc. - CEO & Director [3]

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

No, no. Yes, thank you for the questions. No, bioseparations has had an excellent first half of the year, and that business has been growing extremely well over the past few years. I think it's a combination of factors from new customers, new product developments and continued growth from existing customers. I think the outlook for the second half of the year remains extremely strong. And I think Steve Burton and his team has been doing an excellent job of continuing to grow that business in multiple facets. And I'm sure that's going to continue for them.

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

Operator [4]

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

(Operator Instructions) And we have a question from [Daniel Auclair], investor.

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

Unidentified Participant, [5]

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

I'd like to know how come it takes so long for the filing of the BLA of Ryplazim.

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

Kenneth H. Galbraith, Prometic Life Sciences Inc. - CEO & Director [6]

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

No. That's an excellent question. Thank you. As you know, from the time that we did receive a CRO from our initial BLA, this has been a monumental undertaking to address the questions that we received from FDA. We've been trying to do our best to provide forecast for investors for the filing of that BLA. And our goal, though, is if we need to update that information, we will do so, and we have just done so recently today in our release. Our goal is to ensure the highest quality in our filing and to address all of the issues that the FDA raised in our CRO. And every employee of that group and all of our outside consultants helping us are doing that. And we will take the time necessary to produce a high-quality document to resubmit to the FDA to ensure the best outcome from the review. And if that takes a little bit longer, then that is the right thing to do for shareholders. And we'll update our forecast as we have been today, and we'll provide a new forecast in the first half of 2020. That's our best information as to the submission date of the BLA. If that change for any reason, we will update it at the soonest possible moment. But as of today, we believe that's an appropriate range to produce a filing that, again, is of high quality to try and maximize the chance of a positive outcome in FDA's review of our BLA and get Ryplazim on the market and to patients in the United States who need it.

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

Operator [7]

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

(Operator Instructions) And we do not have any questions at this time. I'll turn the call over to the presenters.

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

Kenneth H. Galbraith, Prometic Life Sciences Inc. - CEO & Director [8]

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

Thank you very much, operator, and thank you very much to all the folks who have been listening on the phone. And we look forward to reporting additional progress in our next call in November. Thank you.

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

Operator [9]

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

This concludes today's conference call. You may now disconnect.