Cornerstone Therapeutics (NASDAQ:CRTX)
Q3 2013 Earnings Call
November 07, 2013 8:30 am ET
Craig A. Collard - Chairman and Chief Executive Officer
Alastair McEwan - Chief Financial Officer, Treasurer and Secretary
Ladies and gentlemen, thank you for standing by. And welcome to the Cornerstone Therapeutics Third Quarter 2013 Financial Results Call. [Operator Instructions] As a reminder, today's call is being recorded. With that said, I will turn the call over to Amy Diebler of Cornerstone Therapeutics.
Thank you, operator. Good morning, everyone, and welcome to Cornerstone Therapeutics' conference call to discuss our third quarter 2013 results. We are glad to have you with us. I am Amy Diebler, Senior Director of Corporate Finance and Development for Cornerstone Therapeutics. We are joined by Craig Collard, Cornerstone's Chief Executive Officer; and Alastair McEwan, Cornerstone's Chief Financial Officer. Craig will provide perspective on both the quarter and on our 2013 outlook, and Alastair will cover the financial and operational results. Both Craig and Alastair will be available to answer your questions.
We issued a press release this morning containing financial results for the quarter ended September 30, 2013. Before we proceed with the call, please let me remind everyone that the following discussions and responses to your questions reflect management's view only as of today, November 7, 2013. Any statements about future expectations, plans and prospects, including, without limitation, statements regarding our business strategy, future operations, financial position, anticipated regulatory approval of our products, possible therapeutic benefits, market acceptance, prospects and management's plans and objectives, constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results and events may differ materially from those indicated by our forward-looking statements.
Additional information about factors that could cause actual results or events to differ materially from those indicated by our forward-looking statements is included in the Safe Harbor statement in today's press release and in our filings with the Securities and Exchange Commission, including Item 1A to our annual report on Form 10-K filed on March 14, 2013, and in our subsequent Form 10-Q and other filings with the SEC. Cornerstone disclaims any obligation to update its forward-looking statements except as required by law.
In addition, please note that Cornerstone's remarks contain supplementary non-GAAP financial measures, including non-GAAP income from operations, non-GAAP net income and non-GAAP net income per share diluted. A reconciliation of these measures to the comparable GAAP numbers is included in the press release, which is posted on our website. With that, I will now turn the call over to Craig.
Craig A. Collard
Thank you, Amy, and good morning, everyone. We appreciate you joining us on this call. This was another successful quarter for Cornerstone as we posted record revenue for the third consecutive quarter. Each of our products performed well and with the addition of PERTZYE and our generic equivalent of Tussionex along with the anticipated launch of BETHKIS later this year, we believe we are well on our way to delivering on our goal to add 3 new therapies to our portfolio this year. We are extremely pleased with these results, which reflect the success of our strategic focus on hospital and adjacent specialty markets that has truly transformed our business. Some highlights from this quarter include, net revenues reached $53.7 million, up 43% from the third quarter of 2012, which again is the highest quarterly revenue in the company's history.
Profitability continued to improve as net income per diluted share jump at $0.31 from $0.05 during the third quarter of 2012. On a non-GAAP basis, net income per diluted share for the third quarter of 2013 was $0.46, up from $0.19 in the comparable quarter of last year. Gross margin reached 76%, an increase of 14 percentage points over the third quarter of 2012. Our market products all continue to perform well and achieve growth.
Let me give you a quick overview of each one. I will start with CARDENE, ready to use bags, which is indicated for the short-term treatment of hypertension in the hospital market when oral therapy is not feasible or desirable. We acquired the worldwide rights for this product in June of 2012 with the acquisition of EKR Therapeutics, and we are pleased with the positive impact it has had on our business. Net sales of CARDENE increased significantly during the quarter and a strong performance is due mainly to our selling efforts and the ability to supply the market while generic manufacturers continue to suffer product shortages for nicardipine vials.
Moving to CUROSURF, our market-leading natural lung surfactant for the treatment of respiratory distress syndrome in premature infants. CUROSURF continued to be a strong product for us. The product continues to grow year-over-year in both net revenues and unit volume driven by new account acquisitions. As of the end of September, over 90 new hospitals had chosen CUROSURF as their primary surfactant of choice, representing approximately 17,000, a full year potential mLs. In early October, Discovery Labs announced FDA approval of the company's updated product specific for SURFAXA [ph]. This product has allowed Discovery Labs to initiate manufacturing for planned commercial introduction expected in late November. We believe that CUROSURF will continue to show growth in the upcoming quarters.
ZYFLO CR, our niche product indicated for the prophylaxis and chronic treatment of asthma in adults and children, 12 years of age and older, continues to perform well and we continue to manage the life cycle of the product. We've been pleased that we have had no generic competition to date and remain optimistic about the immediate future for the product. If a generic does enter the market, we plan to launch our own authorized generic through Aristos, our generic subsidiary. We initiated sales and marketing efforts for PERTZYE on July 29. PERTZYE is indicated for the treatment of exocrine pancreatic insufficiency or EPI due to cystic fibrosis or other conditions. As you will recall, Cornerstone has the exclusive U.S. rights to market PERTZYE to healthcare providers, treat patients with cystic fibrosis. We were pleased with this sales this quarter, which were made directly through specific pharmacies. PERTZYE sales trend are moving in the right direction as our sales force continues to get the right message out that PERTZYE is a unique formulation containing pancreatic enzymes and buffered with bicarbonate and is designed to stimulate normal pancreatic function in patients with EPI.
In July, we launched a comprehensive support program for CF patients called Cornerstone Care Direct, which offers reimbursement support and additional money saving programs to provide affordable access to treatment. Since the launch of Cornerstone Care Direct, we have seen positive trends in patient enrollment and provide utilization, helping patients in the CF community receive the maximum reimbursement for their treatment. Perhaps most importantly, members of the Cornerstone team have embraced the challenge of volunteer in the local communities and dedicated their time to support CF events, such as the CF's Foundation cycle for life in over 20 cities nationwide.
With this product, any anticipated launch of BETHKIS later this year, we are building a strong portfolio in the CF space. BETHKIS is a Tobramycin Inhalation Solution, indicated for the management of cystic fibrosis patients with Pseudomonas aeruginosa. Infections arising from Pseudomonas aeruginosa are very common in patients with CF. And nebulized tobramycin is considered the gold standard in treatment. Since 1997, the market has been dominated by one product, Novarsis Tobi or Tobramycin Inhalation Solution.
More recently, 2 new products have entered the market, Gilias Caston [ph] in 2010 and a dry powder formulation of Tobi TUB dubbed TOBI Podhaler in May of 2013. BETHKIS law for patient is a unique com-fitted option for nebulized Tobramycin Inhalation Solution that can be nebulized in approximately 15 minutes. On September 23, we launched our generic equivalent of Tussionex indicated for the relief of cough and upper respiratory symptoms associated with an allergy and cold in adults and children, 6 years of age and older.
Our product is competing with other available generics through the current cough and cold season, which is typically September through March. As stated during our last call, our goal was to have this product launch in time for this year season and which I'm proud to say we have accomplished.
I'll provide more detail on our pipeline and outlook for the remainder of 2013 in a moment. First though, I will turn the things over to our CFO, Alastair McEwan, to comment on our financial and operational performance in the third quarter. Go ahead, Alastair?
Thanks, Craig. And good morning, everyone. As Craig indicated, we are very happy with our performance this quarter, strong top and bottom line growth and cash generation. Net revenues grew 43% year-over-year, bringing us to $53.7 million compared with $37.5 million in the third quarter of 2012.
I should mention that this is a first report in quarter this year, that compares directly with the equivalent quarter of 2012 in terms of Cornerstone's structure and focus pulling our acquisition of EKR at the end of Q2 2012.
Looking now to the market products that Craig mentioned, for CARDENE net product sales were $20.7 million for the quarter, compared to sales of $12.8 million for the third quarter of 2012. As Craig mentioned, this significant increase in sales largely reflects our ability to supply the market while generic manufacturers continue to experience product shortages. This is the second consecutive quarter during which we benefited from the generic shortage.
While we expect sales to return to normal levels at some point in future, this shortage continues and we have no foresight into when it will end. CARDENE sales were also impacted by reduction in our estimated rate of chargebacks and adjustment to reduce our estimate of product returns, which were partially offset by increases in our estimated rates for price adjustments.
CUROSURF net product sales totaled $11.2 million during the quarter, representing an increase of 13% compared to third quarter of 2012. This increase was driven by greater unit volume along with decreases in our estimated rates for price adjustments and chargebacks due to an increase in contract prices.
The ZYFLO family of product continues to perform very well. Net sales amounted to $19.8 million for the third quarter of 2013, an increase of 36% over the third quarter of 2012, growth was largely driven by price increases, which were partially offset by a decline in unit volume.
We began selling and promoting PERTZYE at the end of July. We made progress with the establishment of our network of specialty pharmacies to which we will directly sell PERTZYE. And total net revenue including co-promotion revenue for PERTZYE was $620,000 for the third quarter of 2013. As Craig mentioned, we also launched our generic equivalent of Tussionex on September 23. Net product sales so far were $246,000 for the quarter. We expect the majority of our product sales will cover during September and March which aligns with the cough and cold season. Net product sales from other products totaled $1.1 million, an increase of $811,000 from the comparable period in 2012. This is due primarily to a reduction in our estimate for product returns related to HyoMax. Gross margin for the third quarter of 2013, was 76%, up from 62% in the comparable quarter of 2012. This increase was driven by CARDENE sales growth along with the growth in net product sales due to price increases, adjustments for product returns that were less than estimated and lower estimated rate for other sales allowances.
Looking to expenses, SG&A costs were $16.4 million during the third quarter of 2013, a 27% increase over $12.9 million in the third quarter of 2012. This increase is primarily due to legal fees related to ongoing patent litigation as well as compensation, travel and other related employee benefits due to the continued growth of our products and related sales force. This increase was also driven by advertising and promotional expenses related to the addition of PERTZYE and the upcoming launch of BETHKIS as well as those for marketed product stability.
Our R&D costs decreased to $594,000 compared with approximately $2 million in the third quarter of 2012. Our development expenses convey from quarter-to-quarter depending on product development stages and activities undertaken to advance the candidate within a given quarter.
The quarter's R&D costs related primarily to rate of these whereas the costs in current third quarter of 2012, related to LIXAR. For the quarter, we reported net income of $9.6 million or $0.31 per diluted share, compared to $1.2 million or $0.05 per diluted share in the third quarter of 2012.
On a non-GAAP basis, net income for the quarter was $14.3 million, which is $0.46 per diluted share, up from $5.6 million or $0.19 per diluted share in the same quarter of 2012. For clarity, non-GAAP net income and net income per diluted share exclude stock-based compensation expense, amortization of product rights, transaction-related expenses, acquisition adjustments related to inventory sold, the change in acquisition-related contingent payments and a gain on divestiture of certain product rights.
Lastly, looking to our cash position. At the end of third quarter, we had $69.6 million in cash and cash equivalents on hand, an increase of $13.4 million compared with December 31, 2012. Now back to Craig for look into the remainder of 2013. Craig?
Craig A. Collard
Thanks, Alastair. As you can see, we believe that our continued progress demonstrates that we have the right strategy in place and that our company can successfully execute within this market. In addition to our market products, we develop and maintain a pipeline of products and are working diligently to move these products forward to approval and commercial launch.
I would like to now give you some updates on the products currently in our pipeline. Starting with RETAVASE, as we shared on previously quarterly calls, there was an unknown inherent stability failure. The team is making good progress on our work to address such matters and generate new stability data. Our focus is on both improving the supply chain and streamlining the overall process as much as possible. We believe that our work in this area, will allow us to both achieve a target relaunch in late 2015 and to develop a more robust process. Currently, we are on track to finalize our first set of batches utilizing our new process in February of 2014. In parallel, we find a move forward with Retaflo, our catheter clearance program utilizing Reteplase, the active ingredient in RETAVASE. If approved RETAVASE will give us the opportunity to further strenghen our relationships with the cardiology community and aid in our long-term growth plan for the hospital market. In regards to LIXAR, in September, we submitted our request for a meeting with the division of cardiovascular and renal drug products to the FDA, to discuss the contents of the Complete Response Letter received on October 31, 2012, for the LIXAR NDA. That meeting is scheduled for December 5, 2013, and following that meeting, we will determine our next steps regarding the LIXAR problem.
Before close, I want to update you on legal matters regarding CARDENE. On July 24, 2013, we filed a complaint in the United States District Court for the District of Delaware as we received notice that Exela had filed as a supplemental New Drug Application seeking approval to market a ready-to-use injectable formulation of the nicardipine hydrochloride. The complaint alleges that the Exela product infringes our patents related to CARDENE. Also on August 19, 2013, we filed an amended complaint in the United States District Court, for the District of Delaware alleging that Exela infringed on an additional patent we have for CARDENE. Separately, on August 15, 2013, we received notice that Sandos had filed an abbreviated New Drug Application seeking approval to market generic version of ready-to-use CARDENE. In response, on September 25, 2013, we filed a complaining of Sandos in the United States Distric Court, the District of New Jersey alleging that Sandos proposed generic product will infringe our CARDENE patents. Our legal responses are consistent with our stated intention to vigorously enforce intellectual property rights to protect our innovative products and technologies. We believe our patents are valid and will protect our product. By filing these lawsuits, we have automatically triggered a 30-month stay under the Hatch-Waxman Act. This will prevent the FDA from approving the Exela or Sandos product until 30 months of the lapse from the date of receipt of the corresponding those letters, or until an earlier court decision inverse to our patents.
Lastly in connection with the proposed Chiesi merger now from September 16, we filed a primarily proxy material with the SEC on October 17, 2013. We have been notified by the SEC that the review is underway and will proceed with due process. We urge you to read the definitive proxy statement and any other documents filed with the SEC in connection with proposed Chiesi merger or incorporated by reference in the proxy statement when they become available because they will contain important information about the proposed Chiesi merger. As these matters are still in process, we don't plan to take questions or provide any additional details about the proposed merger today. With this, we are ready to take your questions. Operator?
[Operator Instructions] And this time, we have no further questions at this time.
Craig A. Collard
I would like to thank everyone for joining the call and we look forward to talking to everyone next quarter. Thank you.
Thank you. That does conclude today's conference. Thank you all for your participation.
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