Parnell Pharmaceuticals Holdings Ltd. (PARN) Q1 2016 Earnings Conference Call April 22, 2016 8:00 AM ET
Robert Joseph – President and Chief Executive Officer
Brad McCarthy – Chief Financial Officer
David Gu – Jefferies
David Bautz – Zacks Investment
Good morning, ladies and gentlemen, and welcome to Parnell’s Investors Conference Call for the Third Month Period Finishing 31 March 2016. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the prepared remarks. [Operator Instructions] As a reminder, this conference call is being recorded.
I would now like to introduce your host for today's conference, Mr. Robert Joseph, Parnell's President and Chief Executive Officer. Mr. Joseph, you may begin your conference.
Thank you and good morning. Today, we announced business update for the three month period ending 31 March 2016. The press release covering this period was now available on the Investor page of our website at parnell.com. Joining me today is Brad McCarthy, our Chief Financial Officer. I'll review key aspects of Parnell's commercial business and product development programs, and Brad will discuss our revenue results, and we’ll then open up for questions.
During the course of today's call, we may make a number of forward-looking statements, which involve various risks and uncertainties about future market conditions and our company's projected performance. Although our statements reflect our current beliefs and expectations, we cannot make any guarantees about actual future events. You can read about these risks and uncertainties in our press release and other SEC filings. As a foreign private issuer, we also denominate our financial performance in Australian dollars unless otherwise specified.
We had a strong start to 2016 with revenues growing 43% across the whole business with notable above planned performance for our U.S. Production Animal business and the Australian Companion Animal business. We also concluded negotiations on a contract manufacturing agreements, which we expect to sign next week and immediately commence manufacturing announcements.
This deal will result in a tangible upfront payment as well as ongoing annual minimum volumes over the ten year life of the deal and should result in earnings to fellows and high margin revenue. In addition to our first contract manufacturing deal, negotiations are underway with several other parties for similar agreements and we hope to ramp up the revenue generation from our contract manufacturing in 2016.
We believe this underpins the very and valuable opportunities Parnell has to generate revenues from our fully integrated value chain and continues to set us apart from other emerging animal health companies. We’re also pleased to receive the response on time from the FDA for the two remaining technical sections to Zydax, which we filed last October.
As we anticipated, the FDA has asked questions and clarifications in relations to these filings and we are now working toward resubmitting our completed responses in quarter two 2016. If we complete our responses in line with this expectation, we could expect a potential approval in late quarter four 2016, which is in line with previous guidance. We have worked many years to develop Zydax and we believe it is a therapy for treating osteoarthritis in dogs unlike any other on the market or coming to market.
Whilst it is difficult to extrapolate results across different clinical trails, we believe the results from that pivotal efficacy study demonstrate that Zydax provides a rapid and very significant reduction in the clinical signs of osteoarthritis and we believe this trial demonstrated a more meaningful clinical outcome than other therapies, which clinical trials have been published.
We believe that the value of Zydax has been affirmed by the strong interest we are receiving from potential partners to market Zydax outside of the USA and Australia and we hope to conclude these negotiations in quarter two 2016. We are also excited about preparations underway to launch two new products for our U.S. Companion Animal team: Reviderm, a recently in-licensed liquid bandage technology with antimicrobial properties, and Luminous, an in-house developed nutraceutical for application in dermatological condition.
We believe both of these products will be complementary to our current commercial propositions led by Glyde, a nutraceutical products developed with osteoarthritis, and FETCH a digital applications used by veterinary clinics and pet parents to better diagnose and treat osteoarthritis. We believe that we can, for example, adapt FETCH to also promote Luminous in the coming months and again it took span of dermatology market just as we’re seeking to do with FETCH in the osteoarthritis space.
This month Will Hunsinger joined our board of directors which is another exiting addition to the varied and complementary board we have assembled. Will has a stellar career track record in the technology industry being responsible for establishing the online business with Gap, Banana Republic and Old Navy clothing retailers. Then working as a board member and executive for various TPG Capital invested companies. Will also established a company that develops a successful sports related mobile app they ultimately sold to Facebook.
As many of you know Alan Bell, our Chairman; Brad McCarthy, our CFO and myself invested in the growth of Parnell as a private company to build a fully integrated pharmaceutical company with core capabilities in drug discovery and development, manufacturing and commercialization.
And since our IPO in June 2014 we have invested in the growth of our commercialization capabilities in the high value U.S. market. Having successfully launched our reproductive hormone products achieving over 10% market share and growing revenues rapidly, we have now launched our Companion Animal products starting with the Glyde and FETCH and soon Reviderm and Luminous. And of course, we remain very exited about the prospects for Zydax in the U.S., Europe and other major markets.
As we’ve now finalized our first contract manufacturing agreement is yet another milestone in the evolution of this great company. I could not be more proud of the achievements in an amazing team I have the pleasure of working with each day.
I would now like to turn the call over to Brad McCarthy, our CFO who will review the financial performance of the first three months of 2016.
Thank you, Robert. For the financial information that I will present unless otherwise stated all amounts are in Australian Dollars and also the three months period ended March 31, 2016 as compared to the same period in 2015. As Robert mentioned we’ve seen continued and strong sales growth across the group with total sales growing 43% in the quarter to AUD2.2 million. Once again this is an exceptionally strong result for us and demonstrated our go to market strategy in conjunction with our digital applications especially in the U.S. continue to be very effective.
In our U.S. Production animal segment we experienced sales growth of 10% for the period to AUD1.3 million which was driven by the continued success of our clinical science leadership in the dairy reproduction segment and the continued rollout of mySYNCH. Our innovative digital technology asset for dairy farmers to improve their profitability of the operations.
Most pleasing is that our in market sales, sales from distributors to produces and/or veterinarians grew 51% during the period as compared to quarter one 2015 demonstrating our continued strong performance in the U.S. production animals segment.
Sales of Production Animal Rest of World increased 83% to AUD0.3 million in quarter one 2016 primarily driven by year-over-year differences in the timing of orders from our marketing partners outside of Australia and New Zealand. And finally our Companion Animal business segment continues to show increased growth in sales in quarter one as a result of the expansion of our sales team and the launch of Glyde Chews and FETCH in the U.S. market.
Companion Animal sales increased 164% to 0.6 million compared to the same period in 2015. As Robert mentioned in contract manufacturing we did not generate any revenue in quarter one 2016 but with the conclusion of negotiations on a contract manufacturing agreement we expect single-digit million in revenues to commence in quarter two 2016 and continue on an ongoing basis.
Based on our strong sales performance in Q1 2016, we reiterate our 2016 revenue guidance as previously stated in our 2015 earnings release stated on February 24, 2016. As of March 31, 2016 Parnell had cash and cash equivalents of $3.9 million compared to $5.7 million as of December 31 2015.
As we have previously communicated as a commercial stage company we continue to generate increasing cash flows from our business operations to partially fund our investments in developing our pipeline products and our digital technology assets. And establishing our commercial presence in the anticipation for the potential approval of Zydax in the U.S.
Early in the quarter 2001, we established a facility with Lincoln Park Capital with the objective of allowing us to address the lack of liquidity in our stock which we believe is due to the small amount of available shares, that are not held by our founders and their families and the major institutional investors who bought out all the initial public offerings.
Parnell commenced using this facility in small volumes in late March and it appears to have subsequently translated to a considerable increase in our average daily share trading volume, and thereby meeting the principle objective of entering into this agreement. Furthermore in recognition of Lincoln Park optimism of our potential future values the Lincoln Park agreed to purchase 175,000 unregistered shares above market at $3.50 per share in accordance with the term of the agreement they may also acquire further 150,000 shares of cash consideration at $5 per share.
Additionally, we have negotiated essentially all key terms for a new senior debt facility of approximately $30 million that we expect to announce subject to the completion of an agreement in the coming months. We believe that the combination of cash being generated by our commercial operations debt and equity funding. Parnell is in a strong position to judiciously manage capital and balance growth opportunities with shareholder interest.
We are proud of this strong track record we have in this area and with the executives and their families being major shareholders of Parnell, we are collectively optimistic about our future growth prospects.
I will now turn the call back over to Robert.
Thank you, Brad. Operator, we'd now like to open up the call for questions.
Thank you. [Operator Instructions] And our first question comes from the line of Jeff Holford of Jefferies. Your line is open, sir.
Hi this is David Gu on for Jeff. So just a quick question on the types of questions that the FDA posted, I was just wondering if you guys could give a bit more detail on what type of questions we saw for the efficacy and CMC sections? Thanks.
Thanks, David. Look its not typical practice for the industry to disclose that type of information a lot of it relates to proprietary aspects of that filings, and I could certainly say that the types of questions we’ve received they are in line with the type of discussion we had with the FDA in our pre-submission conferences. So prior to filing, the CMC’s inefficacy section in October last year it is typical practice to meet with the agency, we will have the board summary of the doses we are going to submit and they highlight the areas that they’re most interested in understanding further.
And so the questions we’ve receive are largely in line with that, so there was I think from that perspective no great surprises and hence we are fairly comfortable that we have the opportunity to collect the information there, asking about and to make that submissions recorded in 2016.
Okay, great. Thank you.
Thank you. And our next question comes from the line of David Bautz of Zacks Investment. Your line is open.
Hey, good morning, guys. First question is assuming this the contract manufacturing deal gets signed – how much capacity can be less in the facility based on Lincoln Park, how many other type of deals like that would you be able to sign?
Yes, thanks, David. Yes, we are certainly looking forward to completing that contract next week. And the good thing about lot of these opportunities they are looking at David, number one as you may recall we have about 75% available capacity in that facility so we currently have a large amount of opportunity to increase the production.
We believe this contract will consume less than 10% of our available capacity. And hence we believe we have the opportunity to do several similar contracts, I think we have also communicated to the market previously, we only operate that facility one shift per day, five days per week. But we have the opportunities in providing increasing the run time in a facility for significant increased capacity. We also have the opportunity to fairly minimal capital investments single-digit millions of capital investment throughout a second filling line and through substantial increase capacity again. So this is a very new asset, only first approved by the FDA in early 2013, and the EMA, European Medicines Agency, last year. We believe it has a long asset life and very high quality facility and have a lot of capacity. So we're very excited of course of that opportunity that in contract manufacturing.
Okay. And my other question was, if you could just give a brief overview of the competitive landscape for Reviderm looks like.
Yes. Thanks, David. Reviderm is a liquid bandage technology. It's a spray-it-on liquid bandage. And as you can imagine, when a dog has a wound, whether at the post surgical, stitches or an abrasion, laceration of some description, typically the current therapy or the current standard of care is to used adhesive bandages or band-aids of some description. And of course [indiscernible] offers good dogs too. And so we often have to put it the latch device on the dog's head to stop it from in order to chew that off, which is also very frustrating and annoying for the dog.
Reviderm is a liquid bandage. It's a spray-on. It’s an impervious layer that have entered microbial properties that we believe supports the rapid healing of the wound. And of course it’s non-irritating to the dog. So there's nothing like Reviderm on the market at the moment. The market research and product positioning activities that we've done prior to launch have shown a great deal of interest. As you can imagine, most veterinary clinics have surgical facilities and undertake minor operations each day typically.
So we believe it's a reasonable size market, a very interesting product, it’s appealing to veterinarians. So we are definitely excited about the opportunities, is of course not the size, segments or something like that axle the clinic therapies that the dog uses each day, but certainly we believe that the nitrogen will adjunct to a current – for our current Companion Animal presence in U.S.
Okay. Thanks for taking my questions.
[Operator Instructions] I’m showing no further questions in the queue. And that will conclude the Q&A portion in this call. At this time I would like to return the call back to Mr. Joseph for closing remarks.
Thank you for the questions, and of course, we'd always be glad to follow-up with callers who have any other decision additional questions. I'd like to close by again thanking our investors for their support. And I couldn’t be more pleased with the success our team has generated in our major growth opportunities. And I look forward to continuing to provide updates in our future successes. Thank you, and have a good morning.
Ladies and gentlemen, this concludes today's conference. Thank you for your participation and have a wonderful day. You may all now disconnect.
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