Emisphere Technologies, Inc. (OTCPK:EMIS) Q1 2016 Earnings Conference Call May 16, 2016 8:30 AM ET
Michael R. Garone - VP and CFO
Alan L. Rubino - CEO
Henry Bishop -
Brad Johnson - Private investor
Robert Brennan - Private investor
Good morning, ladies and gentlemen. Welcome to the Emisphere First Quarter 2016 Earnings Call. At this time, all participants are in a listen-only mode. With me today from Emisphere are Alan Rubino, President and Chief Executive Officer; Michael Garone; Vice President and Chief Financial Officer; and Carl Sailer, Vice President of Sales & Marketing.
Please be advised this call is being recorded at the Company's request. A live Webcast of the conference call can be accessed at Company's Web-site at www.emisphere.com. An archive of the Webcast will be available beginning today at 11.30 AM Eastern Standard Time for approximately one week. We will be facilitating a question-and-answer session at the end of management's formal remarks.
At this time, I would like to turn the call over to Mr. Garone. Please go ahead, sir.
Michael R. Garone
Thank you, Andrew. Good morning, everyone, and thank you for joining us to discuss Emisphere's financial results for the quarter ended March 31, 2016 and other corporate highlights. On today's call, Alan will provide an overview of recent corporate achievements and plans. Then I will review financial results for the quarter. Following closing remarks, Alan, Carl and I will be available to answer your questions. I hope you've had an opportunity to review the first quarter financial results press release we released earlier this morning.
Before moving into the discussion of our financial results, please note that today's remarks will contain certain forward-looking statements that involve risks and uncertainties including, but not limited to, statements regarding the Company's out-licensing and other business development initiatives and the sufficiency of the Company's cash position.
These risks and uncertainties are outlined in Emisphere's filings with the Securities and Exchange Commission, including its quarterly report on Form 10-Q, which will be filed later today. As such, actual results may differ materially from what is discussed on today's call. Please note that our earnings release, 10-Q and other SEC filings are available on the Investor Relations page of our Web-site at www.emisphere.com.
With that, I'll turn the call over to Mr. Rubino.
Alan L. Rubino
Thank you, Mike, very much and good morning to everyone. We are happy to start off your Monday this week and I want to thank you in advance for joining the call. I guess first it's appropriate to obviously discuss the first quarter 2016 achievements. During the first quarter, we continued to focus on efforts related to our strategic business development initiatives which primarily encompass three areas.
First, we've been working to secure a strategic transaction or an alliance for our commercial oral B12 product, which I will speak to a bit more. Also, we are looking, including working on, to secure new global Eligen Technology carrier partnerships. Again, I'll speak more to those later. And I'd also like to add there have been significant and tangible interests in both of these areas expressed by several organizations. These include a decent cadre of some well-known healthcare and pharmaceutical companies.
It is no doubt that the emerging Novo Nordisk's success with our GLP-1 and the expanded molecule deal, and also our internal targeting and business relationships, are working well and in harmony for the Company. During the quarter, we also achieved our targeted success range with several cost control measures that we recently implemented surrounding the strategic decision to partner Eligen B12.
Let's move to the carrier business right now and talk a little bit about the Eligen Technology and the carrier business sector itself. For those of you who may be new to the topic, the Eligen Technology is a proven technology system that is as you all know applicable to a broad range of chemical entities. It has demonstrated the ability to increase the benefit of therapy by improving bioavailability or absorption or by decreasing the time for onset to action. We repeat these each time and that's because they're so relevant in how this technology is meaningful in a clinical application instance.
We currently own the rights to an extensive portfolio of these carriers and the current focus of the Eligen Technology business development is on the development of new formulations to replace injectable formulation. But we've also had a renewed focus, as those of you who've been listening to recent calls, on approved drug compound.
We also then will continue to look at next generation of smaller proteins and peptides including certain pegylated version. Also something new we're coming upon is there appears to be some potential opportunity in the OTC and branded applications there and we are certainly looking to exploit those as well.
During this first quarter, we continued to receive unsolicited interests from companies interested in the technology. We're also getting interest from firms we've worked with previously who now have new needs. And again, we value this input of interest and continued extension of discussions.
For most of you who again follow our calls, our most advanced partner program is with Novo Nordisk in oral semaglutide that is now entering Phase 3 clinical testing. This product is a once-daily formulation of the long-acting GLP-1 analog for the treatment of Type 2 diabetes and it uses our absorption enhancing SNAC carrier.
Novo Nordisk has clearly stated their plan is to conduct 10 clinical trials, which are expected to be initiated throughout 2016 and have already started. These trials are expected to enrol approximately 9,300 patients with Type 2 diabetes. Emisphere is eligible to receive future milestone and royalty payments in connection with the marketplace success of this Novo Nordisk product candidate.
Emisphere is also recently partnered with Novo Nordisk for the development and commercialization of oral formulations of four new classes of Novo Nordisk's investigational molecules. These are targeting major metabolic disorders, including diabetes and obesity, and again using Emisphere's oral Eligen Technology. Clearly this is the major Novo Nordisk business and differentiates its strategy and it appears that they are looking to achieve leadership in this area for therapeutic categories.
Under this new development and license agreement, which was entered into during late 2015, Emisphere received $5 million in upfront licensing fee. In the future, we are eligible to receive up to $207 million in development and sales milestones payments in addition to royalties on sales for each successfully commercialized product covered by this new agreement. Novo Nordisk is responsible solely for the development and commercialization of all the product candidates, and during the first quarter they continued with important feasibility testing for these licensed molecules.
If approved, these product candidates will compete in the high value therapeutic area and areas that represent over $100 billion in total product sales. As you all know, Novo Nordisk is well known to be a key player in these high-value metabolic indications. So clearly, Novo Nordisk remains a very important part for Emisphere.
The oral semaglutide partnership combined with the new multi-molecule agreement for candidates in high-value metabolic indications hold significant potential for Emisphere's future success. Even in the event of only a small number of the new molecules are eventually brought to the marketplace, this is a very important opportunity for us.
Beyond Novo Nordisk, we are also now working with other major high-profile companies who are currently initiating and conducting feasibility evaluations with multiple additional molecules. Key point to add here is these molecules are already marketed products, and as such that means that they have proven to be safe and effective. So the goal of the feasibility testing for these molecules is therefore to demonstrate sufficient bioavailability and comparable to that of the marketed formulation.
Another point to add, that these molecules are also closely related to the molecules that Emisphere already has significant experience with. Novo Nordisk's advancement of the once-daily semaglutide into Phase 3 clinical testing really shows Novo's continued feasibility studies for the oral formulations in certain metabolic indications. Combined with other feasibility work being conducted at other companies, together these provide for an important validation of our Eligen Technology and its ability to facilitate absorption from the gastrointestinal tract. We are highly encouraged and enthusiastic regarding all of the new interest in activities surrounding the Eligen Technology and we look forward to providing updates as they come out as possible, as soon as possible.
Now, I'd like to change your attention to the Eligen B12 or the commercial segment of Emisphere. For those of you who are just getting familiar, Eligen B12 is the first commercialized product using Emisphere's proprietary Eligen SNAC carrier, the same absorption SNAC carrier that we are using, that Novo Nordisk is using, which I mentioned earlier. It is the first and only prescription oral vitamin B12 therapeutic in a market segment that previously only offered injectable or nasal delivery formulations.
It is the first oral prescription tablet clinically proven to normalize vitamin B12 level without the need for an injection. More importantly, Eligen B12 works even in the absence of intrinsic factor, which is a protein made in the stomach which normally facilitates B12 absorption.
On our year-end call, we communicated our new strategy to find a partner to take over the commercialization of Eligen B12. This was done after a careful evaluation of our commercial operations and resources and in light of product sales levels. We had determined that Eligen B12's full market potential could best be achieved by entering into a strategic transaction or collaboration with a third-party, and we pursued it both in the U.S. as well as internationally.
We also determined that Eligen B12's full market potential will be better realized by an organization with much greater commercial resources and an established infrastructure, and the best way to achieve this would be through potential alliances with such third parties. I wish to report that partnership discussions for Eligen B12 are already well underway. We are actively engaged in a dialog with over 10 major healthcare and pharmaceutical companies. Each of these organizations is seeking to license or acquire the rights to Eligen B12 in the U.S., and others are also expressing global market interest as well.
Regarding the ex-U.S. territories, I have often alluded to these before in previous calls. We are currently in discussions with a major pharmaceutical company who has interest in global non-U.S. rights. We are now at the point of discussing deal terms and look forward to achieving and advancing towards the drafting of an agreement soon.
The pilot launch of Eligen B12 was initiated last year to an extremely positive physician and patient reception, a sentiment that currently continues right up until today. Also there have been no adverse reactions from call to call and no reports of patients not responding to treatment. That is an enormous coo in what you look for in a product.
So even with our revised commercial mix, that being without a field force, the Eligen B12 product is holding steady. It shows the product's value and success potential is durable. This is also a testament to its actual clinical value to the patient and the confidence of the prescriber. Given the Eligen B12 product profile and the initial market uptake, we believe that the market potential for the oral B12 replacement is significant and largely untapped.
It needs a breadth of resources as well as a sustained patient and physician medical education on B12 clinical deficiencies and the proper long-term treatment. It's important to mention that the potential partners we are speaking with possess the substantial capabilities and resources to effectively promote Eligen B12 and significantly expand its commercial reach, while also adding a vitally important B12 deficiency and treatment education which is part of the entire collage of this product's potential success.
In parallel with the ongoing business development discussion surrounding B12, we have also successfully implemented several cost control initiatives designed to reduce our cash burn. We have now reprioritized our marketing efforts and resource allocation, and as of March of 2016, we have phased out our small-contract field force and we are now only conducting efficient non-field force promotion of Eligen B12 as we work towards securing a strategic partner. We are confident that these cost cutting measures will enable us to preserve our financial resources while allowing us to maintain current Eligen B12 sales levels.
At this point, I'd like to transition back to Mike Garone who will cover our financial results.
Michael R. Garone
Thank you, Alan. As Alan mentioned, I'll provide an overview of the financial results for the quarter ended March 31, 2016. For the quarter, the Company reported a net loss of $1.8 million or $0.03 per basic and diluted share, compared to a net loss of $33 million or $0.54 per basic and diluted share for the same period in 2015.
Total operating expenses were $3 million for the quarter. That represents a decrease of $1.6 million or 35% compared to the same period last year. Total operating expenses include research and development costs of $100,000 compared to $200,000 in 2015, and selling, general and administrative expenses of $2.9 million, that's a decrease of $1.5 million or 35% compared to the same period in 2015. Other income for the first quarter of 2016 was $900,000 compared to other expense of $28.3 million for the same quarter in 2015.
Weighted average basic and diluted shares outstanding for the three months ended March 31, 2016, and March 31, 2015, was 60,687,478 shares.
As of March 31, 2016, the Company had approximately $10.4 million in cash, a net decrease of $2.5 million from December 31, 2015. On October 26, 2015, we received a total payment of $14 million from Novo Nordisk pursuant to, and consisting of, $5 million as payment for entry into the license agreement that Alan described and $9 million as payments in connection with the third amendment to the existing GLP-1 license agreement with Novo Nordisk.
Under the terms of our loan agreements, we are obligated to pre-pay certain loans and notes using 50% of any extraordinary receipts, such as the $14 million received from Novo Nordisk. The creditor under our loan agreement has agreed to extend the date by which we are required to use that 50% of the $14 million to pre-pay certain loans and notes until June 13, 2016, provided that the Company delivers to the creditor a revised written proposal regarding potential amendments and waivers to the loan agreements and related matters by May 20, 2016. Otherwise, the loan prepayment would become due and payable on May 20, 2016. We however intend to deliver the proposal by May 20 and receive the full extension to June 13.
Because such prepayment deadline has not been extended beyond one year from March 31, 2016, we have classified $7 million of the loans and notes as a current liability as of March 31, 2016. We believe that our current cash balance will provide sufficient capital to continue operations through approximately July 2016. However, if the pre-payment obligation is further extended or waived, we will have sufficient cash to operate through approximately July 2017.
Our future capital requirements beyond July 2016, or July 2017 in the event that prepayment obligation is further extended or waived, and our financial success depends largely on our ability to raise additional capital, including by leveraging existing and securing new partnering opportunities for Eligen B12 and for the Eligen Technology.
As of March 31, 2016, we received approximately $32.6 million from Novo Nordisk under the GLP-1 license agreement. We are eligible to receive up to an additional $60 million in contingent product development and sales milestone payments plus royalty payments on sales under the terms of the GLP-1 agreement.
And now, I'd like to turn the call back over to Alan for closing remarks.
Alan L. Rubino
Thank you, Mike, once again. Looking ahead at 2016, our strategy continues to be clear and very focused. One, we want to continue to effectively build upon the wise course revisions that we feel we've taken. Obviously, as well we want to build upon the multiple tangible successes that we have talked about over the last year, and continue to aggressively explore, identify and advance the key business development initiatives around the following areas. We are again laser-focused on realizing the full healthcare and economic value of Eligen B12 in both the U.S. and also in attractive non-U.S. markets with well-heeled partners. We are also looking to secure new and expanded drug development partnerships with high-profile biopharmaceutical firms that will utilize our technology in drug delivery mechanisms. And as I mentioned earlier, we are also beginning to talk and discuss the opportunity of adding potential OTC healthcare products in terms of the collaboration realm.
Let me just say that we are quite pleased with the significant advances made recently on the business development front. For those of you who know a lot about this business, these are complex and time-consuming, yet we are making steady concrete progress. I know, we all know here, that there's an urgency of time but certainly we believe that this process is going correctly for the parties that we are involved with as well as ourselves. So we believe it demonstrates Emisphere's dedication to executing on comprehensive initiatives that will meaningfully build value on multiple levels and well beyond what it might have been able to achieve in the past.
We firmly believe that products developed using our Eligen Technology have the potential to overcome bioavailability challenges commonly associated with the oral administration of peptides and certain other compounds. So we will continue to remain squarely focused on all of these initiatives to create increased shareholder value for all of you and our shareholders. Thank you again for joining us today, showing your interest. We look forward to updating you all of the progress of the things we've discussed here today on near future calls.
So now, I think it's a good time for us to turn over to questions, to the operator, so that we can address any of your comments and questions. Thank you very much.
[Operator Instructions] We'll first take the question of [Henry Bishop with Emisphere] [ph]. Your line is open.
Thanks for the conference call and detailed information. Just a question on Eligen B12, so initially when the product launched, has the Company been satisfied with the ramp up in terms of patients or how many patients have actually started using the product, month to month, since the start of the product? And the next question, sort of tied in to the first question is, have patients complying with the taking one pill per day or is it possible that the product works so well that they may only need say one pill per week or two pills per week, and has that impacted sales in any way, or just some background on ramp up and total usage of patients and compliance with the one pill per day?
Alan L. Rubino
This is Alan. I think they are very good questions and probably ones that a lot of people have. First of all, we are happy with the ramp up. Yes, we are, we're quite satisfied with that. I think we have mentioned in previous calls, the one thing that we anticipated, that was a little bit slower, had very little to do with the product or even adoption, it had to do with sort of the complexity of transferring patients that were on the IM to the oral formulation.
This was an area in the beginning that was slower than we anticipated in the early months. And that was a cycle of very well established habit where the patient comes to the office to get their IM injection and their physician generally speaking has already ordered that vial for that visit or they've had the patient pick it up. So instead of them starting right away with Eligen B12, they will say to them, listen I have your vial here, I'll give you the injection, and the next time you come in, in about four or five weeks, I want to start you on this new oral preparation. So we saw this cascade of process as being a little bit inhibiting at times.
But flipping it over to both use and compliance, once that took place, and I can't accent this enough, the clinical success of the patient was outstanding, outstanding on a couple of fronts. They didn't have to take an injection, not a bad deal. The second one was, they got exceptional blood level results that in many case, in the vast majority, certainly those that we collected data on, were superior to the results they were getting not only in the blood level but also for those physicians that were checking the other biomarkers like homocysteine and methylmalonic acid, which demonstrates the product is also working at the cellular level, was really kind of a revelation for a lot of the physicians.
So that's what I think, so the ramp-up was impeded by that process and it began to build momentum I guess about midyear where it was becoming more frequent, and the same doctors now who were testing it in one or two patients, seeing the results obviously started using it more widespread.
You also brought up a very important point about compliance. First, the daily use, which is the Package Insert, we haven't heard any problems with people complaining about that. Many of these patients are extremely worried about maintaining continuity of therapy here because of the consequences of not taking therapy, which are fairly well elucidated everything from anemias to certainly early dementia type symptoms. But a testament to our product that we learnt in the marketplace was the value of the technology in the carrier. I'm speaking to your point about how frequently people need to take it.
We found out that in many cases, the physician needs to titrate the use of the drug to the patient. But the carrier worked so well, that we have seen many cases that the patient based on the doctor's looking at the blood results and listening to how the patient feels, level of energy and the like, the doctor has changed from daily to either every other day or three times a week. And sure from a business perspective, you are right, isn't it great to have it every day, but we are also in the business of good medicine, and that's most appropriate use, is to well with effective dose.
So we are very happy that this has developed – even if it was a bit of a slowing of say the uptake of number of tablets, these are patients that will be on this for the rest of their life. So it makes it even more economical as well as a better therapy that we can obviously continue to exploit through a potential partner. And many of our partners by the way have seen this data and obviously this gives a lot of the reasons for their interest and their own confidence that they can dramatically enhance the product's value because of the information from our launch.
I know that's a lot of explanation, Henry, but I'm figuring I'm having an opportunity here to answer a lot of other people's questions similar to this topic.
Okay, thank you.
Our next question comes from the line of [Brad Johnson] [ph], a private investor. Your line is open.
As you guys move out and end up licensing Eligen B12, what are your plans with respect to the pipeline? Are these companies interested in picking out rates to for instance Eligen B12 plus [indiscernible] or something? And then second question is, as you change in your focus away from manufacturing and sales, how will the executive management team be changed to better reflect kind of the new focus of the business?
Alan L. Rubino
Good questions, Brad. The idea of how we are talking to partners, and you are right, it could be as simple as a divestment and simple license for the Eligen B12, but many of these conversations, this links to your question about the management team and the structure, many of these have evolved naturally and gracefully towards a more longitudinal discussion of collaboration, not just for Eligen B12 but because of our expertise and because of our additional carriers.
Looking at the idea of building off of a platform first, taking Eligen B12, and to your point identifying specific patient population where you need to add other ingredients, whether it would be folic acid, iron, things like that, we will be working in these cases, or at least this is the discussion right now, is more of an alliance team where the platform would be the Eligen B12 product and then new Eligen B12 formulations that will be defined for patients that obviously they would bring to market but we would help them identify, and it's not just the next variation of that, as many of these partners have their own API, their own API opportunities in the medical foods realm and even in the prescription realm where they want to use our carriers to either enhance absorption and/or provide stronger proprietary protection.
So that would rely on us. We have already scaled down this organization basically for the versatility of options that we would see. We would obviously continue to be a strong drug delivery carrier partnership house, which is the heritage of the Company. The commercial side has been reduced significantly to be more of a strategic marketing group that has the expertise to work with partners on the various – a lot of the promotional and educational materials have been developed and ones that are in the planning comes from our organization here which potentially will be valuable to these partners, and then in the development and the methodical way in researching the market to come up with either line extensions or new variations of products using our carriers or the base Eligen B12 molecule, a lot of these partners are looking to us and we are staffed currently now to do that.
We have a relatively small organization and a few consultants that we have, we use that word very respectfully, were hand-picked to be able to deal with the manufacturing opportunities. As you can realize, we're working with Novo Nordisk on our SNAC carrier, on its best and most efficient manufacturing as we look through the future and on the manufacturing expertise. While some of our partners like Novo certainly have resident expertise, we also have resident expertise here that's extremely meaningful on the manufacturing of our carriers, and even more important with these new partners that are coming in, the types of carriers from our database that have not been studied as prominently that fit very well with other API.
So we have a combination of both commercial and scientific teams that will be continuing to work in a partnership with these companies. So we will stay lean and mean. We will not build out on large commercial infrastructure. We will just keep it small strategic marketing group and of course manufacturing expertise, and then the rest will basically be operations of the Company and the management of our IP portfolio which is all quite well handled in an efficient manner.
Okay, thank you.
Our next question comes from the line of [Robert Brennan] [ph], a private investor. Your line is open.
Just a question, what's your degree of confidence, because one of the things that I'm truthfully a little mystified by is the inability to [indiscernible] a deal with Rachesky since he is on the Board, and I know he's a creditor and he has kept the Company going and all that, but what's your degree of confidence that you're actually going to be able to do something that will coincide with the timelines with getting deals done with these other major pharmas?
Alan L. Rubino
I'd let Mike comment first on that, Rob.
Michael R. Garone
Rob, we really can't make any assurances about the outcome of these discussions. What we can say, and you know we have a positive relationship with MHR, we're making every effort to do what's in the best interest of all shareholders and we are engaged in quite productive discussions even as we speak.
All right, so I guess we'll find out by May 20 is the bottom-liner?
Michael R. Garone
I think that we did say a little bit more. We said that we intend to provide a written proposal to them by May 20 and we expect that we'll get the full extension through June 13. Again, we can't make assurances on that, but that's our intention and that's our expectation.
Okay, great. Thanks.
Alan L. Rubino
Rob, I guess obviously as part of good management governance, we also look at alternative financing opportunities as well and that is an area that we're also very active in as well in addition to working with the MHR organization.
Okay, thank you.
[Operator Instructions] That's all the questions that I see in the queue at this time, so I'd like to turn the call back over to management for closing remarks. This is a notification that I'm seeing no other questions in the queue at this time.
Alan L. Rubino
Okay. I'm sorry, operator. I want to first of all thank you for your assistance on this call and I also want to speak to everybody on the call that we really do value your thoughtful questions and also taking your time to listen to our calls. By design, we do include lots of redundancy and repetitive nature of all important points so that we bring everyone up to date as certainly we value this kind of introspection and the support that many of you offer as well as the criticism because I think that's important that we manage both sides of that equation.
So we'll continue and we look forward to the next time we speak and moving some of these important initiatives to a place where it's far more tangible if not on its way to being completed type of initiative. So that's where we are headed, and again, we look forward to chatting soon. Thank you very much.
Ladies and gentlemen, thank you again for your participation in today's conference call. This now concludes the program and you may all disconnect telephone lines at this time. Everyone have a great day.
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