Neos Therapeutics' (NEOS) CEO Vipin K. Garg on Q1 2016 Results - Earnings Call Transcript

| About: Neos Therapeutics (NEOS)

Neos Therapeutics, Inc. (NASDAQ:NEOS)

Q1 2016 Earnings Conference Call

May 16, 2016, 08:30 AM ET

Executives

Richard I. Eisenstadt - Chief Financial Officer

Vipin K. Garg - President and Chief Executive Officer

Thomas P. McDonnell - Chief Commercial Officer

Analysts

Randall Stanicky - RBC Capital Markets, LLC.

Jason Butler - JMP Securities, LLC.

David Maris - Wells Fargo Securities, LLC

Operator

Good morning and welcome to the Neos Therapeutics First Quarter 2016 Financial Results Conference Call. Today’s call is being recorded. For introductions and opening remarks, I would like to turn the call over to Richard Eisenstadt, CFO of Neos Therapeutics. Please go ahead.

Richard I. Eisenstadt

Thank you. Good morning and thank you for joining us today. With me is Vipin Garg, President and CEO and Thomas McDonnell, our Chief Commercial Officer.

Before we begin, I would like to read the following regarding forward-looking statements. During this call, we will make statements related to our business that may be considered forward-looking and are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995, including statements concerning along strategy and timing and commercialization of Adzenys XR-ODT and the dates for completion of the development campaigns and regulatory filings for Cotempla XR-ODT and NT-0201.

Forward-looking statements may often be identified with words such as we expect, we anticipate, upcoming or similar indications of future expectations. These statements reflect our views only as of today and should not be reflected upon as representing our views as of any subsequent date. These statements are subject to a variety of risks and uncertainties that could cause actual results to differ materially from expectations.

For a discussion of material risks and other important factors that could affect our actual results, please refer to those contained in our most recent Annual Report on Form 10-K and other SEC filings.

I will now turn the call over to Vipin Garg, President and CEO of Neos Therapeutics. Vipin.

Vipin K. Garg

Thank you, Rich. Good morning and thank you for joining us this morning. Today marks the transformative milestone from Neos Therapeutics with the U.S. launch Adzenys XR-ODT, our first commercially available product utilizing our proprietary extended-release orally disintegrating technology platform for the treatment of ADHD.

Following the FDA approval of Adzenys XR-ODT in January, we began our pre-launch preparations including hiring a sales team of approximately 125 highly qualified sales representatives, training the team and defining our go-to-market strategy. Our sales force is now deployed and actively engaging with healthcare professionals across the United States.

We are encouraged by the initial feedback from physicians during the pre-launch phase and we are even more confident that there is a strong desire on the part of physicians and caregivers for once daily orally disintegrating treatment alternative to health managed ADHD. We are pleased that we can now provide this solution to physicians and their patients.

Adzenys XR-ODT is available in six different dosage strengths that therapeutically equivalent to Adderall XR. We believe that physicians will initially prescribe Adzenys XR-ODT to children diagnosed with ADHD that have difficulty swallowing pill. Over the next several months, our sales force will engage with physicians who are most actively treating children with ADHD.

We look forward to offering patients, their parents and caregivers with this new treatment options ahead of the back-to-school season this summer and expanding our focus into newly diagnosed pediatric patients and adolescent and adult patients.

Keeping patient cost as a reasonable level to ensure access is an important consideration. We're offering a coupon in which patients can receive a 30-day free-trial of Adzenys XR-ODT, as well as a program of up to one-year in which patients pay as little less $25 per prescription.

This morning, we also announced the closing of a $60 million term debt financing, this financing further strengthens of cash position and we believe it provides Neos with increased financial flexibility and resources to commercialize Adzenys XR-ODT.

And bring to market our other two product candidates Cotempla XR-ODT our methylphenidate extended-release orally disintegrating tablet and NT-0201 our amphetamine extended-release liquid drug candidate assuming positive regulatory decision.

Rich will provide additional details on the debt financing shortly. Lastly, I would like to remind everyone of the timelines of Cotempla XR-ODT and NT-0201, which remain unchanged since our last quarterly update these are as follows.

For Cotempla XR-ODT, we are on-track to complete the bridging study in the third quarter of this year to demonstrate bioequivalence between clinical trial material and the to-be-marketed drug product, including an assessment of food effect.

We also are on trial to provide validations and three-months of stability data for the to-be-marketed drug product as outlined by the Complete Response Letter received from the FDA last year, and to resubmit the NDA during the fourth quarter of this year.

If approved, we believe we will have the only two extended-release orally disintegrating tablets for the two most commonly prescribed drugs for ADHD on the market by the 2017 back-to-school season.

For NT-0201, our amphetamine XR liquid drug candidate, we expect to submit an NDA in the fourth quarter of 2016 and if approved NT-0201 is positioned to be an amphetamine XR liquid suspension for once-a-day treatment of ADHD, providing further treatment alternatives for ADHD patients and caregivers.

We also manufacture and market a generic equivalent to the branded product Tussionex, Tussionex is indicated for the relief of cough and upper respiratory symptoms associated with allergies and colds in adults and children six-years of age and older.

Now, I will turn the call over to Rich, who will review first quarter 2016 financial results. Rich.

Richard I. Eisenstadt

Thanks, Vipin. At March 31, 2016 our cash, cash equivalents and investments amounted to $76.1 million, with regard to today's term debt financing and absent payments on that loan are interest only for first 36-months. And the principal is to be repaid in four equal annual installments of $15 million to be paid annually commencing in May 2019 and continuing through May 2022. There are no warrant for any other equity to be issued as a result of this financing.

Back to the quarterly financial results, total revenues were $2.6 million for the three-months ended March 31, 2016 an increase of $2.2 million compared with the three-months ended March 31, 2015. All $2.6 million revenue was generated from net sales of the Company's generic Tussionex. The $2.2 million increase primarily resulted from sales to a large pharmacy chain in 2016, which contract was initiated in the second fiscal quarter of 2015.

Cost of goods sold was $2.3 million for the three-months ended March 31, 2016 an increase of $1.2 million compared to the three-months ended March 31, 2015, due to the increase in Tussionex sales. Gross profit for the quarter was $300,000 compared to a gross loss of $700,000 in the same period of 2015.

Research and development expenses were $2.3 million for the three-months ended March 31, 2016 a decrease of $2 million compared to the three-months ended March 31, 2015. This decrease was primarily due to the FDA filing fee submitted in January 2015 for Cotempla XR-ODT.

Sales and marketing expenses were $6.3 million for the three-months ended March 31, 2016, compared to $326,000 for the three-months ended March 31, 2015. The increase was primarily due to pre-commercialization activities for Adzenys XR-ODT and increased salary expense associated with building out the commercial team.

General and administrative expenses were $3.5 million for the three-months ended March 31, 2016, an increase of $2.2 million from the three-months ended March 31, 2015 due to an increase in share-based compensation and costs associated with being a public company. The company reported a net loss of $12.6 million in the three-months ended March 31, 2016, compared with $6.6 million for the same period in 2015.

As we have mentioned previously, we anticipate that sales of Adzenys XR-ODT in 2016 during this awareness building period will be modest. In future quarters, we intend to recognize Adzenys XR-ODT revenue based on filled prescriptions.

We’re happy to take questions at this time. Operator, please begin the question-and-answer session.

Question-and-Answer Session

Operator

[Operator Instructions]. And our first question comes from Randall Stanicky from RBC Capital Markets. Your line is now open.

Randall Stanicky

Great, thanks, guys. I just have two questions. The first one, can you talk about the commercial rollout and specifically the Adzenys targeting. Is this a pediatric first detail or do you guys plan to position the product initially earlier in the box towards the adult population as well? And then also, I think, Vipin I think you mentioned early feedback. Can you just expand on what that early feedback has been that you have heard from physicians or from the medical community that would be great. Thanks.

Vipin K. Garg

Sure. Tom, do you want to take these two questions?

Thomas P. McDonnell

Yes, certainly. Good morning, Randall.

Randall Stanicky

Hey.

Thomas P. McDonnell

So our targeting approach has been very much skewed towards the highest rating physicians in the marketplace. We have over weighted that to pediatric versus adult and really focused on the extended-release component of the market and that inherently leads you to a greater pediatric population, because of the high immediate release issues in the adult patients. So really what we’re looking at is child and adolescent psychiatrist and pediatricians make-up 80% of our targeting.

One interesting note though, is we are touching a pretty considerable amount of adult business through the child and adolescent psychiatrist who have over the years have become more active and treating adult. But overall, I would say we’re skewing towards the pediatric segment that’s really the first place the physicians think of when they hear about Adzenys XR-ODT and we plan to capture that segment of the market and then be able to move on and grow from there, because we do feel that this does some utilities within the adults.

And I think as really where to your next point, where some of the early feedback we’ve been hearing is from doctors that once they hear the story, once they understand all the components of what Adzenys XR-ODT has to offer. They say, this is a real need in my marketplace for many different reasons, obviously for kids that cant swallow or don’t want as swallow, this is an easier way to do it.

But then they go to other patient types, such as newly diagnosed new patients, so on average a kid seven-years old have probably never swallowed a pill in their life. This is a better way to start. To even the adults on-the-go, and this more of convenience factor. So that’s really some of the early feedback we’ve been hearing.

Randall Stanicky

And let me just ask follow-up, because obviously this is a big back-to-school, I would assume focus. Just to set expectations. How should we think about the ramp in the launch as we watch scripts between now and the summers months and into the following to back-to-school?

Thomas P. McDonnell

Yes exactly. So that’s one of the thing that we’ve been looking at and we feel we’re very fortunate to be launching at this time. We’re going to start seeing data coming in from the market at the end of this month. And one of the things that is very important for everyone to realize is this is the end of the school year.

There is not many newly diagnosed patients coming in and getting diagnose with ADHD for the first time at the end of this school year. There is certainly not a lot of switching in this market right now as kids are getting ready to go to summer. So we’re really looking for May, June, July to be those times where some of the key physicians will get some early utilization, though understand how this product is working.

But we certainly don’t expect to see a big ramp, but it will enable us to definitely get awareness up and get the message about Adzenys XR-ODT prior to the back-to-school season, which you really see starting in August through November.

Randall Stanicky

Perfect. That’s great. Thanks guys.

Operator

Our next question comes from Jason Butler from JMP Securities. Your line is now open.

Jason Butler

Hi. Thanks for taking the questions. Could you just maybe review for us the work you have done so far with payers and how you expect the product to be reimbursed during the initial launch phase, as well as your efforts to lower patients’ out-of-pocket cost obviously? Thanks.

Vipin K. Garg

You bet Jason, thanks for the question. One of the things obviously that all new products go through is working through payers. We’ve been very active with the payers from the beginning and with market research, but now also with making calls our payer customers. One of the big pieces of feedback that we got from payers early on was, if you come in with in the range of the other extended-release products in this marketplace, we won’t disadvantage you. This is a unique product, it’s a product that’s needed in certain populations and we support that.

So that always has been our strategy, we've come in-line with the other extended-release products in ADHD as far as total cost, right as far as what we are charging. Now from there, would be many plans that will decide on what to do. The majority of commercial payers will place at Adzenys XR-ODT on Tier-3, non preferred, but like all new products though, there is going to be some plans that put a restriction on the brand at launch.

We have been calling on these customers, we’ve been working with them, we’ve a team of very experienced account managers out there right now working with the payers to talk off any of those restrictions. And that’s on our commercial side. We have already had some very encouraging placements within the healthcare companies, and we’ve also had some great meetings and great negotiations. So, we’re optimistic right now on the commercial book of business. The medicate book of business though is also very important to us and we’re working right now with the states to gain some formulary access in 2017.

And then your second question was how are we controlling out-of-pocket cost? We are working with a company to make sure that we have many coupons available, so that when someone goes to the pharmacy to get a prescription, they walk away with that prescription. So we’re using a free 30-day coupon to get them started and then pay as little as $25 for the next 12-months and we fell that the way that we've structured these cards, this will be a good tool for us to ensure that we get those scripts filled at the pharmacy.

Operator

[Operator Instructions] Our next question comes from David Maris from Wells Fargo. Your line is now open.

David Maris

Good morning. You mentioned modest sales for 2016, can you put some directions around that and also given that you have the three-month lead up to the back-to-school season, if you could explain why it would be modest, other than its just a launch of a new product? Thank you.

Richard I. Eisenstadt

Well David, really because it’s launch of a new product, we haven’t given guidance to market share, we’ve often sided excess of [school event] in the first couple of years and we feel that that’s a decent analog. Although we look at all market basket of ADHD products, but really back-to-school season being August, September, October that’s one we expect the new starts to be the build off there. So if that’s helpful.

David Maris

Okay, it is in and so you are using school event what do you think could have invest your as sort of your benchmark?

Richard I. Eisenstadt

We I wouldn’t say it’s exactly our benchmark, we do looking in basket of a number of different ADHD products, but it thinks a great analog for launch of a new product in ADHD as an alternative dosage form.

Vipin K. Garg

Yes what I would say David is that we look at school event as an analog for a market penetration, but we feel that opportunity for an ODT is much bigger than a liquid suspension. So we talked about how, and we've done physician surveys as well as talk to caregivers and parents, there seems to be a presence of as much as four times, as much presence for an ODT over the liquid suspension.

So clearly the market opportunity we believe, the addressable market is much bigger than that that of a liquid suspensions. School event gives to that launch curve that we sort of use as an analog of the opportunity being several times bigger than that for a liquid suspension.

David Maris

Okay, thank you.

Operator

There are no further questions at this time. I’ll turn the call back over to Vipin Garg for closing remarks.

Vipin K. Garg

Thank you. Thank you for joining us this morning. I wanted to remind everyone that we will be presenting at UBS Global Healthcare conference in New York on Tuesday May 24, and then on Tuesday June 21, we would present at the JMP life science conference also taking place in New York. So we look forward to seeing many of you at these conferences and continuing to update you on our progress throughout the year. thank you very much.

Operator

Ladies and gentlemen thank you for participating in today's conference. You may all disconnect. Everyone have a great day.

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