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Edited Transcript of VELO.CO earnings conference call or presentation 9-Aug-19 2:00pm GMT

Q2 2019 Veloxis Pharmaceuticals A/S Earnings Call

Jersey City Sep 2, 2019 (Thomson StreetEvents) -- Edited Transcript of Veloxis Pharmaceuticals A/S earnings conference call or presentation Friday, August 9, 2019 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Craig Alexander Collard

Veloxis Pharmaceuticals A/S - President & CEO

* Ira Duarte

Veloxis Pharmaceuticals A/S - CFO

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Conference Call Participants

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* Ingrid Gafanhão

Kempen & Co. N.V., Research Division - Research Analyst

* Poul Ernst Jessen

Danske Bank Markets Equity Research - Senior Analyst

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Presentation

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Operator [1]

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Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to today's Veloxis Pharmaceuticals Q2 Report 2019. Please go ahead, sir.

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Craig Alexander Collard, Veloxis Pharmaceuticals A/S - President & CEO [2]

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Good afternoon, everyone, and welcome to the Veloxis Second Quarter 2019 Earnings Call. I'm Craig Collard. And today, I'm joined by Ira Duarte, our Chief Financial Officer.

On today's call, we plan to review our second quarter and 6-month 2019 financial results and provide a commercial and operational update. We issued a press release and accompanying report detailing our results yesterday that can be found on our website.

Now moving on to our commercial update. Overall, we are very pleased with our continued progress as we were able to sustain the momentum that we discussed last quarter. Some highlights from the second quarter and for the first 6 months of 2019 include: U.S. net revenues for the quarter were $16.5 million, up from $8.3 million in Q2 of 2018; U.S. net revenues for the 6 months ended June 30, 2019, were $28.7 million, up from $14.7 million in 2018; total net revenues including the EU were $19 million and $33.2 million for the 3 and 6 months ended June 30, 2019, as compared to $9.9 million and $17.2 million for the comparable period in 2018.

Taking a step back for those of you who may be new to the story, Envarsus is a proprietary formulation of tacrolimus, which has been the standard of care in immunosuppression since the mid-1990s in a broad range of transplant indications, including kidney, liver, heart, pancreas, lung and others. But despite the fact that immediate-release tacrolimus was a significant breakthrough at the time, it has its limitations including, most notably, potential toxicities and an inconsistent PK profile. As an Narrow Therapeutic Index drug, tacrolimus requires close therapeutic drug monitoring to prevent under- and overexposure and immediate-release formulation requires multiple doses per day.

In contrast, Envarsus is an extended-release formulation of tacrolimus that patients take once per day, resulting in lower peak tacrolimus concentrations and less fluctuation. The differentiation of Envarsus versus immediate-release tacrolimus is particularly pronounced among the rapid metabolizer patient population, who clear the drug rapidly and are, therefore, at greater risk for inadequate immunosuppression. Envarsus has demonstrated an optimal PK profile even among this difficult-to-treat subset of transplant patients. We believe these differences are contributing to the continued upward growth trend with Envarsus.

Moving on to product performance. During the second quarter of 2019, we continued to see consistent quarterly growth in patients on product, and we now have approximately 95% of U.S. transplant centers using Envarsus. This means that over 184 centers in the U.S. have at least tried Envarsus with one of their patients compared with 175 at year-end 2018. Also during the second quarter, we continued to make good progress with formulary and protocol placement. As of June 30, Envarsus XR is approved on more than 55% of U.S. transplant hospital formularies, up from 50% at year-end 2018. Additionally, over 27% of centers have added Envarsus to a formal protocol either in a conversion or de novo setting, up from 20% at year-end 2018.

Turning now to our latest indication, which the FDA approved last December. We now estimate that Envarsus de novo market share reached 15.5% at the end of Q2 2019, up from approximately 6.5% at the end of 2018. Through the second quarter, an estimated 10,100 patients were on product, up from approximately 7,700 at year-end 2018. Our patient share now stands at 4.2%, up from 2.3% in Q2 of 2018. And 88% of patients who converted to Envarsus were previously on generic tacrolimus, continuing the trend of new patients coming from the generic market and not branded program.

As we discussed previously, the tacrolimus kidney market alone is worth approximately $1.5 billion in the U.S. And the fact that we are taking share from generics would suggest that a significant percentage of this market opportunity is available to us. Every prescription that is written for Envarsus is audited by our data team. And I'm happy to report that our patient retention rate has stayed consistent this quarter at 99%, which simply means that once you're on Envarsus, you stay on Envarsus.

Moving to Europe. We are excited by the continued strong results of our ongoing partnership with Chiesi. Chiesi estimates that over 17,000 patients have been placed on Envarsus in Europe compared with 13,500 at year-end 2018. And the product is on a strong trajectory for continued growth. Chiesi estimates Envarsus has a 7.7% market share in Europe compared with 5.8% at year-end 2018. The revenue growth in the EU is driven mainly by France, Spain, Germany and Italy. Chiesi has committed substantial financial and clinical resources towards ongoing clinical studies on Envarsus in Europe, setting the stage for long-term growth for Envarsus in the territory.

Last month, the President of the United States and Health and Human Services outlined a sweeping initiative intended to transform kidney care for the estimated 37 million Americans who are currently affected by kidney disease. Key aspects of the plan include new measures for organ procurement organizations to help increase transplantation, increase efforts to reduce the number of kidneys discarded, efforts to advance the development of an artificial kidney and a public awareness campaign to reach the at-risk population and also help increase living organ donation. Taken together, we believe these initiatives represent a long-term growth driver for the kidney transplantation market and a significant potential expansion of the U.S. market opportunity for Envarsus. We are pleased that the administration has made this commitment and we look forward to providing future updates.

And finally, I would like to give an update on the current API shortage that has been communicated to the market from the FDA. Although we were notified of this possible shortage in the middle of Q2 2019, we only felt a limited sales impact during the quarter. However, it has helped generate conversations with transplant centers regarding Envarsus and avoiding market disruptions with transplant patients that could be caused if they are unable to receive their current generic immediate-release tacrolimus. We believe this shortage is beginning to take place, and we are now seeing small outages in pockets around the U.S. We will continue to update our shareholders as this situation evolves. But our current market estimates reflect our opinion of the impact to our revenues at this time. However, this could obviously change as the year progresses.

I would now like to turn the call over to our CFO, Ira Duarte, to review the financials. Go ahead, Ira.

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Ira Duarte, Veloxis Pharmaceuticals A/S - CFO [3]

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Thanks, Craig. Net revenues for the first half of 2019 were $33.2 million compared to $17.2 million for the first half of 2018, representing an increase of 94% to the same period in 2018. Net revenues for Q2 of 2019 were $19 million, an decrease of $9.1 million or 92% compared to net revenues of $9.9 million for Q2 of 2018.

We reported second quarter gross profit of $15.5 million, which was up from $7.8 million in Q2 2018. Gross profit for the first half of 2019 was $27 million, an increase of $13.2 million or 96% compared to gross profit of $13.8 million for the first half of 2018. For the first half of 2019, our gross profit margin was 81% compared to 80% in 2018. Our margin will continue to improve with increased proportion of overall sales being derived by U.S. product sales.

SG&A cost increased to $22.9 million in the first half of 2019 from $18.3 million in the first half of 2018 and increased to $12.5 million in Q2 of 2019 from $9.2 million in Q2 of 2018. The increases were primarily driven by the increased sales efforts behind Envarsus XR in the United States. R&D expenditures for the first half of 2019 were $1.3 million compared to $371,000 in the same period in 2018. We expect these expenses will increase in the coming quarters as we qualify a second source of supply.

We are reporting operating income of $2.3 million for the second quarter of 2019, which compares to an operating loss of $1.5 million for the comparable period in 2018. Year-to-date operating income in 2019 is $2.8 million compared with a loss of $4.9 million in 2018. Tax for the first half of 2019 was a tax benefit of $2.7 million primarily related to the revaluation and recognition of additional deferred tax assets. As of June 30, 2019, deferred tax assets were $30.8 million compared to $27.2 million at the end of 2018. We expect to continue additional tax benefits in the coming years related to revaluation and recognition of deferred tax assets as our business continues to grow.

Net results for the second quarter of 2019 was income of $2.1 million with year-to-date income of $2.2 million. These results compared with losses of $1.6 million and $5.7 million for the same period in 2018. As of June 30, 2019, we showed a cash balance of $31.2 million, up from $30.5 million at December 31, 2018.

Turning now to our outlook for 2019, which we revised on July 22, 2019. We now project revenues to be $69 million to $77 million, up from the previous range of $58 million to $68 million. In addition, we revised operating income before accounting for stock compensation to be in the range of $10 million to $15 million, up from the previous range of $4 million to $10 million.

Back to you, Craig.

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Craig Alexander Collard, Veloxis Pharmaceuticals A/S - President & CEO [4]

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Thanks, Ira. To summarize, during the second quarter, we continued to execute our commercial plan, which continues to drive growth and awareness and adoption of Envarsus.

Before moving to questions, I would like to thank all the employees of Veloxis for a tremendous first half of the year. We currently have a great deal of momentum promoting Envarsus with the addition of the de novo indication and expect future success in 2019 and beyond.

Operator, at this time, we would like to open the line 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 the line of Ingrid Gafanhão.

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Ingrid Gafanhão, Kempen & Co. N.V., Research Division - Research Analyst [2]

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Congrats on your results. I was wondering, do you happen to know or do you have any access to the information on what is the percentage or the number of the patients on Envarsus that are actually the rapid metabolizers?

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Craig Alexander Collard, Veloxis Pharmaceuticals A/S - President & CEO [3]

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Yes, Ingrid, we really have no way of determining what that number is. I mean the market itself is made up of about 30%. And again, as we've I think said before, it's a lead-in for us obviously with the data that we have. But we don't really have a way of determining exactly the number of patients or coming up with an exact number on that.

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Ingrid Gafanhão, Kempen & Co. N.V., Research Division - Research Analyst [4]

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No problem. And if I may, I would have also a second question. So how long do you think and when would you expect to be able to quantify and have a little bit of better view on the impact -- on the potential impact on sales due to the API shortage?

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Craig Alexander Collard, Veloxis Pharmaceuticals A/S - President & CEO [5]

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Yes. I think as of now, we obviously just realized guidance. And so that's our best view at this point. But as time progresses and this continues to play out, I think we'll know more. But we'll try to continue to update as soon as we can whilst we do have new information. But at this point, this is the best information we have.

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Operator [6]

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(Operator Instructions) Your next question comes from the line of [Kim Carolls].

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Unidentified Analyst, [7]

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Congratulations. I think it looks just wonderful. I was just -- you were going a little bit fast when you talked about the exit numbers. I remember 31st of December, it was 7,700, then you said 10,100. Was that at the end of March? Or was that the end of June?

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Craig Alexander Collard, Veloxis Pharmaceuticals A/S - President & CEO [8]

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Yes. That was for the quarter of Q2.

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Unidentified Analyst, [9]

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Okay. So do you see -- and then another question, do you see a further acceleration in the uptake of de novo?

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Craig Alexander Collard, Veloxis Pharmaceuticals A/S - President & CEO [10]

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We could. Again, as we stated, we were in the 50% range now as far as de novo share. And so we are spending quite a bit of time from a promotional standpoint obviously with just getting the indication last December and that's going very, very well. And so as I've said, too, about the API shortage, this could also have an impact as centers begin to run out of product and make a move possibly to switch to Envarsus. We will pick up de novo patients in that as well, we hope. And so we're hopeful that we'll continue to see the share growth. And certainly, that's where we're spending the majority of our time.

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Operator [11]

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(Operator Instructions) Your next question comes from the line of Poul Jessen.

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Poul Ernst Jessen, Danske Bank Markets Equity Research - Senior Analyst [12]

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I was just wondering how confident do you feel about the storage of your deliveries? Do you feel like you can run in trouble in course of the service as well?

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Craig Alexander Collard, Veloxis Pharmaceuticals A/S - President & CEO [13]

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No. So again, as we've even stated to the FDA, we currently have plenty of supply. I think one of the things that has helped us is we were qualified as secondary supplier just sort of by chance. And so we had extra APIs, so to speak. And -- but yes, at this point, we feel very confident with our supply and should be able to continue to supply the market as we move forward.

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Operator [14]

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There are no further questions at this time. Please continue.

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Craig Alexander Collard, Veloxis Pharmaceuticals A/S - President & CEO [15]

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Thanks, everyone, for joining the call today. And we look forward to speaking again next quarter. Thank you.

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Operator [16]

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That does conclude our conference for today. Thank you for participating. You may all disconnect.