Tribute Pharmaceuticals Canada's (TBUFF) CEO Rob Harris on Q2 2014 Results - Earnings Call Transcript

Tribute Pharmaceuticals Canada Inc. (OTCQX:TBUFF) Q2 2014 Results Earnings Conference Call August 11, 2014 11:00 AM ET

Executives

Rob Harris - President and Chief Executive Officer

Scott Langille - Chief Financial Officer

Analysts

Jeffery Cohen - Ladenburg Thalmann

Sam Rabotski - SER Asset Management

Operator

Greetings and welcome to the Tribute Pharmaceuticals Second Quarter 2014 Earnings Call. (Operator Instructions) I would now like to turn the conference over to your host, Scott Langille, CFO for Tribute Pharmaceutical. Thank you, sir. Please go ahead.

Scott Langille

Thank you, everyone for joining us today for Tribute Pharmaceuticals second quarter 2014 financial results conference call. On the line today from Tribute is Rob Harris, President and CEO, and Scott Langille, CFO.

Tribute issued its second quarter 2014 earnings release which can be found on the company's Web site at www.tributepharma.com. Tribute also filed a 10-Q which can be found on the company's Web site as well as on the SEC's Web site, www.sec.gov, and on SEDAR at www.sedar.com.

The call today will feature a short presentation from Rob covering business and operations developments and we will take you through a discussion on the company's financial performance. After prepared remarks Rob will open the floor to questions from the audience.

Before beginning, Tribute's management team would like to remind the audience that this presentation contains statements constituting forward-looking statements within the meaning of Section 21E of the Securities Act of 1934 as amended and defined in the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminology such as will, expects, anticipates, future, intends, believes, estimates, targets and similar statements. Such statements are based upon management's current expectations and current market and operating conditions and relate to events that involve known or unknown risks, uncertainties and other factors, all of which are difficult to predict and many of which are beyond Tribute's control which may cause Tribute's actual results, performance or achievements to differ materially from those in the forward-looking statements. Further information regarding these and other risks and uncertainties or factors is included in Tribute's filings with the U.S. Securities and Exchange Commission and the Canadian securities regulatory authority. Tribute does not undertake any obligation to update any forward-looking statements as a result of new information, future events or otherwise except as required under applicable law.

Additionally, all dollar amounts are expressed in Canadian unless otherwise noted and results are reported in accordance with U.S. Generally Accepted Accounted Principles. U.S. GAAP. I will now turn the call over to Rob Harris, President and CEO of Tribute.

Rob Harris

Thanks, Scott. Good morning, everyone. On behalf of all of us at Tribute Pharmaceuticals, welcome to our second quarter 2014 financial results conference call. Before I discuss our results and outlook, I would like to take this time to give a brief introduction of our company.

Tribute is a Canadian specialty pharmaceutical company engaged in the acquisition, licensing, development and management of pharmaceutical and healthcare products with its primary focus on the Canadian and U.S. market. Tribute markets six products in Canada including, Cambia, Bezalip SR, Soriatane, NeoVisc, Uracyst and Collatamp G. Tribute also has the exclusive right to market bilastine, a product licensed from Faes Farma for the treatment of allergic rhinitis and chronic idiopathic urticaria or hives, in Canada. The exclusive license includes rights to sell prescription and non-prescription formats of bilastine as well as adult and pediatric presentations in Canada. This product is subject to receiving Canadian regulatory approval.

Additionally, Tribute holds an exclusive license for Bezalip SR in the United States and its proprietary products NeoVisc and Uracyst are commercially available and sold globally through various international partnerships. At this time, please allow me to introduce, Scott, or turn this back to Scott, our CFO, to address and discuss the second quarter 2014 financial results. Following Scott's comments I will provide a general update on our ongoing business. Thanks very much. Scott?

Scott Langille

Thanks, Rob. When we compared our second quarter 2013 results with our second quarter 2014 performance, we see that total net revenues increased 21.4% and gross profit was up 36.8%. Some key accomplishments in the second quarter 2014 include, licensed domestic product net sales which includes our promoted products Soriatane and Bezalip SR, increased 9.8% in Q2 2014 compared to Q2 2013.

Other domestic product sales grew by 67.3% in Q2 2014 compared to Q2 2013, primarily based on the growth of Cambia sales during this period. IMS, an audited third party provider of sales data, reported a 27% increase in total prescriptions written for Cambia during Q2 2014 compared to Q1 2014. On May 13, 2014 Tribute and Faes Farma, S.A., announced the signing of a license agreement for exclusive rights to sell Faes' proprietary product bilastine in Canada.

On May 3, 2014 Tribute received approval to list on the Toronto Stock Exchange Venture and on May 27, 2014, the company's started trading under the symbol TRX. Subsequent to the second quarter end, Tribute completed a public offering on July 15, 2014 in which just under 42.9 million units were issued at a price of $0.70 per unit for gross proceeds of just over $30 million. In addition, on August 5, 2014, Tribute began trading on the OTCQX under the symbol TBUFF.

Now we will just talk about the second quarter financial results. Tribute's total net revenues for all sources increased by 21.4% from about $3.3 million for the three months period ended June 30, 2013 to just over $4 million for the same period this year. The increase in sales between the corresponding period was attributable to growth in licensed domestic product net sales of $223,000 or 9.8% of and other domestic product sales of around $491,000 or 67.3% growth.

Gross profit. For the three months period ended June 30, 2014 Tribute's gross profit was approximately $2 million or 36.8% or $529,000 improvement compared to same period in 2013. Underlying improvements in gross profit were due to an increase in gross profit of $57,000 from licensed domestic product net sales and an increase of $492,000 from other domestic product net sales and international product net sales primarily based on growth of Cambia sales during this period.

For the three months period ended June 30, 2014, Tribute's selling, general and administrative expenses were approximately $2.4 million compared to around $2.5 million in the same period of 2013. The decrease of $97,000 or 3.9% is primarily due to foreign exchange gains in the quarter, partially offset by a continued investment in the company's sales force and marketing expenses to grow its existing products, plus an increase of around $84,000 in business development activities related to Bezalip SR filing in the U.S. and bilastine licensing activity.

Loss from operations for the three-month period ended June 30, 2014 was $666,000 compared to the same period of 2013 of $1.3 million or a decrease of $685,000 or 51%. The decrease relates to increased gross profit of $549,000, lower SG&A expenses $97,000 and decreased amortization of $38,000.

The net loss for the three-month period ended June 30, was $4.4 million compared to a net loss of $985,000 for the same period in the prior year or an increase of $3.5 million. This equates to a loss of $0.09 per share compared to $0.02 per share for the same period in 2013. The increase primarily relates to the increase in the warrant expense of $3.6 million and that is obviously a non-cash expense.

Tribute's cash and cash equivalents position at June 30 amounted to approximately $2.3 million compared to about $2.8 million in December 31, 2013. Cash used in operations for the six months period ended June 30 was about $2.3 million compared to about $4.2 million during the same period in 2013. This was mainly the result of continued investment in the expansion of Tribute's sales force and marketing expenses to grow is existing products, marketing initiatives for Cambia, as well as an increase in business development activity including Bezalip SR in the U.S. and recently licensed bilastine.

Also included in are changes in the non-cash operating assets and liabilities which increased by $338,000 for the six months period June 30, 2014 compared to approximately $2 million increase during same time period in 2013. Cash used in investing activities for the six months period June 30, 2014 was $229,000 compared to $487,000 during the same time period in 2013. Cash provided by financing activities for the six months period ended June 30, 2014 was approximately $2.1 million compared to about $3.6 million during the same period in 2013.

On February 4, 2014, SWK advanced Tribute the remaining $2 million in U.S. funds available to the company pursuant to the terms of the credit agreement. Also on July 15, 2014, Tribute completed a public offering in which 43 million units were issued at $0.70 per unit for gross proceeds of just over $30 million.

This concludes my review of the financial results for the second quarter. I will now ask Rob to further comment on some of the recent developments and provide an outlook for the balance of the year.

Rob Harris

Great. Thanks again, Scott. First I would like to discuss the latest addition to our product portfolio. On May 13, 2014, Tribute entered into an exclusive license and a supply agreement with the Spanish Pharmaceutical Company, Faes Farma, for the exclusive right to sell bilastine, a product for the treatment of allergic rhinitis or common allergies, sniffling and sneezing and chronic idiopathic urticaria better known as hives or chronic itchiness. And these rights are for Canada.

Both types of allergies are common with global prevalence of about 10% to 30% for allergic rhinitis and around 20% for urticaria. According to the Canadian Allergy, Asthma and Immunology Foundation, allergic rhinitis affects about 20% to 25% of Canadians. Furthermore, IMS Health reports that the Canadian oral antihistamine market has sales about $115 million in 2013. Upon approval by Health Canada, bilastine will be the first new oral antihistamine approved in Canada since 2001. Bilastine is already approved in 48 countries worldwide and we are excited to bring this novel product to Canadian physicians and patients alike.

The execution of this agreement underscores our commitment to growing Tribute's business in Canada with a licensed long-term, patent protected growth product like bilastine, while at the same time acquiring and licensing mature products in Canada. Bilastine offers Tribute an excellent opportunity to maximize a longer-term revenue source with an over the counter strategy with the addition of exclusive non-prescription rights to bilastine in Canada.

Sales of bilastine are currently subject to receiving regulatory approval from Health Canada and we remain optimistic that bilastine can be launched into the 2016 allergy season in Canada. We were also very pleased to see the total prescriptions for our acute migraine treatment, Cambia, continued to grow in the second quarter with a 27% growth versus Q1 of 2014. We continue to utilize the Canadian migraine guidelines recently published by the Canadian Neurological Sciences Federation that recommend Cambia as a first line treatment option for acute migraine.

Additionally, the combined net sales for Soriatane and Bezalip SR rose by almost 10% this past quarter compared to the same period in 2013. Our expansion in the Canadian sales force last year with the launch of Cambia is also benefitting sales of our other products in Canada, which would include Bezalip SR, Soriatane and NeoVisc. Additionally, in the second quarter Tribute began trading under the symbol, TRX, on the TSX Venture Exchange beginning on May 27, 2014. Just as on the side, the symbol TRX is fundamentally referenced in the pharmaceutical business and the acronym stands for total prescriptions, something that we work very hard at to grow here at Tribute.

It was also very important to Tribute to being a Canadian specialty pharma company to have a TSX listing, one that provides the company with better access to Canadian capital markets and to Canadian investors. At the same time we wanted to boost our (indiscernible) in the U.S. investment community, particularly while we strive to move forward with Bezalip SR and increase our presence generally with other initiatives targeted at the U.S. market. In this regard, we began trading on the OTCQX marketplace under the symbol TBUFF on August 5, 2014. With our new listings under the TCX and the OTCQX, we look forward to increasing both Canadian and U.S. investment communities awareness of Tribute and our progress.

The recent financing completed last months will accelerate our plans to further grow our business through acquisitions and licensing efforts. We have a number of product opportunities under review but we remain focused on making strategic decisions only. Decisions that advance our business and best utilize our existing resources and doing this all while increasing shareholder value. We are confident in our ability to make purposeful acquisitions to secure additional licenses for new products in a reasonable timeframe. We are also committee to growing our existing products through promotional effort and our goal going forward is to become profitable in a shorter time period as possible.

With all this in mind, we are very excited for the second half of 2014 and we thank all of our shareholders for their ongoing support. I would like to extend a welcome and thanks to our newer shareholders resulting from the recent financing and to all the other investors who are tuning in to the call today.

With that, we will now turn the call over to the operator for any questions.

Question-and-Answer Session

Operator

(Operator Instructions) And our first question comes from the line of Jeffery Cohen with Ladenburg. Please proceed with your question.

Jeffery Cohen - Ladenburg Thalmann

Could you talk about the current cash and debt now as well as current share count?

Scott Langille

The raise was oversubscribed and so the allotment also taken. So we issued 42 million shares and our gross proceeds were just over 30 million. (indiscernible) that we received were $7.6 million. And right now our current, after the impact, our cap table just after June 30, 94 million shares and then with the warrants because each unit had half a warrant, as you may know, at $0.90. So there it will be 40 million [warrants] (ph) of the same.

Jeffery Cohen - Ladenburg Thalmann

Okay. So at the current prices it's 94?

Scott Langille

Correct.

Jeffery Cohen - Ladenburg Thalmann

Wonderful. Could you talk about Cambia little bit in the second quarter? It looks like you are picking up a little bit of traction and the year will prove to be better than previously estimated. Could you talk about that from the second quarter? And is this a new base of business, do you expect it to grow from these levels?

Rob Harris

Jeff, we are happy with the results in Q2. This is, as you would expect, the sixth straight quarter with growth over the previous quarter in the range of 27% to I think 36%, Q4 over Q3. We are getting traction. We launched widely to the GPs last February, as you are aware, 2013, and things are coming together. You know the reps are now in with repetitive sales calls. Our reimbursements efforts are starting to spread. We have more and more of the private insurance companies now reimbursing the product. So we are getting good traction. We have got the support of many of the key opinion leaders in the neurology or migraine specialty are that are using the product more frequently.

And every now and again in this business you get lucky and in 2013 the September, the Canadian Neurological Society updated their migraine guidelines, which about the first time in ten years. It just happened right after our launch, few months after the launch and we got good recommendation within the Canadian guidelines which clearly our representatives are referring to the guidelines as much as possible. So all things are pointing in the right direction, for sure.

Jeffery Cohen - Ladenburg Thalmann

Okay. And for same composition from the line item, other domestic product sales that Cambia is accountable for versus Bezalip and Soriatane, more than half now?

Scott Langille

Well, again, just realize, Jeff, that Bezalip and Soriatane are in the first line item on our P&L which is the licensed and domestic -- just let me flip to that page so I get the same page. So it is line item, the top line item. Licensed domestic product net sales, that is Soriatane and Bezalip, other domestic product sales are NeoVisc, Uracyst and Cambia and Collatamp. And we don’t break out those line items by product but it's important for you to realize which is which in those line items. Okay.

Jeffery Cohen - Ladenburg Thalmann

Got it. And two more if I may. Could you talk about the regulatory process for bilastine as far as a timeline and could you provide any color for us as far as the U.S. filing for Bezalip. Thank you.

Rob Harris

You know with regards to bilastine, we are currently preparing the regulatory filing for Health Canada. This typically takes about six months after the completion of the licensing and we hope to file this as soon possible. Health Canada right now on average -- approvals can be all over the places, as I am sure everyone is aware. But we are optimistic that we can be on the market for the 2016 allergy season. With regards to Bezalip SR in the United States. We continue to make good progress. We are currently in negotiations to develop our special protocol assessment or SPA. And we have gone on record earlier this year, this is certainly a goal that we have for this year. We would like to do everything possible to have that finalized before 2014 is concluded.

Operator

Thank you. (Operator Instructions) And our next question comes from the line of [Daniel Presty with M Partners] (ph). Please proceed with your question.

Unidentified Analyst

It's good to speak to you guys, it's been a little while. Just wanted to ask a couple of quick questions. One would be on the use of proceeds on the financing. So how do you intend and in what timeline to clear up the debt, to start?

Rob Harris

No, it's good question Daniel and it's nice to talk to you. Thanks for calling in. We have been pretty clear that the use of proceeds would be used for further expansion of the business, strategic product acquisitions and new license opportunities for Canada. As I am sure you can appreciate that activity will have a huge bearing on when we pay the debt off or if we pay the debt off, or if we need additional debt depending on business development acquisitions. So I think for now we are just assessing various opportunities and we don’t have a definitive answer with regards to when we may make a product acquisition or when we may use some of the proceeds for the debt.

Unidentified Analyst

Okay. Fair enough. I will just ask one last question. Do you have a general indication or a disease area specifically that you are looking at? Perhaps something that maybe overlaps with the current product in the bag, and then that’s it for me. Thank you.

Rob Harris

Again, I appreciate the question. The answer is, we clearly look for products that would be complementary to our existing efforts. For example, we call on neurologists with Cambia for migraine and we call on primary care practitioners as well. Additional products for neurologists or primary care is more important to us than trying to have an overall therapeutic alignment, if you will. So we tend to look at our audience, who are our targeted doctors, who do we call on. And rather than drawing a hard line that we are looking only for dermatology or neurology products, we tend to look for products that would be used by the target audience that we call on.

Operator

And our next question comes from the line of Sam Rabotski with SER Asset Management. Please proceed with your question.

Sam Rabotski - SER Asset Management

Let me understand, as far as, at this point you haven't decided to pay down the debt and you have just 94 million shares and the total warrants outstanding is 40 million, giving you 135 potential shares outstanding.

Scott Langille

Your math is quite correct on if you are trying to get to a fully diluted number. There is some stock options in there as well that would impact dilution but your number is in the right range, Sam, on the share count.

Sam Rabotski - SER Asset Management

Okay. And your plan with the 30 million, I presume you are looking at lot of products and that will determine whether you pay down even though this is a very high debt that you have outstanding with SWK. Would that be an inference that you have a lot of different things you are looking at but you are not prepared to pay down the debt?

Rob Harris

I think that’s correct, Sam. We are looking at a number of opportunities and as I am sure the listeners are aware, these may or may not materialize but we do have a number of opportunities under evaluation. And I think until we get good clarification as to whether these are good acquisitions, good purchases or good potential licenses, it's most prudent for us to just continue to evaluate. And if good business development opportunities arise, I think that would be our first priority. Obviously, we are concerned about the debt and we will continue to work to make the right decisions in that regard.

Sam Rabotski - SER Asset Management

And did I understand you to say that you expect the improvement in this second quarter to continue for all your products? Is this, just to keep improving, is that different from your previous projection?

Rob Harris

No, not at all. I think our efforts with the expansion of the sales force were clearly to grow organically our existing promoted products. You know we expanded the sales force as a result of the launch of Cambia but what we are beginning to see is the other products are benefitting as well. So I think we all remain pretty confident here that we should continue to see good organic growth going forward. With regards to losses, clearly we want to reduce these and become profitable as quickly as possible and that will happen organically or potentially with the aid of an accretive acquisition as well. So that’s where we focus our energies and our time.

Sam Rabotski - SER Asset Management

Sounds good. Hopefully that you will do a transaction that’s positive and accretive in the near future. Good luck.

Operator

Thank you. And it seems that we have no further questions at this time. So I would like to turn the floor back to management for closing remarks.

Rob Harris

Thank you, Brenda. And we would certainly like to thank everyone that participated in today's call. I would like to especially thank the Tribute employees that may be listening or hopefully listening later, for a very successful second quarter and for their ongoing commitment to success. Thank you everyone.

Scott Langille

Thank you.

Operator

This does conclude today's teleconference. You may disconnect your lines at this time and thank you for your participation.

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