Egalet Ltd. (NASDAQ:EGLT)
Q2 2016 Earnings Conference Call
August 4, 2016 05:15 PM ET
Blair Clark-Schoeb - SVP, Communications
Bob Radie - President & CEO
Stan Musial - CFO
Louise Chen - Guggenheim
Jason Butler - JMP Securities
Annabel Samimy - Stifel Nicolaus
Chiara Russo - Cantor Fitzgerald
Good evening ladies and gentlemen, and welcome to the Egalet 2016 Second Quarter Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Ms. Blair Clark-Schoeb, Senior Vice President, Communications. Please go ahead.
Thanks, Amy. Thank you all for joining us today to discuss the results of the FDA Advisory Committee meeting and our second quarter financial results. If you have not already received the release from today, you can find it on our website at egalet.com, under the Investors tab.
Leading the call today will be Bob Radie, our President and CEO; who is joined by Stan Musial, our CFO; and Dr. Jeff Dayno, our Chief Medical Officer. During the course of this call, management will make projections and other forward-looking remarks, regarding future events and the company's future performance. Such forward-looking statements are not guarantees of future performance and involve risks and uncertainties including those noted in today’s press release and Egalet's filings with the SEC.
Investors, potential investors and other listeners are urged to consider these factors carefully in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. Actual results may differ materially from those projected in the forward-looking statements. Egalet specifically disclaims any intent or obligation to update these forward-looking statements except as required by law. In addition, we refer you to oxaydo.com and sprix.com for full prescribing information for our approved products.
A telephone replay of the call will be available shortly after completion through Thursday, August 11. You can find the dial-in information in today's press release. The archived webcast will be available for six months on the company's website, egalet.com.
For the benefit of those who may be listening to the replay or the archived webcast, this call was held and recorded on August 4, 2016. Since then, Egalet may have made announcements related to the topics discussed. So please refer to the company's most recent press releases and SEC filings.
Now, I will turn the call over to Bob. Bob?
Thanks, Blair. Good evening everyone and welcome to our conference call to discuss results from the FDA Advisory Committee meeting and our second quarter earnings results.
As you may have seen earlier today, a joint meeting of the Anesthetic and Analgesic Drug Products Advisory Committee and Drug Safety and Risk Management Advisory Committee of the U.S. Food and Drug Administration or FDA met to review the new drug application or NDA for ARYMO ER, an extended release form of morphine sulfate, developed using our proprietary Guardian Technology. The panel voted 18 to 1 recommending approval of ARYMO ER for the management of pain severe enough to require daily, around-the-clock, long-term opioid treatment and for which alternative treatment options are inadequate.
The panel voted in support of labeling ARYMO ER as an abuse deterrent product by all three routes of abuse; intravenous, nasal and oral. The vote was 18 to 1 for the intravenous route, 18 to 1 for the nasal route, and 16 to 3 for the oral route. We are encouraged by the outcome of today's FDA advisory committee meeting, and support for labeling ARYMO ER as an abuse deterrent product by the intravenous, nasal and oral routes of abuse.
The FDA typically follows the advice of its advisory panels, although it is not required to do so. We will continue to work with the FDA to complete the review process of the ARYMO NDA. The target action date of October 14, 2016 has been set by the FDA under the Prescription Drug User Fee Act or PDUFA. There is significant need for treatment options that help deter potential abuse, while still providing individuals with effective pain relief.
Specifically we need treatment options like ARYMO for a couple of reasons. First, morphine is the most commonly prescribed extended-release opioid in the country with 6.4 million retail prescriptions for extended-release morphine written in 2015. And second, the vast majority of morphine products over 98% of the prescriptions written through April of this year had no abuse deterrent properties, meaning they can be easily abused by crushing, snorting, or injecting.
If approved, ARYMO ER will be Egalet’s first commercial product developed using our proprietary Guardian Technology. With the 71% sales force out actively promoting both SPRIX nasal spray and OXAYDO to the same 11,500 high decile physicians prescribing pay medications, we are well prepared for the potential launch of ARYMO ER.
Our commercial products have contributed to five quarters of growth. Gross product sales were $5.6 million for the quarter ended June 30, 2016 which represents 35% growth over the first quarter of 2016. SPRIX grew 21% in gross revenue and added over 500 new prescribers. OXAYDO grew over 100% in gross revenue and added over 400 new prescribers.
Now I will turn the call over to Stan Musial, our CFO, who will provide more color on our financial results for the second quarter. Stan?
Thanks Bob. As of June 30, 2016 the company had cash and marketable securities totaling $103.7 million. Total net revenue was $3.5 million for the quarter ended June 30, 2016 compared to $959,000 for the same period in the prior year. Net product sales were $3.5 million for the quarter ended June 30, 2016 compared to $607,000 for the quarter ended June 30, 2015. Related party revenues decreased from $352,000 for the quarter ended June 30, 2016 to zero for the same period in the prior year due to the termination of the collaboration agreement with Shionogi in the fourth quarter of 2015.
Cost of sales was $784,000 for the second quarter ended June 30, 2016 compared to $207,000 for the second quarter of 2015. The cost of sales for SPRIX nasal spray, excluding product amortization rights, reflects the fair value of finished goods inventory that was acquired as part of the acquisition and the average cost of inventory produced, which was dispensed to patients during the period.
The cost of sales for OXAYDO, again excluding product amortization rights, reflects the average cost of inventory dispensed to patients during the period. Cost of sales for the first quarter of 2016 consisted of both SPRIX and OXAYDO sales while the first quarter in 2015 consisted only of SPRIX sales.
General and administrative expenses increased to $8.9 million for the quarter ended June 30, 2016 compared to $5.8 million for the quarter ended June 30, 2015. The increase was primarily attributable to increases in employee, salaries and benefits due to the expansion of the US organization, stock-based compensation, regulatory fees and professional administrative fees associated with preparing for the FDA Advisory Committee meeting for ARYMO that took place today.
Sales and marketing expenses increased to $6.3 million for the quarter ended June 30, 2016 from $3.3 million in the same period as the year prior primarily related to the growth in the US based commercial organization, including increases in salaries and benefits, the contract sales force, and sales and marketing programs for SPRIX and OXAYDO .
Research and development expenses increased to $8.7 million for the quarter ended June 30, 2016 compared to $4.9 million for the quarter ended June 30, 2015. The increase was driven primarily by an increase in development cost for Egalet-002 and OXAYDO and offset by a decrease in development costs for ARYMO ER.
Interest expense was $2.3 million for the quarter ended June 30, 2016 and the same number $2.3 million for the same period in 2015. Interest expense is due primarily to the loan agreement with Hercules and the 5.5% convertible loan notes. The net loss for the second quarter ended June 30, 2016 was $23.8 million or $0.96 per share compared to a loss of $17.1 million or a $1.03 per share for the quarter ended June 30, 2015.
Now I will turn the call back over to Bob. Bob?
Thanks, Stan. Today marks a significant milestone in the development of Egalet’s first product coming out of our proprietary Guardian Technology. There is a substantial need to have more treatment options for physicians and patients living with chronic pain that are less likely to be abused.
We are encouraged by the panel’s support for ARYMO as an abuse deterrent morphine, and we are encouraged by their support for all three abuse deterrent claims of oral, intranasal, and IV. If approved, this would be the broadest label for an abuse deterrent extended release morphine product candidate.
We are in a good position to have potentially three approved pain products at the end of 2016. If approved, we will be able to begin promoting ARYMO, leveraging the relationships we have built with key pain healthcare professionals, pharmacists and payers.
At this time we're happy to take questions. Amy, can you please open the line.
[Operator Instructions] The first question comes from Louise Chen at Guggenheim.
Hi, thanks for taking my questions. I had a few here. The first question here is if your product is approved ARYMO, what do you expect to get in your label and how does that compare to the other products that are out there, and the second question I had was if you could provide an update on your ER Hydrocodone and Stimulant products, and then the last thing is just curious if you have any update on licensing your products outside of the US? Thanks.
So, let me start with the labeling question, and obviously as we stated in the opening, we look forward to continuing to work with the FDA over the coming weeks as we move closer to the October 14 PDUFA date. It is our hope and expectation that we will achieve abuse deterrent claims in the label for the intravenous routes, oral routes and intranasal routes of abuse. And my statement about this would then be the broadest set of claims; it revolves around the comparisons of the labels for the other two currently approved abuse deterrent extended release morphine products being Embeda and MorphaBond.
Embeda has claims for intranasal and oral abuse but not an IV claim, and MorphaBond has an intranasal and IV claim, but not an oral claim. So if successful we would expect to be able to achieve all three of those claims in our label. An update on the extended release Hydrocodone program, we know that that IND was transferred to us, which is a Phase 1 clinical program. We still have not made any final decisions about our plans to move this product forward.
We continue to evaluate this program in light of the commercial opportunity, as well as expense and costs associated with moving it forward. So more to come on it in the future and the plan is still on track to file an IND for our Stimulant program by year-end. So last question on licensing, we continue to be very active from a business development standpoint looking for potential partners in geographies outside of the US for our approved products, but no other additional updates at this point in time, Louise.
Okay, thank you.
The next question is from Jason Butler at JMP Securities.
Hi, thanks for taking the question and congrats on the very positive day. First off, just wanted to dig into the oral abuse deterrent claim, how would you view the label in terms of the panel comments specifying just chewing resistance versus a label that included oral AD labeled, would that have any impact on commercialization in your view?
I don't think it is going to have any impact on commercialization. I do think that there were a few of the panelists today, who I think made some very valid points about the heterogeneity of oral abuse, and that it isn’t one sort of type. And I think the agency certainly the body language appeared to some agreement that they may have to get a bit more specific as time goes on about what does oral abuse mean.
We continue to believe that this product would be difficult to abuse orally. One because it is very hard and difficult if not impossible to chew, and then secondly as we stated in our discussion in our presentation today, the category [2,3] oral study that we did do in some of the endpoints that the FDA questioned as well as the panelists questioned, we think it is important for the agency to keep in mind that what is eliminated from some of those scores is that level of effort to go into the manipulation step, which of course, doesn't get captured in some of the instruments like take drug again. They are just being handed the drug, already manipulated by a pharmacist in a blinded fashion to ensure blinding one, and ensure consistency of dose.
While the panelist didn't fully grasp that concept, we will continue to have those discussions with the FDA in the hope of getting the broadest oral claim possible, but certainly based on the feedback from the advisers and the difficulty in chewing; we know we have a position here.
Great, and then another thing that I guess isn’t specific to ARYMO, but was brought up by a few panel members was that of the lack of current post-approval data, or lack of epidemiological showing that abuse deterrent properties results in less abuse. Do you have any thoughts on how you will design your category for studies, both taking into consideration those comments and the current FDA guidelines?
Yes, so there are certain studies that will be required to participate in and be part of the [Indiscernible] requirement. So those are – there is not a lot of flexibility there. You sort of are instructed to conduct those studies, and then, we will obviously work closely with the FDA to determine what specific other types of studies they would like us to see to build that real world data set of abuse deterrents.
Okay, great. Thanks for taking the questions and congrats again on a great day.
Thank you Jason.
The next question is from Annabel Samimy at Stifel.
Hi guys. Thanks for taking my question. Just a follow-on on Jason’s question, the idea of having or the need to have post marketing studies, that doesn't have any implication on your actual ability to get an abuse deterrent label, correct, you still have the several studies that you led up to the approval, and then post marketing studies is not necessarily required for the ADF label, correct?
That is correct. In fact, all six of the current approved abuse deterrent extended release products have no post-marketing data in their label. So they are all – all of the language in their label is built off of their pre-approval studies category 1, 2 and 3, similar to what we have done and what we presented to the panelist today.
Okay, and just a separate question on some of the comments that the panelists made, there was one who suggested that the language of a drug being expected to reduce oral abuse is too strong, and maybe there should be something like it has properties to reduce abuse of its use, does that – if they actually have some kind of language like that, does that have any regulatory implications for you in any way, or is it just semantic at this point?
I think it is just semantics, and it is obviously something we will have conversations with the agency about in the labeling discussions. But I don't believe it has any regulatory implications, and I don't believe it has any commercial implications either.
Regulatory implications from an ADF perspective?
Okay. All right, great. Thank you.
The next question is from Chiara Russo of Cantor Fitzgerald.
Hi guys. Congrats on the [panelist], just a couple of quick questions. The first one is sort of around timelines, one, the potential proof goes through, how quickly can you sort of get that label on the bottle and get these guys out onto the market?
Hi, Chiara. So, our anticipation is [Indiscernible] to the FDA is attempting to stick to their October PDUFA date. It would likely require us to once we get the final label to get that label onto our finished goods, and then there is a period of time, where you just have to fill the supply channel. And so it is our anticipation that we would begin active promotion of ARYMO in early Q1 of next year.
Okay, and then, Bob since you are now the Chief Commercial Officer, once ARYMO gets to market, is there sort of – is there anticipation of doing a restructuring in sort of the sales comp around that launch?
So, I'm going to answer – I think I know what you are asking, but if I am wrong you will correct me, so, we are evaluating today what is the right size and structure of our sales force to sell these three products. We don't have any final conclusions from that. I think I'm comfortable saying that we probably will expand the size of our sales force. I'm going to keep it just for now say somewhere in and around 100, but there is still a more thorough analysis that is ongoing right now, if Chiara that is what you are asking.
I will take that answer. I was kind of curious to sort of what you are using as sort of a motivating factor obviously; I know that some other companies tend to sort of align priorities with compensation or bonus compensation for instance?
Yes, we have a mixture of base pay and incentive compensation, and certainly we will give some real thought to doing something in and around the launch of ARYMO to appropriately prioritize and incent the sales force to get this product off to a really fast start.
Okay. And sort of my last question, some of the comments made on the panel today, one of them sort of struck me and I was wondering sort of what your thoughts were on it, one of the panelist noted that the – he was worried about the labeling or the language around this abuse deterrent labels, and he questioned what does these labels give physicians, internist PCP not so much the pain specialists, but it gives them sort of the false sense of security in prescribing these opioids, and what if that wouldn’t lead to sort of a more inappropriate prescribing habit, and I was kind of curious what your thought was on that because I hadn’t heard that yet?
Yes, Chiara, it is an interesting question. I think it is also an interesting observation that this was the first FDA briefing book that included the section 9-2, or the sections for the six approved extended release abuse deterrent products, and the memo from Sharon Hertz talks about the reason for putting those in there was to show the evolution of the label language over the approval of those six products over the last two to three years.
And I think that is almost an admittance by the agency that they are learning. They continue to evaluate the best way to provide the language in the label that does accurately represent what these studies likely ready, and certainly very importantly that we don’t create expectations and false expectations for what these products do and don’t do. A good example of course is none of these products stop someone from taking too many pills.
So, we certainly believe it is going to be key – a key component of our approach will be around physician education and making sure that obviously we are promoting the product on label and we are very clear what the abuse deterrent characteristics of ARYMO are and importantly what they are not.
All right, great. Good answer. Thank you.
There are no further questions at this time. I would like to turn the conference back over to Mr. Bob Radie for closing remarks.
Great. Thank you Amy, and thanks everyone for joining this evening. We appreciate your interest in Egalet and we look forward to updating you on our third quarter earnings call. Have a great night.
The conference has now concluded. Thank you for attending. You may now disconnect.
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