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Edited Transcript of VELO.CO earnings conference call or presentation 13-Nov-19 3:00pm GMT

Q3 2019 Veloxis Pharmaceuticals A/S Earnings Call

Jersey City Dec 4, 2019 (Thomson StreetEvents) -- Edited Transcript of Veloxis Pharmaceuticals A/S earnings conference call or presentation Wednesday, November 13, 2019 at 3:00:00pm 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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* Benjamin Silverstone

ABG Sundal Collier Holding ASA, Research Division - Research Analyst

* Ingrid Gafanhão

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

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Presentation

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Operator [1]

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Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to today's Veloxis Pharmaceuticals Q3 2019 Earnings Call. (Operator Instructions) I must advise you that this conference is being recorded today, Wednesday, 13th of November 2019.

I would now like to hand the conference over to your speaker today, Mr. Craig Collard. Please go ahead, sir.

Before we begin, a quick note on forward-looking statements. This conference call may contain forward-looking statements. Words such as anticipate, intend, plan, goal, seek, believe, project, estimate, expect, future likely, may, should, will and similar references to future periods identify forward-looking statements. Examples of forward-looking statements include, but are not limited to, our outlook for 2019. Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in our circumstances that are difficult to predict and many of which are outside of our control. Our actual results and financial condition may differ materially from those indicated in the forward-looking statements. For an overview of some but not all of the risks that could adversely affect Veloxis results or the accuracy of forward-looking statements in this conference call, references made to the overview of risk factors in the Risk Management section on Pages 32 through 33 of the company's 2018 annual report.

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

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Thank you, operator. Good afternoon, everyone, and welcome to the Veloxis Third Quarter 2019 Earnings Call. I'm Craig Collard. Today, I'm joined by Ira Duarte, our Chief Financial Officer. On today's call, we plan to review our third quarter and 9-month 2019 financial results and provide 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 on our earnings call last quarter. Some highlights from the third quarter and for the 9 months of 2019 include: U.S. net revenues for the quarter were $18.6 million, up from $9.2 million in Q3 of 2018. U.S. net revenues for the 9 months ended September 30, 2019, were $47.3 million, up from $23.8 million in 2018. Total net revenues, including EU, were $21.3 million and $54.5 million for the 3 and 9 months ending September 30, 2019, as compared to $10.6 million and $27.8 million for the comparable period in 2018.

Moving on to product performance. During the third quarter of 2019, we continue to see consistent quarterly growth in patients on product, and we now have approximately 96% of U.S. transplant centers using Envarsus. This means that over 186 centers in the United States have at least tried Envarsus with 1 of their patients compared with 175 at year-end 2018.

Also during the third quarter, we continue to make good progress with formulary and protocol placement. As of September 30, Envarsus XR is approved on more than 60% of U.S. transplant hospital formularies, up from 50% at year-end 2018. Additionally, over 31% of centers have added Envarsus to a formal protocol, either in the conversion or de novo setting, up from 20% at year-end 2018.

Turning now to the de novo indication, which the FDA approved last December. We now estimate that Envarsus de novo market share reached 22% at the end of Q3 2019, up from approximately 6.5% at the end of 2018. As we discussed previously, the tacrolimus kidney market alone is worth approximately $1.5 billion in the United States. Through the third quarter, an estimated 12,500 patients were on product, up from approximately 7,700 patients at year-end 2018. Our patient share now stands at 4.9%, up from 2.7% in Q3 2018, and 95% of patients who converted to Envarsus XR were previously on generic tacrolimus in Q3 2019, continuing the trend of new patients coming from the generic market and not branded Prograf. 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're excited by the continued strong results of our ongoing partnership with Chiesi. Chiesi estimates that over 18,000 patients have been placed on Envarsus in Europe compared with 13,500 at year-end 2018, and the product is on a trajectory for continued growth. Chiesi estimates that Envarsus has a 7.8% market share in Europe compared with 5.8% at year-end 2018. The revenue growth in EU is driven mainly by France, Spain, Germany and Italy. Chiesi has committed substantial financial and clinical resources towards ongoing clinical studies of Envarsus in Europe, setting the stage for long-term growth for Envarsus in the territory.

As we mentioned on last quarter's call, the President of United States outlined a sweeping initiative intended to transform kidney care for the 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, increased 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.

Finally, I would like to give an update on the current API shortage that has been communicated to the market from the FDA. The shortage has certainly helped to 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 now beginning to take place and are now continuing to see more small outages in pockets around the United States. 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.

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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Thank you, Craig. Net revenues for the 9 months ended September 30, 2019, were $54.5 million compared to $27.8 million for the 9 months ended September 30, 2018, representing an increase of 97% to the same period in 2018. Net revenues for Q3 of 2019 were $21.3 million, an increase of $10.7 million or 101% compared to net revenue of $10.6 million for Q3 2018.

We report third quarter gross profits of $17.4 million, which was up from $8.7 million in Q3 2018. Gross profit for the 9 months ended September 30, 2019, was $44.4 million, an increase of $21.9 million or 97%, compared to gross profit of $22.5 million for the 9 months ended September 30, 2018. Our gross profit margin was 81% for both 2019 and 2018.

Sales, general and administrative costs increased to $34.4 million in the first 9 months of 2019 from $26.7 million in the first 9 months of 2018, an increase to $11.4 million in Q3 of 2019 from $8.4 million in Q3 of 2018. The increases were mainly driven by the increased sales efforts behind Envarsus XR in the United States. R&D expenditures for the first 9 months of 2019 were $1.5 million compared to $501,000 in the same period in 2018.

We are reporting operating income of $5.7 million for the third quarter of 2019, which compares to an operating income of $212,000 for the comparable period in 2018.

Year-to-date operating income in 2019 is $8.5 million compared with a loss of $4.7 million in 2018. Tax for the first 9 months of 2019 was a tax benefit of $4.3 million, primarily related to the revaluation and recognition of additional deferred tax assets. As of September 30, 2019, deferred tax assets were $32.9 million compared to $27.2 million at the end of 2018. We expect to continue to show tax benefits in the coming years related to revaluation and recognition of deferred tax assets as our business continues to grow.

Net result for the third quarter of 2019 was income of $5.5 million, with a year-to-date income of $7.7 million. These results compare with an income of $1.5 million and losses of $4.1 million for the same period in 2018. As of September 30, 2019, we showed a cash balance of $34.9 million, up from $30.5 million on December 31, 2018.

Turning now to our outlook for 2019, which was revised on October 31, 2019. We now project revenues to be $75 million to $82 million, up from the previous range of $69 million to $77 million. In addition, we revised operating income before accounting for stock compensation to be in the range of $15 million to $22 million, up from the previous range of $10 million to $15 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. 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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Thank you. Ladies and gentlemen, we'll now begin the question-and-answer session. (Operator Instructions) And your first question is coming from the line of Ingrid Gafanhão from Kempen.

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

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Nice presentation and congrats on the results. I was just wondering, do you have any clarity or maybe have you heard from physicians which is the kind of patient that is switching from generic to Envarsus? Are those mainly the rapid metabolizers? Just give us an idea.

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

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Yes. Ingrid, we really have no data source that can get us that type of information. Obviously, that's very patient-specific. What we're seeing is just a generality. I mean when we're using numbers to show patients that are converting to -- from generic, it's sort of a general of all patients. I just -- we don't have anything that's as specific.

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

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Okay. Got it. And I was wondering just a little bit more on the ongoing generic tacrolimus shortage. At the beginning of the shortage, you mentioned that you would not expect to be affected by it at all. Is that still the case? Or do you also think that the shortage and the API shortage might be spreading towards another suppliers as well?

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

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No. At this time, we have not seen that this only affected a court as far as we know. So we have not seen it spread anywhere else at this time.

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Operator [6]

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Your next question is coming from the line of [Philipp Möller].

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Unidentified Analyst, [7]

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Craig, I sent you an email earlier today about the shortage. I don't know if you had time to see it. But recently, there's been articles in The Boston Globe and New York Times and other papers about generic drugs that seems not to be as good quality that as people thought they were, and also, there's a risk of organ rejection. And the other issue was that these facilities are not controlled sufficiently by the FDA. So is this issue something you're aware of? And is that going to have an effect on the conversion to Envarsus?

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

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Yes. I can't really speak to the fact that it has any impact. I know the article you're referring to was in The Boston Globe, but again, this is an FDA-approved product. I'm going to let the authorities handle that one. I mean it would be kind of difficult for me to comment on that.

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Operator [9]

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(Operator Instructions) The next question is coming from the line of Benjamin Silverstone from ABG.

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Benjamin Silverstone, ABG Sundal Collier Holding ASA, Research Division - Research Analyst [10]

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Congratulations on the results. I was wondering if you could put a few words on your future outlook for the strategy and where you see Veloxis going next year.

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Craig Alexander Collard, Veloxis Pharmaceuticals A/S - President & CEO [11]

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Yes. Again, at this time, we haven't given any revenue guidance or anything like that. So we'll save that probably comment for later. I can tell you we're obviously pleased with our performance, obviously by our earnings. And we continue to see the benefits that Envarsus is bringing to patients. But as far as revenue guidance or anything like that, I think we will certainly deal with that as time progresses.

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Benjamin Silverstone, ABG Sundal Collier Holding ASA, Research Division - Research Analyst [12]

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I was wondering in regards to the R&D. We see a shift again towards more R&D expenses now. Is this to further improve the current products? Or is it more to create probably a new pipeline? Or is there no guidance on this?

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Ira Duarte, Veloxis Pharmaceuticals A/S - CFO [13]

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Yes. The current R&D expense that you see in the financial statements relate to the qualification of a secondary supplier and does not relate to any product enhancement at this time.

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Operator [14]

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(Operator Instructions) Your next question is coming from the line of [Kim Clair].

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Unidentified Analyst, [15]

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Congratulations on your results. Just coming a little bit back to field and this thing about the, I would say, colluded generics that are produced basically in India and China. I just want to know where are Envarsus and where you're producing your products. Is that in U.S., in EU? Is that outside of that as well?

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Craig Alexander Collard, Veloxis Pharmaceuticals A/S - President & CEO [16]

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Yes. So the finished goods for our product are produced out of Germany at this time. And I think Ira just mentioned that we're qualifying a secondary supplier in the U.S.

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Operator [17]

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(Operator Instructions) We think you have no further questions at this time. Please continue.

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Craig Alexander Collard, Veloxis Pharmaceuticals A/S - President & CEO [18]

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Yes. We'd like to thank everyone for joining our call today. And we look forward to next quarter's earnings call. Thank you.

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Operator [19]

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