BioSpecifics Technologies Corp. (NASDAQ:BSTC)
Q1 2014 Earnings Conference Call
May 8 2014 8:30 AM ET
Beth DelGiacco - Stern, IR
Tom Wegman - President
Joel Sendek - Stifel Nicolaus Weisel
Yi Chen - Aegis Capital Corp
Thank you for holding. Welcome to the BioSpecifics' First Quarter 2014 Financial Results Conference Call. At this time, all participants are in a listen-only mode. There will be a question-and-answer session to follow.
I would like to introduce your host for today's call, Beth DelGiacco of Stern Investor Relations. Please go ahead.
Good morning, everyone, and welcome to BioSpecifics' first quarter 2014 conference call. Today, I'm joined by Tom Wegman, the President of BioSpecifics as well as Pat Caldwell. He will provide you with a corporate update and a financial summary for the quarter, and after that we will open the call for your questions.
Before we begin let me remind you that during today's call BioSpecifics will make forward-looking statements within the meaning of and made pursuant to the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical facts are forward-looking statements.
The forward-looking statements include statements concerning among other things the timing of initiating a new clinical trial in human lipoma, reporting top-line data from clinical trials in frozen shoulder and cellulite and the study data in uterine fibroids and the success of clinical trials. The market opportunity for various indications for their approve during development, the potential for the XIAPEX label to be expanded in the Dupuytren's contracture indications for MULTICORD, and the potential effect on the market opportunity if the label is expanded, the timing of the submission of the MAA by Sobi in Europe for Peryronie's disease, and the potential for approval, the timing of the submission by after Auxilium of the opt-in study for the canine lipoma and the likelihood that Auxilium will exercise its opt-in rights.
In some cases these statements can be identified by forward-looking words such as believe, expect, anticipate, plan, estimate, likely, may, will, could, continue, project, predict, goal, the negative or plural of these words and other similar expressions. These forward-looking statements are predictions based on BioSpecifics' current expectations and its projections about future events.
There are a number of important factors that could cause BioSpecifics' actual results to differ materially from those indicated by such forward-looking statements including the ability of Auxilium and its partners to achieve their respective objectives for XIAFLEX, XIAPEX or CCH, the uncertainties is inherent in the initiation of future clinical trials. The market for XIAFLEX or XIAPEX in a given indication being smaller than anticipated, the potential of CCH to be used in and an initiation and outcome of clinical trials for additional indications, the receipt of any applicable milestone payments from Auxilium, the timing of regulatory filings and actions; and other Risk Factors set forth in BioSpecifics' Annual Report on Form 10-K for the year ended December 31, 2013, its current report on Form 8-K filed with the Securities and Exchange Commission.
All forward-looking statements made on this call are made as of the date hereof, and BioSpecifics assumes no obligation to update these forward-looking statements.
I will now turn the call over to Tom.
Thank you, Beth. And good morning everyone. On our last earnings call in March, we highlighted the extremely productive year we had in 2013 and the many clinical milestones we have obtained, perhaps most notably the U.S. approval of XIAFLEX in a second indication Peyronie's disease. As a result, I am pleased to report on the XIAFLEX commercial front, we have had a very productive quarter for both Peyronie's disease and Dupuytren's contracture.
Furthermore, we ended the quarter in a very strong financial position. We entered 2014 with significant momentum for our proprietary pipeline and the pipeline indications managed by Auxilium. We have reported data from two studies in our proprietary pipeline those being conducted for human and canine lipoma in late 2013 and in January of this year. By the end of June, 2014, we plan to have initiated a subsequent placebo-controlled Phase 2 trial in human lipoma indication and to finalize the both study report and determine a strategic pay up block forward for the canine lipoma indication. We expect to report data in the second half of 2014 from preclinical studies of CCH and uterine fibroids. We are very pleased with the results to date in these indications, and we are excited to advance forward in their development because they represent a large market opportunity and also because there is larger unmet need for minimally invasive treatments for lipoma and uterine fibroids.
(inaudible) that Auxilium manages two clinical studies were initiated in the end of 2013 in frozen shoulder and cellulite. And both are progressing well with enrollment.
We will elaborate on all of these programs in a moment but would first like to touch on the exciting development on the commercial side. XIAFLEX was launched in the U.S. for the treatment of Peyronie's disease in January 2014. As a reminder, Auxilium also market XIAFLEX in the U.S. and XIAPEX in the EU for Dupuytren's contracture. It is actually, they are our partners Sobi. XIAFLEX was approved by the FDA in December 2013 and is the first and only FDA approval biologic therapy for the treatment of Peyronie's disease in men with a palpable plague and curvature of 30 degrees or greater to start its therapy. As reported by Auxilium earlier this week on their earnings call the launch date has exceeded expectations. XIAFLEX revenue and several metrics regarding physician certification and reimbursement were provided with numbers correct as of April 30, 2014.
In total, U.S. XIAFLEX revenues for the first quarter of 2014 were $16.6 million which is a 38% increase from the $12 million reported in the first quarter of 2013. Auxilium provided information to show the numbers of vials sold in each of the two market indications and to demonstrate launch progress in Peyronie's disease. Since the January 2014 launch, there have been 1,022 total XIAFLEX vials shipped with the Peyronie's disease indications. This breaks down to 524 vials in the first quarter of 2014 and 498 vials in the month of April alone. As you may recall the XIAFLEX label in this indication states the patient can receive up to eight injections total or four treatment cycles of two injections per cycle in six weeks between each treatment cycle. Thus for each patient vial sales in subsequent revenues can occur over the course of a four to five month period. We therefore expect this launch momentum to continue as new patients start the therapy and existing patients start second and third treatment cycles.
The initial launch strategy targeted approximately 400 physicians who performed 90% of current surgeries for Peyronie's disease. This covered about 5000 to 6500 patients who receive surgery and get verapamil injection to each year. As part of the REMS program required by the FDA, physicians must be certified to offer XIAFLEX to achieve early REMS certification in a disciplined and effective way Auxilium focused on a subset of these 400 physicians which ended up being approximately 235 top targets. Of this group, 92% have been certified while in total 853 physicians have been certified across the U.S. at 459 sites.
We believe this larger number of physician being certified indicates increased overall market and patient demand beyond the cord target group and initial expectation. Auxilium also reported impressive metrics on the reimbursement front. A total of 2,373 Peyronie's disease patients have submitted for reimbursement through the Auxilium advantage program. It is important to point out that total of 2500 patients received surgery in the U.S. annually. So we see this is a very positive indicator. Of these 2,373 patients that have submitted for reimbursement 1,111 of them have received the positive decision from the payer. 1,079 of these submissions are still in progress, what this means is that 55% of patients who have received decision, 86% of them have received approval. It is also important to note that if the largest scale covered label, all eight of the Medicare administrative contractors have confirmed coverage of XIAFLEX and 15 of the major commercial health plans have approved reimbursement for patients seeking treatment. XIAFLEX is also now a covered benefit of the Veterans Administration and of TRICARE, the healthcare program of the U.S. Military. We hoped to see more of the major commercial health plans approved coverage of the policy level but we were encouraged to see that as of March 18 in the Clinical Policy Bulletin, Aetna announced XIAFLEX to be a medically necessary treatment for Peyronie's disease, well administered under the REMS program.
We will watch as other commercial insurers hopefully follow this example. Based on these numbers, we remain excited to see how the launch and continued decision adoption into the Peyronie's disease market continuous to progress.
We are also eager to see momentum built internationally in the Peyronie's disease indication. Sobi, Auxilium's marketing partner for XIAPEX in Eurasia and Africa is expected to submit an MAA to the EMA for XIAPEX for the treatment of Peyronie's disease and we look forward to the potential European approval.
Now moving on to updates on XIAFLEX in Dupuytren's contracture. Auxilium continue to report steady growth of XIAFLEX or Dupuytren's contracture while sales increased 10% in the first quarter of 2014 as compared to the same period in 2013. Overall XIAFLEX market share in the U.S. of all procedures for Dupuytren's contracture has reached 28%. Auxilium has also reported an increasing awareness and demand for Dupuytren's contracture procedures with 11% increase over the number of procedures reported in the same period in 2013.
We expect to see sales grow especially with the potential label expansion for XIAFLEX which would allow for the current treatment of multiple Dupuytren's contracture cords. Auxilium received FDA acceptance to the sBLA for this expansion and we expect a decision from the FDA later this year, the PDUFA date is set for October 20, 2014.
We made progress with our proprietary programs as well this quarter and expect to see significantly more momentum throughout the rest of the year. The clinical success in the human lipoma indication from the dose escalation clinical trial was very rewarding and we believe that it will ultimately be of significant benefit to patients. Similarly, we know that lipomas for dogs are very common and the studies performed so far have shown a great deal of promise.
Uterine fibroids represent a significant health problem for women accounting for over 60% of hysterectomies performed in the United States. We believe that the development of injectable collagenase with these indications would be a very considerable therapy advantage over the existing options.
In January of this year, we reported data from our open- label single-center dose escalation study of CCH for the treatment of human lipoma. The primary efficacy outcome of active reduction of the visible surface area of lipoma has measured by caliper was met combining all patients with the P value of less than 0.0001. Data also show that patients in the highest dose group which was 75% of the commercial dose of XIAFLEX achieved the best efficacy result with an average of 67% reduction of lipoma visible surface area as measured by caliper in six months post treatment. There were no drug related serious adverse events reported during the trial.
We plan to initiate a placebo-controlled study in this indication in the second quarter of 2014, and to complete enrollment and the trial by the fourth quarter of 2014. We also reported data from Chien-804 in late 2013. Chien-804 is the placebo-controlled double-blind randomized Phase 2 trial of CCH in canine lipoma and we expect to finalize the full study report in the second quarter of 2014. Once finalized we intend to send it to Auxilium which will trigger the 120- day opt-in period for them to decide whether to license right in this indication.
We are also excited about our preclinical work with Duke Medicine to study the potential of CCH in uterine fibroids. Data will report in 2013 that showed a highly purified collagenase can reduce the stiffness of uterine fibroids tissue in laboratory experiment. Based on this data we are continuing this work and we expect to report more preclinical data in the second half of 2014.
Before I turned to the financial, so I want to touch on the CCH indication managed by Auxilium. Auxilium is also advancing their pipeline of CCH in two indication, frozen shoulder and cellulite; both are large indications so the potential for growth of the XIAFLEX patient market is very evident. Frozen shoulder affects an estimated 20 to 50 million people worldwide while cellulite has been reported to affect 85% to 98% in women. The double -blind placebo-controlled Phase 2b study of CCH for frozen shoulder is expected to enroll approximately 300 adult men and women across 35 sites in the U.S. and Australia. The study is enrolling is expected with top line data to be reported in the first quarter of 2015.
On our earnings call this week, Auxilium announced their enrollment is completed ahead of schedule in the double-blind placebo-controlled Phase 2a study of CCH in cellulite. Those patients enrolled will be randomized to receive up to three treatment cycles of low, medium or high dose CCH or placebo up to three weeks apart. Top line data are now expected also ahead of schedule in the fourth quarter of 2014. Our confidence continuous to grow regarding the vast potential of injectable collagenase and we plan to map out a strategy later this year regarding new clinical indications that may benefit from treatment with CCH.
With that I'll now review our financial results for the first quarter of 2014. As a reminder, the financial results reported for the first quarter of 2014 do not include revenues from royalties on first quarter sales by XIAFLEX, by Auxilium of XIAFLEX for Peyronie's disease and because we recognized royalties and mark up on cost with goods with a one quarter lag. Therefore, we will recognize and report revenues from sales which occurred in the first quarter of 2014 of XIAFLEX for Peyronie's disease then we report a second quarter 2014 financial results.
In this morning's press release, we reported a net income of $0.8 million for the first quarter of 2014 or $0.12 per basic share and $0.11 per diluted share compared to a net income of $1.4 million, or $0.21 per basic share and $0.19 per diluted share for the same period in 2013.
Total revenue for the first quarter of 2014 was $2.8 million compared to $4.4 million ($4.0 mention in press release) for the same period in 2013 which represents a decrease of approximately 31%. The decrease in total revenue is due to the fact that we recognized in 2013 the final revenue from our agreement with DFB, although we received the final cash payment during the first quarter of 2014.
Royalty and mark-up on cost of goods sold for the first quarter of 2014 were $2.7 million, compared to royalty; mark-up on cost of goods sold, and earn-out revenues of $3.4 million for the same period in 2013. Royalty and mark-up on cost of goods sold revenues recognized under agreement with Auxilium for the first quarter of 2014 were $2.7 million, compared to $2.4 million for the same period in 2013. This represents an increase of approximately 13%.
Under the agreement with DFB pursuant to which we sold top of that collagenase business we have the right to receive earn-out payment based on Santyl sales through the end of 2013.
Earn-out revenue recognized under the DFB agreement for the first quarter of 2014 was zero and $1 million for the comparable period in 2013. We have now recognized all income from the Santyl sales under the DFB agreement, and in March 2014, we received the corresponding cash payment for the income recognized in 2013.
Licensing revenue consists of licensing fees, sublicensing fees and milestones. For the first quarter of 2014 we recognized total licensing and milestone revenue of approximately $17,283 and $544,881, respectively. Certain licensing fees recognized are related to the cash payments received under our agreement with Auxilium in prior years and amortized over the expected development period. For the first quarter of 2014, we recognized licensing revenue related to the development of XIAFLEX of approximately $17,283 as compared to $44,881 for the same period in 2013. In the 2013 period, licensing fees recognized of $0.5 million were related to the exercise by Auxilium of its exclusive option to expand the field of its license for injectable collagenase to include the potential treatment of adult patients with edematous fibrosclerotic panniculopathy, commonly known as cellulite.
Research and development expenses for the first quarter of 2014 were $0.4 million, compared to $0.3 million in the same period in 2013. This increase in research and development expenses was primarily due to expenses related to our clinical development and research programs.
General and administrative expenses for the first quarter of 2014 were $1.2 million, compared to $1.6 million for the same period in 2013. The decrease in general and administrative expenses was due to lower third party licensing fees, legal, consulting and investor relations services partially offset by third party royalty fees.
Income tax expenses for the first quarter of 2014 were $0.4 million as compared to $0.7 million for the same period in 2013.
As of March 31, 2014, we had cash and cash equivalents, and investments of $16.9 million, compared to $12.6 million on December 31, 2013.
As you can see we are on a very solid financial position so before I return the call over for questions, I would like to reiterate why we expect the remainder of 2014 to be very productive. We plan to initiate a placebo-controlled trial in human lipoma in the second quarter of 2014. Finish the final study report of Chien-804 to trigger the 120 day opt-in period for Auxilium to license right to the indication. Continue supporting preclinical studies of CCH in uterine fibroids tissue and expect to report more data on this in the second half of 2014.
At the same time, we are very excited by the indications that Auxilium is supporting and we will weigh top line data from the cellulite Phase 2a trial in the fourth quarter of 2014, and a top line data from the frozen shoulder Phase 2b trial in the first quarter of 2015.
As demonstrated by the encouraging information provided early on this call, we are very pleased with the launch progress so far from XIAFLEX for Peyronie's disease and we will look forward to seeking more revenues throughout the year. Additionally, on the commercial front, we look forward to the PDUFA date of October 20, 2014, when the FDA is expected to make the decision on the potential label expansion of XIAFLEX for Dupuytren's contracture and help us may incite more growth of the overall XIAFLEX market.
And now I would like to open up the call for your questions.
(Operator Instructions). The first question comes from Joel Sendek with Stifel. Please go ahead.
Joel Sendek - Stifel Nicolaus Weisel
Hi, thanks. I have a couple of questions, Tom. First on the label expansion for Dupuytren's. Can you drill into a little bit about -- how risky you think that is or is it more of rubber stamp and as far as the expansion and should we see a step change or a major change in the slope or the trajectory with multiple cord is that how you are kind of yearning that then I have a follow up question after that. Thanks.
Well, that's a very good question, Joe. The logic that I can tell you is that many times patients are swayed to go to surgery for Dupuytren's contracture because the physician will say, well, you have multiple cords and I can't inject them in one setting. So it is certainly far more convenient for the surgeon to perform surgery in that sense. So I think they certainly -- Auxilium did some market research prior to initiating the trial which was a rather large trial and that they certainly got positive indicators from the surgical community that they would be more likely to do injection rather than to push them to surgery. So I can certainly say that there were indications. How much of the reflection, I think that's to be seen but I think it can only be helpful in my mind.
Joel Sendek - Stifel Nicolaus Weisel
Okay and then finally on triggering the [ocane] for the especially the animal rights I mean so that's 120 days and then could you enter into partnering discussion, subsequent to that 120 days of spending on Auxilium's decision or what can we put in our calendar with regard to -- how potential out licensing or partnering transaction?
Well, clearly, Joe, let say for instance if they turned it down flat that we can certainly free to partner with other people, and other scenario could be some negotiations about it and at some point we could choose to partner with it. So that certainly gives a good option I think and at least you know a lot about this area, clearly the whole area, veterinary medicine is growing and there is a more of spotlight on it. So there is good -- there could be a good opportunity for us. So we will see as things progress with our partner Auxilium will obviously keep everybody updated.
The next question is from Yi Chen with Aegis Capital. Please go ahead.
Yi Chen - Aegis Capital Corp
Hi, thank you for taking my question. My first question is just to clarify; you mentioned that you will submit the Chien -804 results to Auxilium by the end of the second quarter, right. And then they have 120 days to decide whether they want to opt in or not. So that means they will by the end of October they will have decide whether they want opt-in or not, is that right?
Yi Chen - Aegis Capital Corp
Okay, second question is what is the anticipated size of the share buyback going forward for the rest of the year?
Well, we have 2 million that is approved -- we are engaging in a more aggressive buyback this quarter and that's going forward. But so we certainly have the right to do and I think as you know buyback is limited by the volume and other SEC regulations but we are going at in a much more aggressive way I can say.
Yi Chen - Aegis Capital Corp
How much in terms of dollar or in terms of shares, how much do you have left?
So we update on a quarterly basis how much we bought so I clearly -- we will -- when you see the second quarter I think you will get a better update on that number.
Yi Chen - Aegis Capital Corp
Okay. Have you engaging any discussion with the FDA on the design after you doing [Technical Difficulty] concept trial?
Well, we -- all that, we are certainly thinking about it but we have not -- we are -- it is a little bit of an early, I can say we are collaborating with people who are very experienced in this whole regard. And that clearly a goal that we have-- to work collaboratively with our partner Auxilium and to get FDA to agree to at least a pilot or stage study for this.
Yi Chen - Aegis Capital Corp
Okay, got it. Other question is, is there any potential for the firm to invert away from the U.S. statutory corporate taxes in?
Is there a big in terms of -- I think they are able to pay U.S. taxes, I mean it is difficult, I mean again tax is a complex issue and a lot of people have looked at this clearly, I think at the moment we don't see a real strategy to get away from the U.S. federal taxes right now, so I am not sure if there is anything that we can do to sort of wave a magic wand and make them go away. A long term -- I see a lot of -- clearly I see the same news as you and I noticed that a number of companies are getting domiciled in Europe or in Ireland for tax friendly purposes, but that's not exactly an analogous to the situation that BioSpecifics is in.
(Operator Instructions). And we are showing no further question. I'll now hand the conference back to Mr. Wegman for closing remarks.
Okay. I wanted to thank everybody for attending this morning's conference call. I thank you very much for your interest and support. And we look forward to updating you on our progress in the coming months.
That does conclude our conference. Thank you for attending today's presentation. You may now disconnect your line.
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