BioSpecifics Technologies (BSTC) Q2 2016 Results - Earnings Call Transcript

BioSpecifics Technologies Corp (NASDAQ:BSTC)

Q2 2016 Earnings Conference Call

August 9, 2016 4:30 PM ET

Executives

Will O’Connor - Stern Investor Relations

Thomas Wegman - President and Director

Pat Caldwell - Biotechnology Consultant and Contractor

Analysts

Ram Selvaraju - Rodman & Renshaw

Operator

Welcome to the BioSpecifics Second Quarter 2016 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. Please note, this call is being recorded.

I would like to introduce your host for today’s call Will O’Connor of Stern Investor Relations. Please go ahead.

Will O’Connor

Good afternoon, everyone, and welcome to BioSpecifics second quarter 2016 financial results conference call. At 4.05 PM Eastern Time this afternoon, we issued our financial results and corporate highlights press release, which is available at biospecifics.com.

Today, I’m joined by Tom Wegman, the President of BioSpecifics, as well as Pat Caldwell. Mr. Wegman, will provide you with the corporate update and a financial summary, and after that we’ll open up the call for your questions.

Before we begin, I would like to remind you that today’s conference call will include forward-looking statements based on the Company’s current expectations within the meaning of, and made pursuant to, the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements are only predictions and actual results may vary materially from those projected, based on numerous risk factors that we have identified in our current Quarterly and Annual Reports.

The forward-looking statements include statements about; the expected growth rate of Endo’s U.S. XIAFLEX pro forma revenue in 2016, or timely received from Endo of the payment in connection with the exercise of their opt-in right for the human lipoma indication. Our receipt of future milestone royalty and cost of goods payments from Endo related to the human lipoma indication. The continued clinical development of the human lipoma indication.

Our continued work with Johns Hopkins investigators to conduct a pilot study in uterine fibroids; the timing of our initiation of a Phase I clinical trial of CCH for uterine fibroids; the timing of Endo’s initiation of four additional key clinical programs. Endo’s potential expansion into currently unlicensed indications; and the timing of Endo’s planned initiation of a Phase IIb trial in adhesive capsulitis of Phase II trial in plantar fibromatosis, of Phase II trial in lateral hip fat and a registration trial in Dupuytren’s nodules.

All forward-looking statements are made as of today’s date, are expressly qualified in their entirety by the cautionary statements included in this conference call, and the Company assumes no obligation to update these forward-looking statements except as maybe required by law.

With that, I’ll now turn the call over to Tom.

Thomas Wegman

Thank you, Will. Good afternoon, everyone. Today I’d like to take the opportunity to review the significant progress we have made advancing our collagenase clostridium histolyticum clinical development programs during the second quarter. Before I do that I would like to start by reviewing the commercial progress for XIAFLEX and its two marketed indications, Peyronie’s disease and Dupuytren’s contracture.

On August 8, 2016 Endo reported commercial highlights for the second quarter of 2016. As a remainder, Endo second quarter 2016 financials are reported in our third quarter 2016 financials. For the second quarter of 2016 U.S. demand vials were approximately 8,197 for Peyronie’s disease and 6,530 for Dupuytren’s contracture, equaling overall demand vials of approximately 14,727, a 12% increase over the second quarter 2015.

This growth was driven by a 19% year-over-year increase in Peyronie’s disease demand vials. For the second quarter of 2016, Endo reported that U.S. net revenues were $42.4 million and worldwide net revenues were $45.2 million. Endo now expects a low double-digit percentage growth rate for U.S. XIAFLEX pro forma revenue in 2016.

With that, I will now turn to our robust CCH development pipeline. In June, we were pleased to report positive, statistically significant topline results from a placebo-controlled, double-blind Phase II clinical trial of CCH for the treatment of human lipoma. Lipomas are encapsulated deposits of benign fat, often detected as bulges under the skin. The trial met its primary endpoint of reduction in the visible surface area of the target lipomas relative to placebo, as determined by caliper, at six months post injection. There were no serious adverse events reported during the trial.

Because of these positive data, in late July our partner Endo exercised the right to opt-in for this indication. Bringing their total number of license indications to eight. As a result, in addition to an opt-in payment of $750,000 which we will receive in the third quarter of 2016, Endo is now responsible for all costs for future clinical development and they will owe us potential future milestone, royalty, and cost of good payments. We very much look forward to the continued clinical development of this indication.

Now turning to uterine fibroids, in May we announced a publication of data highlighting the efficacy of CCH for the treatment of uterine fibroids in the May 2016 issue of the American Journal of Obstetrics & Gynecology in an article titled, Loss of Stiffness in Collagen-Rich Uterine Fibroids after Digestion with Purified Collagenase Clostridium Histolyticum.

These ex-vivo data show that highly purified CCH can reduce the stiffness of human uterine fibroids and potentially decrease their size. As many of you know, we manage the development of CCH for uterine fibroids and we also initiate development in new potential indications not currently licensed by Endo.

We are continuing to work with investigators at Johns Hopkins to conduct a pilot study in uterine fibroids following promising preclinical data from collaboration with Duke Medicine. We expect to initiate a Phase I clinical trial in the second half of 2016.

In addition to Dupuytren’s contracture, Peyronie’s disease and the recent addition of human lipoma, Endo’s licensed rights also include adhesive capsulitis, cellulite, canine lipoma, lateral hip fat, and plantar fibromatosis. Endo has also discussed the potential expansion into currently unlicensed indications including uterine fibroids, capsular contracture of the breast, Dercum’s disease, knee arthrofibrosis, urethral strictures, and hypertrophic scars, and keloids.

Earlier this year, Endo started a Phase IIb study of CCH for the treatment of cellulite, a condition in which lobules of subcutaneous adipose tissue extend into the dermal layer forming an orange peel-like dimpling and during the recent earnings call on August 8 they also confirmed Endo plans to initiate four additional key clinical programs later this year.

In the third quarter of this year, Endo plans to initiate a Phase IIb trial in adhesive capsulitis or Frozen Shoulder, a clinical syndrome of pain and decreased motion in the shoulder joint resulting from inflammation and thickening of the shoulder capsule due to collagen, and a Phase II trial in plantar fibromatosis or Ledderhose’s disease, a medical condition characterized by pain and disability caused by the thickening of the feet’s deep connective tissue resulting in the formation of nodules or cords along tendons of the foot.

And in the fourth quarter of this year, Endo plans to initiate a Phase II trial in lateral hip fat. Fat accumulation is common among women, particularly as they age, and is often very difficult to improve its appearance through exercise and diet. In addition, Endo plans to initiate a registration trial in Dupuytren’s nodules in the fourth quarter. Dupuytren’s nodules are small palpable lumps under the skin in the palm of the hand and often the first symptom for patients with Dupuytren’s contracture.

And with that, I will now review our financial results for the second quarter of 2016. As a reminder, our second quarter 2016 financial results are based on first quarter 2016 XIAFLEX sales as reported to us by Endo. Second quarter sales by Endo will be recorded in our third quarter 2016 financial results.

As of June 30, 2016, we had cash and cash equivalents and investments of $45.8 million, compared to $37.1 million on December 31, 2015. Net income for the second quarter of 2016 was $2.6 million or $0.37 per basic share and $0.35 per share on a fully-diluted basis compared to net income of $1.8 million or $0.26 per basic share and $0.24 per share on a fully-diluted basis for the same period in 2015.

Total revenue for the second quarter of 2016 was $6.2 million, compared to $4.7 million for the same period in 2015. Royalty and mark-up on COGS revenues recognized under our agreement with Endo for the second quarter of 2016 were $6.2 million compared to $4.7 million for the same period in 2015 and increase of 32%. This increase was due to increased net sales of XIAFLEX as reported by our partner Endo and recognized by us with a one quarter lag.

Licensing revenue consists of licensing fees, sublicensing fees, and milestone payments. Licensing revenue recognized for both the second quarter ended June 30, 2016 and 2015 was approximately $12,000.

R&D expenses for the second quarter of 2016 were $0.4 million as compared to $0.3 million during the same period in 2015. G&A expenses for the second quarter of 2016 were $1.9 million compared to $1.8 million for the same period in 2015. Provision for income taxes for the second quarter of 2016 were $1.3 million compared to $49 million for the same period in 2015.

And with that, I’d like to open up the call for your questions. Operator?

Question-and-Answer Session

[Operator Instructions] The first question comes from Ram Selvaraju of Rodman & Renshaw. Please go ahead.

Q - Ram Selvaraju

Hi. Thanks very much for taking my questions. Tom, could you give us a sense at this juncture of the degree of sales and marketing commitment that Endo has twice behind XIAFLEX in the United States and what they plan to do going forward, obviously Endo has had some issues with their broader business and XIAFLEX is one of the few bright spots in their portfolio and I just wanted to get a sense from you what you’re hearing from Endo management regarding their continued commitment to the product given its growth potential relative to the rest of their branded marketed product portfolio. Thank you.

Thomas Wegman

Thanks for that question. So clearly Endo has a huge emphasis on XIAFLEX and certainly a bright spot among some of the other challenges that they’re experiencing. So you know we interact pretty regularly with them recently I had a good meeting with their sales folks.

So they’re continuing to put forth a lot of interesting initiatives I noticed that they have now hired a new head of branded pharmaceuticals and I mean are all the signs are quite good. This gentleman is coming out of biotech which I think is very good for XIAFLEX and they are continuing with their promotional efforts there are print ads, there are reaching out to sporting - during sporting events trying to increase their injector base and so, I haven’t seen any signs that they’re stopping or not putting a box behind the marketing efforts.

Ram Selvaraju

Okay. And then with respect to the demand vials versus revenue recognition, obviously here we’re seeing sequential growth in demand vial for XIAFLEX, but the revenue recognized by Endo in the U.S. appears to be down from in the second quarter versus the first quarter? Can you give us a sense of what’s going on the revenue recognition front that led to this difference?

Thomas Wegman

Right. So I think that’s a very good question. I think Rajiv De Silva began to kind of shed some light on this during his Q&A yesterday. So I think their feeling is that demand vials is the metric to pay attention to take a look at how well they’re succeeding in the market, whereas revenues can be affected by maybe overstocking or other issues related to specialty pharmacies.

But the demand vials which had a nice increase are closer to what is actually being used by the urologist as well as the hand surgeons. So I think it increased there is quite good. Sometimes revenue doesn’t perfectly aligned with what reporter say us because they’re all just slightly different definitions, but the demand vials continue to go up, sales do continue to go up. So I think it’s a positive outlook.

Ram Selvaraju

Okay. And with respect to the relative growth in Dupuytren’s versus Peyronie’s demand vial. You have a bit more granularity there regarding the underlying growth rate. It’s our assessment that the underlying growth rate in Peyronie’s is now measurably greater than the underlying growth rate in Dupuytren’s, but can you give us a bit more quantitative assessment of this?

Thomas Wegman

That’s absolutely right. And I think you could have seen a little bit of a decrease comparing one quarter to the other quarter on Dupuytren’s, but whereas Peyronie’s is within the first year marketing, exceeded the sales for Dupuytren’s I believe and other folks at Endo also believe that that Peyronie’s has good growth potential. And then Dupuytren’s, to be fair, it’s been on the market since 2010, so I think Peyronie’s has a more favorable growth rate in the next couple of years.

Ram Selvaraju

Okay. Just two very quick items on the financial front. For licensing revenue, can you give us a sense of what we should expect on a quarterly basis going forward, if that’s going to be similar to what you reported in this quarter which if we should see any significant meaningful increase. Obviously I believe the line item licensing revenue is where you’re going to book the 750K one-time payment from Endo for the opt-in for lipoma, correct?

Thomas Wegman

That sounds right, but I’d like to have Pat Caldwell is on the phone, so maybe Pat could chime in and answer for that?

Pat Caldwell

Yes. That is correct. That’s where will be recorded. The other licensing revenue, we don’t expect a big change. It’s pretty minor and there will be no real change in that.

Ram Selvaraju

Okay. And then just with respect to the R&D front given what you anticipate doing on your own not related to Endo’s own clinical development activities for XIAFLEX. Do you anticipate that ongoing quarterly R&D expenditures are going to be similar to what you recorded in this quarter at $3.4 million?

Thomas Wegman

I am not anticipating a huge change, we are going to be doing this clinical trial with Johns Hopkins, so that’s going to cost - that’s going to result in some kind of increase there. I won’t say dramatic, but we will definitely be spending more money. I think money well spent. But I wouldn’t call anything dramatic.

Ram Selvaraju

Okay. Thanks. I’ll jump back in the queue.

Thomas Wegman

Thanks, Ram.

Operator

And this concludes our question-and-answer session. I would now like to turn the conference back over to Tom Wegman for any closing remarks.

Thomas Wegman

Okay. This concludes today’s conference call. We will be presenting a corporate overview at two upcoming September Conferences in New York City. First is the BioCentury NewsMakers in the Biotech Industry Conference on September 9 at 9 AM and the second is the Rodman & Renshaw Healthcare Conference on September 13 at 10:50 AM. Thanks again for your interest in BioSpecifics and we look forward to updating you on our progress in coming months.

Operator

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect your lines. Have a great day.

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