NexMed Inc. Q3 2009 Earnings Call Transcript

NexMed Inc. (NEXM)

Q3 2009 Earnings Call

November 10, 2009; 10:00 am ET

Executives

Linda Burns - Senior Director of Corporate Relations

Vivian Liu - Chief Executive Officer

Mark Westgate - Chief Financial Officer

Analysts

Aftab Khan - Private Investor

Calvin Sue - Unidentified Company

Presentation

Operator

Greeting, and welcome to the NexMed third quarter 2009 results conference call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator instructions)

It is now my pleasure to introduce your host, Linda Burns, Senior Director Corporate Relations of NexMed. Thank you, Ms. Burns.

Linda Burns

Thank you, Metania. Good morning, I’m Linda Burns, Senior Director of Corporate Relations. On the call with us today are Vivian Liu, our Chief Executive Officer; and Mark Westgate, Chief Financial Officer.

Before we begin, I will read the forward-looking statements language statement and then turn the call over first to Mark to discuss the financial condition of the company and then to Vivian for an update on the business activities. Following their remarks, we will open the call for your questions and comments.

Just a reminder to everyone, that during the course of the call, the management team will make forward-looking statements regarding future events or the future financial performance of the company. Please keep in mind that such statements are predictions based on current expectations and actual results could differ materially. You should refer to our most recent filing with the Securities and Exchange Commission for additional discussion on factors affecting our business.

Now, I will turn the call over to Mark.

Mark Westgate

Thank you, Linda and I’d like to thank everyone for dialing in this mourning. We continue to implement our restructuring program, which began in December 2008 in order to reduce our expenditures. Our total expenses for the first nine months of this year were approximately $4.1 million, which represents a 48% reduction from the same period in 2008.

Meanwhile, we are currently in contract negotiations to lease our building in East Windsor. Under the proposed terms of the contract the lessee will have an option to buy the building at a price above what our current book value is. This is no small fee considering the soft real estate market, which persists both here and New Jersey and out there much of the United States.

According to the terms of the deal being contemplated, our tenant will also assume all building expenses. In additional they will pay us rental income, which will exceed the debt service on our current mortgage. As a result we expect to realize a positive cash flow from the lease of the build, which should start to hit our books early next year.

We currently operate in overhead burn rate of approximately $275,000 per month. When we close the lease transaction, which we hope will happen before year end, we expect to reduce our monthly expenses by about $50,000 to approximately $225,000 per month. We continue to analyze our expenditures with the goal of reducing our monthly burn rates even further to below $200,000 during 2010.

The reduced burn rate and additional rental income resulting from the successful lease of our facility, together with our current cash in hand and the approximately $600,000 that we expect to receive before the end of this year from the sale of our New Jersey State net operating losses, further strengthens our cash reserves. This expended cash run rate will help ensure our viability as we continue to license our products and pursue strategic alternatives that will increase shareholder value.

Before I turn the call over to Vivian to discuss our ongoing corporate activities, I just want to comment on our NASDAQ panel hearing on Thursday.

Now I’d like to turn the call over to Vivian, who’ll provide you an update on the business.

Vivian Liu

Thank you, Mark. Good morning, everybody. During the past quarter, I focused the bulk of my efforts on business development activities. At the top of the list, of course is our Antifungal product, and we’re currently activity engaged in ongoing discussions with several potential partners, who are interested in licensing either the global or U.S. price for the product. These are specialty pharma companies, who have a presence in dermatology and/or podiatry.

Licensing discussions, as you know are very complex and can take six to 12 months or sometime longer. Typically the partners take some time to get to know us. They conduct the due diligence on all aspects of the products, and if you’re satisfied with the results, the two parties can then negotiate the financial terms and contracts. So you can imagine the amount of work that’s involved in just reviewing the clinical results of this three year long studies involving 2,000 patients.

That said, what’s very encouraging to us that some of these discussions have accelerated faster than usual, because the companies see the potential of our product in addition to the fact that a few of the companies are already acquainted with NexMed based on discussions that took place in 2005, before we sign with Novartis. In terms of the U.S. activities for Vitaros, I know that some of you have been closely following the progress of the CAC submission and a few of you have even called Warner Chilcott, directly for guidance.

Consequently, Warner has asked us to reframe for publicly discussing the timing of their submission, because they do not provide guidance for this product to their investors. What we can tell you at this time is that, we expect the FDA to make a decision on the matter before the end of first quarter 2010, and we have no reason to believe that their response will not be positive.

In regards to the Canadian activities for Vitaros, we continue to receive periodic inquiries and comments from Health Canada concerning our pending marketing applications. Based on the discussions with Health Canada to-date, we think they will complete their review and approval process sometime during the first half of 2010.

Additionally, we expect to sign up a partner for Canada before year end. Upon signing, the partner would immediately take on the remaining regulatory responsibilities and expenses for getting the product approved. They’ll also be responsible for commercializing the product in Canada.

I’m also pleased to say that we’ve made tremendous progress in identifying a possible co-development partner for our early stage psoriasis product. The goal is to have the partner work with us and fund the expenses necessary to take up the compound into Phase II for licensing to a larger company. We hope to provide you with a positive announcement in the coming months.

As I trust you can see, there’s a good deal of positive activities going on at NexMed. Throughout 2009, we have significantly cut our expenses in order to extend our cash runway and remain viable. Our goal has been and remains to be the viability of the company while we attempt to monetize all of our clinical assets.

With that in mind, I can assure you that we’re exploring all business options, including any appropriate merger or acquisition opportunities in order to increase shareholder value and strengthen our ability to further partner and develop our products and the NexACT technology.

At this time, I would like to ask your Metania, our operator to open the call for question from the conference participates.

Question-and-Answer Session

Operator

Your next question comes from [Aftab Khan] - Private Investor.

Aftab Khan - Private Investor

I’m curious to find out about Befar and if Befar had any sales success in China and I heard there was licensing in Korea?

Vivian Liu

The Befar is still on the market in China. Unfortunately, I think due to the way the product was launched, and also the formulation of Befar in China and the packaging in China is very different from Vitaros of the U.S. Befar was the first generation of the Vitaros product and it was submitted in China at a time when prior to the approval of Viagra in China and as a result, it had kind of a limited distribution in China. It can only be prescribed by certain urologist. It was marketed as kind of a controlled substance.

I know that our licensee has attempted and still continues to try to essentially takeoff. The restriction on the distribution of the product in China and I know that they’ve made some progress in trying to sublicense the product for development in other parts of the territory, including Korea.

I think that frankly, the progress will be easier made by them should the product gain approval in the U.S., or Europe, or Canada because then it will be a lot easier approval process, taking the product back to Asia, where often the approval is more kind of a what they called paper approval process, kind of an automatic approval process because of all of the review and work done in industrialized countries.

Operator

Your next question comes from [Calvin Sue – Unidentified Company].

Calvin Sue – Unidentified Company

I guess it’s a two part question. I was wondering, why is it that basically from the company we heard that you guys weren’t going to file to the NASDAQ. Then from what we understood you also said in some of your filings that you were going to file and that if you failed during the filing, you weren’t going to appeal and we all know, right now you are in the middle of an appeal? Then I guess the other question would be why is it that when you filed for this the first time? Why do you think that you were rejected by the NASDAQ?

Mark Westgate

That is a two part question. I guess the answer on why we decided to appeal is things have changed. Remember when we first said, we were not going to appeal, we had no discussions with NASDAQ. So after submitting the plan, having discussions with NASDAQ, we kind of felt sort of comfortable that if we gave them a little more detail we’d have a better shot for lack of a better word.

Unfortunately, a lot of our plan has contingencies in there. We haven’t signed partners for our antifungal product yet. We still haven’t actually signed a lease for the building, but we are in contract negotiations. So unfortunately, the analysts at NASDAQ can’t make final decisions on contingent plans. That can only be made by the panel itself. So based on those discussions, based on some of the contingencies and plans that we have in place, we think we have a good shot with the panel. So we’re deciding to move forward.

Vivian Liu

Part of this is also based on feedback from investors, some of our investors who obviously would prefer to stay on NASDAQ and suggest that the company make an attempt to do so and we are doing so without essentially paying astronomical sums do so to make an attempt for some of our investors to stay on the NASDAQ to keep our NASDAQ listing.

Calvin Sue – Unidentified Company

Then why hadn’t we heard about anything about Warner Chilcott, and about the fact that they had made a decision not to continue to manufacture. I didn’t find that out until yesterday from looking at one of the filings. I think it was in September, everybody was basically waiting in September of this year to hear some kind of status back about Warner.

Although, I know that in Warner’s case of them submitting a CAC, I know they were pretty much over that particular process, but we had Warner at our facility manufacturing the product. They were paying us, basically money to be able to do this and it was kind of like it all faded away and then the other day, I’m reading through the filings, this kind of squares in real tight that they decided not to continue.

So it makes me at this point as a shareholder, it puts me in a position to where I don’t really feel that you guys have a handle on things. I know I’m not just speaking for myself. There are other investors here, too. It puts us in a position to where we feel uneasy. I feel like that situation with Warner Chilcott, that should have been squared into 10-Q. That should have been something that you should have to be order us to let us know something.

I’m wondering, why is it that the company has been so quiet about everything? I mean, you guys are supposed to be a public company, you have our money. I don’t think it’s crazy for us to want updates from your company, which is our company, supposed to be our company. I don’t think it’s crazy for us to want updates from you guys to find out what the heck is going on?

The fact that Warner Chilcott is not the facility, still manufacturing the products and that they are no longer paying you guys, I think a monthly fee, I think that that’s something that the shareholders would want to know about. I mean, you said that you did what you did initially to stay on the NASDAQ because of your shareholders.

You were saying that you didn’t know that the shareholders wanted and probably asked you, where you were with Warner Chilcott, especially considering the fact that right now you are in a money drain situation? I’m just want to know, why is it that I have to find that out in between this large 10-K, I have got to find out the status of Warner Chilcott like that? I feel like as a shareholder we should have been told about that. Why is it that we weren’t updated?

Mark Westgate

Keep in mind that what we have always disclosed is that Warner Chilcott has a four month commitment to us to use the facility and that’s been talked about on our conference calls, as well as in our filings. So that four month period ended in September, and there was an ability for Warner Chilcott to extend it on a month-to-month basis, assuming we agree it to. So it was always only a four month commitment.

The work manufacturing product for sale, they were doing clinical manufacturing for future testing of the product. So it was Warner Chilcott’s decision to use our facility for the four months and then it was their decision to move it to their own facility and that was always what we disclosed. I don’t know that the fact that they stuck to what the original plan was would require us to then announce it to our shareholders. I mean as I said all along, it was a four month commitment from Warner Chilcott.

Calvin Sue – Unidentified Company

Nobody is denying of the fact that it was supposed to be a four month commitment. What I’m saying is because of the money situation that you guys are in you are not in an enviable money position at this time. I know for me as a shareholder, I would have wanted to know that Warner has decided not to continue. That’s not something that is minor for me because of the fact that you guys are in tenuous situation money wise.

I know I’m speaking for more than just me here. It’s like I get on the message board, we have different message boards. All investors are talking about the same thing. They are all talking about “Hey, we’re waiting to get an update about Warner.” Even in your filing you said about how important it was for you to either sell or lease your building.

You mentioned Warner by name because, Warner had been paying you guys some money monthly on a monthly basis, using your facility. Those are things that, I’m going to sum it up like this. What I found out yesterday about the fact that Warner had decided not to continue to manufacture product and not to continue to pay you guys?

Vivian Liu

I think your facts are incorrect. I mean, Warner as Mark said the manufacturing of the product. The product is not approved, so they weren’t manufacturing anything. What they were using was a four months interim period while they assess where they were going to move this product. You have to remember, they own the product. This is their product now.

So they had some finish batch work that they needed to complete here for ease that they were doing so and part of their consideration, they could have kept it here. They could have moved it to a third party. They could have moved it to their own facility. That is their internal decision. I believe we have been very clear from the upfront and throughout all of our guidance’s that this was a four month arrangement. There was nothing for us to get on the phone and tell everybody. The four months was over, they opted to do something else.

Warner, in fact we have had continued discussion, we’ve worked very closely with Warner, and we respect their position on the type of guidance they want to give on this product, because it is their product and we have to respect that, because if we don’t respect that, then they will stop telling us things that we can share with shareholders at all. So as I mentioned earlier, Warner essentially has asked us to not talk about every detail because they just don’t want it out there and whether we like it or not, we have to respect their

Calvin Sue – Unidentified Company

I know I missed what you guys said initially. Where are we at in regards to a partnership? From what I understand, you guys are basically at a late stage, whatever that means, as in getting the building, I believe rented or leased. Where are we at? I know that you probably can’t give me an exact number, but I mean time is closing out for this company.

I mean, if we don’t raise some money and I’m not an accountant or something, but I’ve enough sense to know at the current money drain we’re at and with the amount of cash that you guys have left, it has me very concerned as a shareholder as to whether or not you guys are going to be able to continue as a growing concern.

It was actually in your paperwork that said about the same thing. So I’m basically at a point to where I’m like, okay, what kind of timeframe are we talking about here? We heard that we were going to hear back about an update on the fungus product. We haven’t heard anything.

Vivian Liu

I think you did miss the first part of the conference call, because I did talk about our current status. I can provide color. I can give you guidance on what are our activities, but we can’t talk about things that are not completed and they are ongoing. We are excited about the process. We are excited about the pace of some of these discussions, but there’s nothing concluded for us to share with shareholders at this point in time.

Operator

There are no further questions in queue at this time. I would like to turn the call back over to management for closing comments.

Vivian Liu

Thank you, everybody for joining us today. I see there were quite a few questions and we’re happy to answer them. We look forward to sharing new developments with you as they occur and as always. Please feel free to contact Linda and Mark, our Investor Relations team, if you have any additional questions or comments. Thank you.

Operator

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

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