Acerus Pharmaceuticals' (TRLPF) CEO Tom Rossi on Q2 2016 Results - Earnings Call Transcript

| About: ACERUS PHARMACEUTICALS (TRLPF)
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Acerus Pharmaceuticals Corp (OTCPK:TRLPF) Q2 2016 Earnings Conference Call August 9, 2016 8:30 AM ET

Executives

Tom Rossi - President and Chief Executive Officer

Analysts

Joseph Walewicz - LBS

Operator

Good morning, ladies and gentlemen. Welcome to the Second Quarter 2016 Conference Call for Acerus Pharmaceuticals Corporation. At this time, all participants are in listen-only mode. A brief question-and-answer session will follow this discussion. [Operator Instructions] As a reminder, this conference is being recorded. It will be available for replay through Wednesday, August 17, 2016 by dialing 905-694-9451 or 1800-408-3053 using access code 3255058#.

Following my comments regarding forward-looking statements, I will turn the call over to Mr. Tom Rossi, President and Chief Executive Officer for Acerus Pharmaceuticals Corporation. Mr. Rossi will moderate today's call.

On behalf of the speakers who follow, investors are cautioned that the presentation and responses to questions on this call may contain forward-looking statements. Such statements may contain forward-looking information within the meaning of applicable securities laws.

Forward-looking statements are given as of the date of this call may involve risks and uncertainties, and may include, but are not limited to the Company's goals, targets, strategies, intentions, plans, beliefs, estimates, expectations, outlook, and other statements which contains language such as belief, anticipate, expect, intend, plan, will, may and other similar expressions. Certain material factors or assumptions are applied to the formulation of forward-looking statements and actual results may differ materially from those expressed or implied, in such statements.

For additional information about the statements, the material factors or assumptions underlying such statements and about the material factor and assumption that may cause actual results to vary from those expressed, or implied in such statements, please consult the press release issued today titled Acerus reports second quarter 2016 results and the Company's other filings which are available on SEDAR at www.sedar.com.

Mr. Rossi, please proceed.

Tom Rossi

Thank you very much, Wayne. And good morning to everyone on the line. And welcome to the Acerus Pharma second quarter 2016 conference call. With me on the line today is Ora Babova [ph], Director of Finance, here at Acerus. Thank you very much for joining us.

We hope that you had a chance to review the Company's earnings press release that was issued earlier this morning. I will start by providing you with an update on our activities and achievements over the past months, followed by an update on our upcoming initiatives. Ora [ph], will then take you through the Company's second quarter financial results. Following our prepared remarks, we will be happy to take your questions.

Acerus reported strong product revenue growth for the first half of the year, primarily driven by performance of ESTRACE in Canada. In addition, we reported positive adjusted EBITDA in Q2, while strengthening our balance sheet and improving our overall financial picture. We continue to be responsible with our spending, while adequately resourcing future activities that are key value drivers for the business. More details on the financials from Ora [ph] in just a moment.

I would now like to provide you with an overview of our recent corporate achievements. Let’s start with NATESTO. At the end of June, the U.S. license agreement with Endo was officially terminated and we kicked off our new partnership with Aytu Bioscience. Aytu hit the ground running, holding a national NATESTO training meeting at the beginning of July with their recently expanded sales team. We view this commercial collaboration with Aytu as a true partnership. Acerus intends to have regular interactions with the Aytu management team and follow their progress and assist in any way we can in order to fully maximize NATESTOs potential.

We believe as is Aytu that NATESTO is a novel and unique product in the TRT market, a true game changer. We also believe that it will take a focused and efficient effort over a sustained period of time to get NATESTO effectively launched. We hope to be in a position to report on the successes and market penetration by late fall. In Canada, we’re on track for a NATESTO launch scheduled for next month. We’re in the last stages of recruiting our sales team and our first shipment of NATESTO has arrived at a Canadian distribution center. We look forward to bring NATESTO to the many Canadian patients who will benefit from its unique features and making the Canadian launch a great success.

Now on to ESTRACE, we continue to report strong sales growth for the brand with 5% increase in the second quarter 2016 over second quarter 2015 and 10% increase year-to-date versus the same prior year period. The previously approved third party generic version of ESTRACE is now available in Canada and has obtained public reimbursement in the major provinces across the country as of July. As discussed on previous calls, we believe we’re well prepared to meet the challenge that the introduction of a generic estradiol will bring to our business. In fact, we’ve already taken key actions to try to mitigate this impact. The goal we’re striving to achieve is to deliver similar ESTRACE contributions this year as we did in 2015 despite the introduction of a generic competitor.

From a business development perspective, we’ve made significant progress on a number upfront. With respect to out licensing of NATESTO to markets outside of Canada and the U.S., we are currently evaluating multiple term sheets from interested companies primarily in Europe and South America. We hope to be able to conclude one or two additional NATESTO deals by the end of the year. We are also pursuing other assets to end license for Canada and in this regard we have submitted multiple term sheets for products that would align with our current portfolio.

Regarding GYNOFLOR, we intend to hold the pre-new drug submission meeting with Health Canada before the end of the year and submit the regulatory files shortly thereafter. Lastly we welcome the new member to our Acerus Board of Directors in July, Mr. Luc Mainville. Luc brings considerable senior management and finance experience in the Biotechnology and Pharmaceutical industries. I personally look forward to working closely with him as we continue to execute on our strategic plan.

I will now ask Ora [ph] to provide you with our financial update.

Unidentified Company Representative

Thanks, Tom and good morning everyone. I’m pleased to be joining in today. In my comments that follow, please note that all dollar amounts are expressed as U.S. currency unless otherwise stated. And that standard IFRS measures, as well as certain non-IFRS measures are used. Such non-IFRS measures do not have a standardized meaning prescribed by IFRS and may not be comparable to similar measures presented by other issuers.

These measures are provided as additional information to complement those IFRS measures set out in the financial statements of the Company, and provide further understanding of the Company's results of operations from management's perspective.

Accordingly they should not be considered in isolation nor as a substitute for analysis of the Company's financial information reported under IFRS. Management uses these non-IFRS measures to provide investors with a supplemental measure of our operating performance, and thus highlight trends in our core business that may not otherwise be apparent when relying solely on IFRS measures.

We also believe that securities, analysts, investors and other interested parties frequently use these measures to value issuers. We also use non-IFRS measures to facilitate operating performance comparisons from period-to-period to prepare annual operating budgets and to assess our ability to meet our future debt service, capital expenditure, and working capital requirements.

Now the results; for the three months ended June 30, 2016, Acerus reported net revenues of $10.6 million, versus $10.4 million for Q1 2016 and $2.7 million for Q2 2015. Total revenues were comprised of CAD2.7 million of ESTRACE sales, which represents a 7% increase in ESTRACE net revenues over Q1 2016 and 5% over the second quarter in the prior year.

ESTRACE sales for the six months ended June 30, 2016 were CAD5.3 million, which is a 10% increase over the same 2015 comparable period. Of this growth 5% is due to volume increases and the remaining 5% due to price increases taken in various provinces. Our net revenue figures also reflect the remaining amortization of the $25 million up front license fee received from Endo for the commercialization rates for NATESTO for a total of $8.5 million in each quarter in 2016.

In April, we entered into a license and supply agreement with Aytu Bioscience Inc., pursuant to which Aytu will commercialize NATESTO in the United States following the product returning to the company on June 30, 2016. The transaction included $8 million upfront licensing fee of which $2 million was paid on signing and the reaming $2 million to be paid in September and $4 million in January. The full amount of the upfront fee has been accrued as deferred revenue on the balance sheet and the related royalty expense of $1.4 million has been recognized in cost of goods.

Research and development expenses for the quarter were $0.4 million compared to $0.7 million in the prior year second quarter. The higher expenses in 2015 were chiefly a result of professional fees and clinical trial cost incurred related to the U.S., twice daily dosing clinical trial for NATESTO.

Selling, general and administrative expenses for the second quarter 2016 were $1.5 million compared to $1.7 million in the comparable prior year period. The decrease is mainly a result of lower compensation cost due to a reduction in the number of employees and reduced professional fees offset by higher business development cost related to the signing of the Aytu agreement.

Second quarter adjusted EBITDA, a key metric in assessing our business performance increased to $0.1 million compared to negative $0.4 million in the same prior year period. Adjusted EBITDA for the six months ended June 30, 2016 increased to $0.4 million compared to negative $0.6 million in the comparable 2015 period. This improvement is primarily due to lower expense level and the positive contribution from the sales of ESTRACE.

Basic and diluted earnings for the three and six months ended June 30, 2016 was $0.03 and $0.06 per share respectively. Our balance sheet has significantly strengthened during the quarter due to the recognition of the remaining amounts of the Endo deferred revenue, $4.3 million in principal repayments on our senior debt and the conversion of the Endo prepaid inventory balance into a four year promissory note.

As of June 30, we currently have $3.7 million of principal and $0.4 million in financing fee outstanding on our senior debt. We have $6 million of the Aytu upfront payment still to be received and the cash balance was $5.5 million, reflecting a decrease of $0.7 million from March 31, 2015.

On a final note, the financial information provided on today's call and in the press release issued earlier is in summary form. Interested parties are encouraged to review the company’s quarterly SEDAR filing as it will include in addition to the unaudited condensed financial statements, the accompanying notes to the financial payments and management’s discussion and analysis or MD&A document. You can find these documents posted on the Investor Page of our corporate website as well as on SEDAR.

This concludes my comments, Tom back to you.

Tom Rossi

Thank you very much, Ora [ph]. In summary, Acerus delivered another quarter of notable financial results with good growth in product revenues and a significant strengthening of its balance sheet. We are optimistic as we enter the second half of the year with important callus ahead, which could potentially create substantial value for Acerus and the shareholders.

Firstly, Aytu has now began promoting NATESTO in the U.S. to targeted healthcare professionals. And we hope to start seeing some pick up of prescription volume in late fall. Second, we are gearing up for the launching NATESTO next month and the team is tremendously excited about breaking this novel treatment option to the Canadian market. Third, we hope to be in the position to conclude another NATESTO out licensing deal by year end and bolster our current Canadian product portfolio by end licensing asset that are strategically aligned.

Finally, we will continue to defend our ESTRACE business and try to limit any origin of sales from the introduction of the third party generic version in order to deliver gross margins similar to those achieved in 2015.

This concludes our prepared remarks. I’d like to now turn it over to Wayne for questions.

Question-and-Answer Session

Operator

Thank you. We will now take questions from the Equity Research Analysts that cover the Company. [Operator Instructions] We do have a question from Joseph Walewicz from LBS. Please go ahead.

Joseph Walewicz

Good morning, that is LBS actually, but just a quick question for you guys, regarding the launch of NATESTO this fall and maybe a little bit about the re-launch in the U.S. First, you are starting in September, just wondering what kind of major conferences coming up and what your plans are and activities surrounding that and just broadly speaking and then second, just if you could comment just in terms of size of the sales force, you are expecting putting out right away or is it going to be a scaled launch, ready going all out at the beginning just wanted to know a little more there. And then finally, in the U.S., you had a chance to join the national sales meeting for the Aytu people, any additional color there and I'll just leave it there. Thanks.

Tom Rossi

Good morning, Joe. Thank you for your questions. First, regarding NATESTO in Canada and upcoming conferences, so we attended the Canadian Neurology Association meeting in June, in Vancouver where we had a boost and which was well attended by the neurologists that attended the meeting. There is an upcoming endocrinology conference as well in October, which we hope to attend. Our strategy really is going to be to focus primarily on hypo-scribing urologists and endocrinologists, as well as a small subset of general practitioners who are hypo-scribers of testosterone replacement products. So, all of our activities will be geared and will be targeted towards this prescriber population.

As far as sales reps, we are now in the last stages of recruiting our sales force together with Impres Pharma. This will be a contract sales force, which will be completely dedicated to NATESTO, which we will manage, which we will recruit together with Impres Pharma and the intention is to have representation in all of the major provinces being Quebec, Ontario, British Columbia and Alberta, which make up over 92% of prescriptions in Canada.

As far as the U.S. launch, yes, we did attend the launch meeting, the Aytu launch meeting in the U.S. in Phoenix. It was a very well-planned meeting, very enthusiastic and what we're hearing at least anecdotally from the last weeks while the reps have been on the field is that the message is being very well received and certainly as soon as we have anything else that we can share from the launch in the U.S., we will share with our investor base and shareholder base here in Canada. But as you can appreciate before we start seeing any type of prescription pick up, it will require a number of face-to-face calls with physicians. This is why in my prepared notes I mentioned that we should expect to be in a position to report on prescription volumes probably in late fall.

Joseph Walewicz

Perfect. Yeah. Thanks for the update.

Tom Rossi

Thank you very much, Joe.

Operator

Thank you. [Operator Instructions] There are no further questions registered at this time. I would like to return the meeting to Mr. Rossi.

Tom Rossi

Thank you, Wayne. And thank you very much for your question, Joe, and for all of you on the call. Thank you for your time and your continued support. I wish you all a good rest of the week. Thank you.

Operator

Thank you. The conference has now ended. Please disconnect your lines at this time. We thank you for your participation and have a great day.

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