Juniper Pharmaceuticals Inc (NASDAQ:JNP)
Q2 2016 Results Earnings Conference Call
August 04, 2016, 8:30 am ET
Amy Raskopf - Director of Corporate Communications
Jim Geraghty - Chairman of the Board
Alicia Secor - President, Chief Executive Officer, Director
George Elston - Chief Financial Officer, Treasurer, Secretary
Nikin Patel - Chief Operating Officer, Director
Michael Higgins - Roth Capital Partners
David Buck - Northland Capital Markets
Yasmeen Rahimi - H.C. Wainwright
Robert LeBoyer - Aegis Capital
Good morning and welcome to the Juniper Pharmaceuticals second quarter 2016 results conference call. All participants will be in a listen-only mode. [Operator Instructions]. After today's presentation, there will be an opportunity to ask questions. [Operator Instructions]. Please note that this event is being recorded.
I would now like to turn the conference over to Amy Raskopf. Please go ahead.
Thanks Dan. Good morning everyone. This is Amy Raskopf, Juniper's Director of Corporate Communications. We are very glad to have you with us for today. If you have not already received it, please have a look this morning's press release on our website, ir.juniperpharma.com. This call is being webcast on that location as well.
During the course of the call, management will make projections and other forward-looking remarks regarding future events and Juniper's future performance. These forward-looking statements reflect our perspective on current trends and information and are not based on historical information. Such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, including those noted in today's press release and Juniper's filings with the SEC on Form 10-K, 10-Q and 8-K. Actual results may differ materially from those projected in the forward-looking statements. Juniper specifically disclaims any intent or obligation to update these forward-looking statements, except as required by law.
Information about the replay and archived webcast of the call are included in this morning's press release, so please have a look there. For the benefit of those who may be listening to the replay or archived webcast, this call was held and recorded on August 4, 2016. Please reference our most recent press releases and SEC filings for any subsequent announcements related to the topics discussed.
With that, I will turn the call over to Juniper's Chairman, Jim Geraghty.
Thanks Amy and good morning everyone. Before we dive into the financial and operational review for the quarter, I would like to take just a moment to thank Frank Condella who, as you all know, recently retired as Juniper's CEO for his leadership over the past six years. Frank championed and led Juniper's transformation over those years to a well-positioned enterprise with two interconnected businesses: one in propriety women's health drug development and one in contract pharmaceutical development services. I am personally very pleased that Frank has agreed to consult with Juniper for the foreseeable future and that he will remain on our Board.
It's now my great pleasure to introduce Frank's successor and Juniper's new President and CEO, Alicia Secor. Alicia is a tested and proven leader who brings over 25 years of pharmaceutical, biotech and medical device experience to Juniper, including 10 years in key leadership roles at both Zafgen and Genzyme. She has an established track record in leading the commercial development and global expansion of products through multiple stages of lifecycle development.
In selecting Alicia for this role, the Board undertook a rigorous search process, partnering with a global executive search firm. We started with a long list of possible candidates. After considering expertise, leadership experience and cultural fit, we identified a short list of candidates who underwent in-depth interviews with Board members as well as with our executive leadership team.
I think I can say with confidence that Alicia emerged in this process as our unanimous first choice, based on her track record of setting and executing strategic plans in sizable and relevant therapeutic markets, her general management and commercial experience in both large and early-stage companies and her leadership skills. We were also impressed by Alicia's shared values and passion to Juniper's mission and are highly confident in her ability to take Juniper to the next level going forward.
With that, I am very pleased to turn this call over to Alicia.
Thank you Jim. I am really excited to be joining Juniper at such an important time in its development. I really want to congratulate the entire team on a really strong successful revenue growth for Q2 and for achieving so many important milestones already this year and I look forward to a very productive second half.
Juniper is uniquely positioned to leverage the world-class capabilities of Juniper Pharma Services for the benefit of both our customers and our internal product candidates alike in harnessing our propriety platform capabilities to develop important new therapies to address the vast underserved needs in women's health. I believe that by executing on both fronts in parallel, we will build significant value for our shareholders, our customers and the patients whose lives we aim to improve with the products we bring to market.
On today's call, George Elston, our CFO, will discuss financial results for the second quarter and the first half of this year and then Nikin Patel, our COO, will discuss operations and give an update on Juniper's R&D program. After that, we will be opening up the call to take your questions.
Thanks Alicia and good morning everyone. Continuing from the momentum of Q1, our core business performance continued to be strong in the second quarter of 2016. Total net revenues increased 16% year-over-year to $11.9 million. The $1.7 million increase over the same quarter last year reflects the ongoing strong performance by both our CRINONE franchise outside of the U.S. and our Juniper Pharma Services business in the U.K.
Product revenues from sales of CRINONE to our partner Merck KGaA increased 15% over the second quarter of 2015 to $7.6 million. This was driven by end market growth in key markets supported by new market sales in the EU countries where CRINONE was approved last summer.
Juniper Pharma Services revenues were up 24% over the second quarter of 2015 as strong customer volume continued as well as larger scope and value programs within our service offerings. On a local currency basis, Juniper Pharma Services revenue increased 33% year-over-year, which was dampened by the strength of the U.S. dollar versus the British pound. Our royalty revenues from Allergan's sales of CRINONE in the U.S. were essentially unchanged versus the second quarter of 2015.
Gross profit rose to $5.4 million versus $4.6 million in the prior year. Gross profit as a percentage of total revenues increased slightly to 46% for the second quarter of 2016 compared to 45% last year. Total operating expenses increased by $2.2 million to $7.2 million in the second quarter of 2016 and this includes a $1.4 million increase in R&D spending, which was largely driven by cost of our Phase 2b critical trials of COL-1077. We recently announced on-time completion of enrollment and we continue to expect to report topline results from the trial this quarter.
The $700,000 increase in G&A cost was primarily driven by the creation of an internal business development function this year, along with costs associated with CEO succession and organizational growth. Sales and marketing costs increased by $100,000, reflecting continued investment in the U.S. by Juniper Pharma Services.
Turning to results for the first half of 2016. Total net revenues increased 29% to $24 million and gross profit increased to $11.2 million with a gross margin of 53%. Operating expenses increased to $12.7 million in the first half of 2016 driven mainly by higher R&D and G&A costs, which increased $1.8 million and $1.6 million, respectively, over the first half 2015 levels. Cash and cash equivalents were $13 million as of June 30, 2016. The modest decline in cash from Q1 was primarily due to capital expenditures during the quarter as our core business continues to generate cash to support our operations and R&D activities.
Based on our very strong year-to-date revenue growth coupled with our expectations for the second half of the year, including planned CRINONE shipments to Merck mitigated by the projected effects of the Brexit on currency translation, we now anticipate full year revenue growth at least in low-teen percentage range as compared to 2015 revenue of $37.6 million.
With that, I will turn the call over to Nikin.
Thanks George and good morning everyone. Our strategic focus is to build the pipeline of valuable products in women's health while continuing to grow our core business. The team at Juniper Pharma Services or JPS, as I call it, is providing key support across these efforts.
Beginning with the CRINONE product manufacturing, our JPS team manages the ex-U.S. CRINONE supply chain for our partner Merck KGaA. Our CRINONE production has doubled over the last three years and we expect it will continue to be a robust revenue source for Juniper in the coming years, thanks to Merck's ongoing initiative driving product uptake in key markets. Outside of the U.S., CRINONE continues to grow, benefiting from organic growth in key markets as well as approvals and entry into new markets. These include the nine EU countries where CRINONE was approved last year and Japan where the product was recently approved under OneCrinone brand. We expect Merck will launch in Japan this fall and we are currently in the process of shipping our first batch of CRINONE to support their efforts there.
Moving to JPS. Amongst our broad offerings, the key growth drivers is our JNP pharmaceutical development services, which in a relatively short time period has established a differentiated reputation in the market. We have the right infrastructure in place, highly talented staff and sufficient capacity within our facility to support continued pharmaceutical development service growth in the near future. Our initial European focus has now broadened with significant pharmaceutical development business coming from the U.S. biotech industry this year. In response to growing customer demand and as covered by the trade press in the first half of 2016, we have made key investments in manufacturing technologies that has increased our manufacturing scale, direct to development options and capabilities to deal with challenging to formulate drug substances. This will allow us to further increase the value of contracts as we deepen our involvement with our clients and their products.
As you know, we leveraged the drug development capabilities of JPS for our propriety product portfolio, which currently includes COL-1077 and our intravaginal ring or IVR programs. The JPS steam has supported the chemistry, manufacturing and controls or CMC activities for each of these programs. As George mentioned, the COL-1077 Phase 2b clinical trial is now complete and topline data are expected this quarter. We expect to hold the end of Phase 2 meeting with the FDA by the end of the year and assuming positive results, we would expect to move COL-1077 with the Phase 3 in 2017.
Turning to the IVRs. Our lead IVR program is JNP-0101, an oxybutynin IVR intended for the treatment of overactive bladder or OAB in women. This is a chronic condition affecting nearly 20 million women in the U.S. About nine million women receive pharmacotherapy each year with oxybutynin being the most commonly prescribed medication. By delivering oxybutynin intravaginally with JNP-0101, we expect the reduction in active metabolized creation and improvements in the side effect profile of this widely used anti-muscarinic drug. JNP-0101 should also improve patient convenience and compliance as the IVR remains in place delivering a defined daily dose.
IND enabling studies are underway, including a study to evaluate the pharmacokinetics of JNP-0101 in a representative animal model. This study was defined in our pre-IND meeting with the FDA earlier this year and will allow us to understand in vivo pharmacokinetics and help us better define our Phase 2b doses that would be expected to move through Phase 3 and potentially for commercialization. We have made a decision this quarter to reduce risk in this program by focusing on finalizing the 2b marketed formulation of JNP-0101 now prior to entering into human clinical trials. As a result, we now expect to file our IND for this candidate in 2017.
In parallel, we continue to make progress with two natural hormone IVR candidates, JNP-0201 and JNP-0301. As you may recall, JNP-0201 is a segmented IVR containing both natural progesterone and estradiol, which we are developing for hormone replacement therapy or HRT to alleviate symptoms of menopause. We continue to work towards a 2017 IND submission for this project. For JNP-0301, our natural progesterone IVR, we are preparing to discuss with the FDA the clinical and regulatory pathway for vaginal progesterone products for the prevention of preterm birth in women with a short cervix at mid-pregnancy. We continue to expect this discussion will occur by the end of the year and we will update you on the outcome of this discussion and our future plans for JNP-0301 in due course.
And with that, operator, please open the call to questions.
[Operator Instructions]. And our first question comes from Michael Higgins of Roth Capital Partners. Please go ahead.
Thanks operator and good morning everyone.
Good morning Michael.
First, congratulations to Alicia. You are joining an exciting company where lots going on right now. My first question will be on 1077. If you provide any help on the timing for the results. Is that something that you can narrow down to a month? I know you said this quarter, if you are looking at August or September? Reason being, any potential to get in as a late breaker in fall conferences, obviously tying those investments in that decision.
Yes. So Michael, I think we are still very confident that we will have results in Q3. I think your point is a really good one that our goal is to have some data in place in time for some of the fall conferences and we are pursuing that to find even the late breaking opportunity at some of these upcoming conferences, so that's our current goal. I think from a granularity perspective, we are not going to give too much more on that, simply because, as you know, data takes times to crunch and our team is actively engaged with that with our outside advisers which is, in large part, why Bridget is not with us here today.
Understood. And then on your next steps, you have mentioned you are in a Phase 2 meeting with the FDA this year, start of a Phase 3 next year. I am assuming that's first half of next year for a start. If you can give us some insight into potential size of the trial and how much that may vary based on the Phase 2b results?
Yes. So Michael, I think we are going to wait until we have the end of Phase 2 meeting with FDA. Obviously we need to get the data first and we are all hopeful that it's positive. And once we have the end of Phase 2 meeting, obviously we are going to go in with the plan. I think I can say with some confidence that the study is going to be in the hundreds versus thousands of patients as we look at a Phase 3. But I think the timing and size and scope really we will be able to talk about that a little bit more clearly on the other side of the end of Phase 2 meeting.
Okay. And then moving on to 101, we are in a sheep study currently, when might that be wrapped up? And I assume the IND would be early 2017. Any potential size of that trial as well you can give us?
I am going to have Nikin talk broadly about the sheep study and then--
So the annual study, we have already initiated it. There's two parts of it, a pilot and a pivotal. And we are currently in the pilot phase. And once we have those results, which are eminent, we will move into the pivotal side of the animal models, which should be complete towards the end of this year, early Q1.
So there's two sheep studies. Is that what I am hearing?
Yes. They move from one to the other. But there are two sheep studies. One is a small pilot study just to get some initial data and then we move in to a larger animal study.
Right. Understood. The size of a Phase 3 in 101, can you give us some thoughts on that?
Yes. So Michael, I think once we get that sheep data, we will have a little bit better clarity on how many arms and what type of dosing and ranges will be required for the Phase 2 next year. So I think stay tuned for that and we will come back to you a little bit later this year on that. But again I think for that study as well, it's not in the thousands of patients either. I think the nice thing about our program is going back to the 505(b)(2) platform is that we are not looking at massive studies. We are looking at fairly reasonable, if I can use that term in a clinical study, but within hundreds of patients range versus thousands.
Seems to be timing is key here. But yes, I will take a look again as the overactive bladder drugs size and just basically MCEs, but we can look for a 505(b)(2) and get a sense, I suppose. Another one, if I could, the last one on CRINONE. Can you quantify what type of an impact the European launches had on your shipments last year? And what kind of impact have you had from Japan as well?
So we don't deal in that level of granularity for Merck. Merck has a lot of those numbers. I think the European launches last year certainly helped offset some of the reduction they have seen in some of the other European countries. I think we can say with good confidence Asia has been a really strong place for them up to this point in time. And I think we will see what happens in Japan. We are going to be supporting that market for them as well. And again, we don't have complete visuals on where Merck is going or they are not projecting these specific countries, et cetera, from a production perspective and we will be starting to ship products for Japan, I believe, later this month. And so I will leave it at that.
Nikin, do you have any more play around that?
Mike, we are hopeful Japan will be a good market, but it's too early to tell until we start actually launching and seeing the first bits as they are coming from Japan.
Just a last comment, I suppose. It looks like Q3 maybe quite a strong quarter for your shipments to Japan. You have increased your guidance a bit or at least are constant on it being a low-teens rate. So Q4 is generally typically a later quarter, but very helpful comments. I will turn back in the queue. Thanks guys.
Yes. Michael, just to add to that. If you look back in 2015, we had a very strong Q3 and while although our year-to-date revenues are up pretty substantially year-over-year, the Brexit effect really kicked in at the end of Q2 and we didn't really see an impact. The Pound has come up quite a bit on the dollar. So we are expecting some softness in the service revenue translation, although in local currency, that business continues to do quite well. And as you know, a batch or two of CRINONE shipment moving from one quarter to the next can move the revenues quite a bit. And so we don't really guide quarter-to-quarter because of that fact, but I think the trend is certainly is moving in the right direction.
Very helpful. Thanks.
And our next question comes from David Buck of Northland Capital Markets. Please go ahead.
Yes. Thanks for taking the questions. Most of them asked, but I will ask a couple of ones. The first for Nikin, can you talk a little bit about the impact that you maybe seeing, if any, on the services business ex-currency? Are you hearing anything from customers about pulling back from JPS, given that you are here in the U.K.? And separately, what's the impact that you can quantify on the changes in technology moving upscale in technology and more into development? Any change in margin you could point to going into 2017? And maybe for George, can you talk a little bit about what the R&D expense should be for the remaining couple of quarters? And that's should do it. Thanks.
Okay. Just to deal with your first point then. In terms of currency exchange, we are certainly a lot more attractive for our U.S. colleagues now. As I mentioned, we are seeing an increase in orders from the U.S., which is mainly due to our differentiated service offering, but certainly the foreign exchange will help and make us more competitive. We bill in a mixture of currency. So I will leave it to George to explain the ultimate effect on foreign exchange. But at the moment, I think we are in a healthy position from a services point of view and the impact that we are making in the U.S. is very positive and I am quite excited about that.
The second point into the technologies we have been introducing and these are largely centered around increasing our scale of manufacturing. So we typically to-date have been working on Phase I, Phase 2 manufacturing with the equipment that we are bringing in or have brought in. We are able to start moving into Phase 3 manufacturing and beyond potentially into niche manufacturing as well. So one example is a spray driers. We are in the process of bringing into the company, which will significantly increase our ability to utilize enabling technologies and on a scale at which we can deliver products that utilize those technologies. So it's quite an exciting time here in the Juniper Pharma Services growing very well this year and I think the additions of technology will certainly put us in a firm footing going forward.
And the third part of your question in relation to the margin. Certainly, we are winning larger contracts and certainly with the ability to conduct studies on a larger scale. You should see some improvement in our margin going forward.
Yes. I think, David, just to add to that. From a service business perspective, it's one of these circumstances where you have to have capacity in order to sell it. And I think as we continue to see better volumes for the service business, we expect margins to improve. To Nikin's point, we did made an investment on U.S. focused sales last year and we are starting to see some of that return as we look at our customer mix in 2016 versus 2017. We are seeing quite a bit of new U.S. business. And to Nikin's point, I think the good news is that JPS is a much better deal for U.S. customers. The bad news is the translation back to us is a little bit softer than we would like. But I think from an overall perspective, that business is in a very good place.
On your question on R&D, we did just complete the COL-1077 study. We will have incremental costs rolling into Q3 and Q4 for that from an R&D perspective. We are not going to have any major study costs this year, but we will do some startup costs relative to kicking off studies next year. And so I think while we don't guide specifically on operation lines, I think from the R&D perspective, it's going to approximate first half of the year, maybe a little bit softer just based on the pattern of the spending.
Great. Thanks very much. And I will add my congratulations to Alicia as well.
Thank you David.
And our next question comes from Yasmeen Rahimi of H.C. Wainwright. Please go ahead.
Thank you so much and good morning for taking my question. This is Yasmeen on behalf of Ed Arce. First of all, congratulations to Alicia and we really look forward towards working with you. Many of my questions have been answered, but I wanted to maybe ask if you could spend few minutes and maybe provide some insight regarding some of the BD strategies and deals that you maybe anticipating in the future?
Sure. And Yasmeen, good morning. Thank you for being on the call. Yes, I think from a corporate perspective, we see BD as an important component in the future growth of shareholder value and there's really two main areas. Number one is, we have been pretty public in stating that for our pipeline programs, we are going to bring in a partner for outside of the U.S. That would obviously begin with 1077 and the other programs. And so I think from a BD perspective, that's going to involve a lot of time.
And then the second part, which is a little bit slower pace but equally as valuable is because we have these very novel delivery technologies, in the ring and in the gel, is to continue to add to our pipeline with partner programs, meaning their drug in our technologies. And as you know, those deals take some time because it's really a scientific collaboration where it starts and moves into something more broad. So I think while we don't really expect any news on the BD front this year relative to partner collaborations, we are hopeful that 2017 will give us a window to some interesting opportunities with some partnerships and those just take time and you have to invest upfront.
Thank you so much for shedding some light. And then one last question. As related to the OAB market, is there any recent incremental market research that you could share with us?
I will have to dig into our archives and we haven't really guided too much on the marketplace, except what's available in the public domain and that is it's roughly a $1.3 billion market. I think if you look at our prior corporate presentations, there's about 20 million women in the U.S. alone, about nine million are receiving therapy. And we see an interesting market opportunity for 0101 once we get it available for those patients.
Thank you for taking the questions.
And our next question comes from Robert LeBoyer of Aegis Capital. Please go ahead.
Good morning and congratulations to Alicia on taking the new position. We look forward to hearing from you and meeting you when you go around. My question has to do with the CRINONE shipments and the shift in timing that we saw. There was a comment about weakness in the fourth quarter and I wasn't totally clear as to whether that was entirely due to the shipments and the shifting of the product shipments to Merck or whether this really was a weakness in the fourth quarter? And going forward, should we expect the same kind of the variation in the shipments?
Yes. Robert, thanks for that question. I think the CRINONE shipment is always a bit of variability quarter-to-quarter for us just based on the way revenue recognition works. We ship product to Merck and record revenue based on those shipments. And essentially, with the exception of loading for new markets, we are typically replenishing their inventory in specific countries. And just by the nature of how their supply chain works, Q4 tends to be a little softer. We will see a larger Q3 and a softer Q4. And I think that has more to do with logistics. So it's not so much marketplace weakness as it is just the way the supply chain works and how we recognize revenue.
If you look at the trend for the CRINONE franchise for us, really beginning in the late 2014, that's been on a very positive pace. We have said publicly that their end market revenue is growing in roughly to mid-teen range and with some improvement based on new markets offset by some price impact in various countries. And so I think we are seeing that in our revenue growth for the CRINONE franchise, but we are always cautious to guide that oftentimes if a shipment from us to Merck moves from one quarter to the next, that's going to move the numbers. So you may or may not see a quarter-to-quarter growth over time. Just really dependent on how the shipments work. And we have got visibility, hard visibility, four or five months from Merck. So we kind of know what we are doing over the next four months. And beyond that, it's a little bit more gray.
Okay. Great. Thank you very much.
And our next question is a follow-up from Michael Higgins with Roth Capital Partners. Please go ahead.
Thanks operator. Just one follow-up on my end. Is the SG&A we have seen in the first half of the year a reasonable rate for the back half of the year?
Michael, we had some onetime expenses in Q1 and a few more in Q2 and so I would think that we should see SG&A level off in the second half of the year. We were very busy getting through our material weakness audit, which we are happy to say was resolved in Q1 and some organizational improvements here in Q2 or organizational changes and I think we are in pretty good shape for the second half of the year.
Reasonable to look for a less than $3 million per quarter expense?
I am not going to guide specifically, Michael. I have got to look at the forecast details, but we are not expecting a big jump in SG&A at all in the second half of the year, I think is the right way to say that.
Okay. Very good. Thanks guys.
And this concludes our question-and-answer session. I would like to turn the conference back over to Alicia Secor for any closing remarks.
All right. Thank you and I would like to thank everyone on the call for your warm welcome and for your time to be on the call today. Just so you know, I will be presenting at the upcoming Rodman & Renshaw conference in early September and I hope to see many of you there. And with that, thanks again and have a nice day.
And ladies and gentlemen, the conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
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