Start Time: 16:30 January 1, 0000 5:03 PM ET
Synergy Pharmaceuticals, Inc. (NASDAQ:SGYP-OLD)
Q4 2017 Earnings Conference Call
March 01, 2018, 16:30 PM ET
Troy Hamilton - CEO
Gary Gemignani - CFO
Gem Hopkins - VP of IR and Corporate Communications
John Newman - Canaccord Genuity
Derek Archila - Oppenheimer
Liav Abraham - Citi
Greetings, and welcome to Synergy Pharmaceuticals Fourth Quarter and Full Year 2017 Webcast and Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions]. As a reminder, this conference is being recorded.
I would now like to turn the conference over to Synergy’s Vice President of Investor Relations and Corporate Communications, Gem Hopkins.
Good afternoon and thank you for joining us for the Synergy Pharmaceuticals fourth quarter and full year 2017 earnings call. During today's call, we will be walking through a slide presentation. If you haven't received the slide deck already, please make sure to visit the IR page of our corporate Web site at www.synergypharma.com to download a copy or follow along on the webcast.
I’d like to remind you that during the course of today's call, management will make projections or other forward-looking statements regarding anticipated future events or the future financial performance of the company. It's important to note that such statements and events are forward-looking and reflect our current perspective of the business trends and information as of today, Thursday, March 1, 2018.
Actual results may differ materially from current expectations and projections depending on a number of factors affecting the Synergy business. These factors are detailed in our periodic public filings with the Securities and Exchange Commission. Synergy disclaims any intent or obligation to update these forward-looking statements, except as expressly required by law.
Joining us today on the call are Troy Hamilton, our Chief Executive Officer who will provide an update on the business and the TRULANCE launch; and Gary Gemignani, our Chief Financial Officer who will discuss our 2017 financial performance and go-forward priorities. Troy will then turn the call over to the operator for questions. We also have Marino Garcia, our Chief Strategy Officer and Dr. Patrick Griffin, our Chief Medical Officer available for the question-and-answer portion of the call.
With that, I will turn the call over to Troy.
Thank you, Gem, and thank you everyone for joining us this afternoon. Before I start with the fourth quarter and full year results, I want to thank our Synergy colleagues for their hard work and accomplishments.
2017 was a great year, a year with challenges and opportunities as we evolve our business from an R&D organization to a commercial organization launching our first product. I’m proud that our team has remained focused on our core mission to deliver long-term value to our patients, customers and shareholders.
The strong results we reported today and in our first few quarters as a commercial organization reflect the team’s success in executing on the key initiatives that support our mission.
These key initiatives or business priorities, which we will discuss a little bit later, include optimizing our high-value asset TRULANCE, ensuring a strong financial foundation and continuing to evaluate all opportunities that allow us to achieve or help achieve our commercial and corporate objectives.
The licensing deal we just entered with Cipher Pharmaceuticals for TRULANCE in Canada is just the first example of our commitment to provide the potential benefit of TRULANCE to more patients. And we are very excited to partner with Cipher Pharmaceuticals and their highly experienced management team.
Moving forward, we will continue to explore opportunities to not only maximize TRULANCE but also our second wholly-owned asset dolcanatide. To that end, we were pleased to announce today the amendment to our CRG debt agreement which provides more financial and strategic flexibility during this critical and dynamic period. And Gary will provide more details on that later. So, we will continue to work hard to deliver strong results and communicate our progress to you along the way.
2017 was marked by solid execution on many, many fronts. We started the year with the FDA approval and launch, of course, of our first product TRULANCE for the treatment of adults with CIC. Following our launch in late March, we continued to drive strong customer demand with total prescription volume growing 70% on average month-over-month through the end of 2017.
We met or exceeded all of our primary launch objectives with our key customers, the healthcare providers, patients and payors. On the healthcare provider side, we established a strong base with key influencers and high-volume prescribers. This was a critical launch objective in 2017 and something we will be able to leverage in 2018 to accelerate further growth.
On the patient side, throughout 2017, we continued to see almost half of TRULANCE prescriptions coming from patients new to branded prescription treatment, which is very encouraging this early in the launch. This demonstrates not only the trust and confidence prescribers have in writing TRULANCE first line, but also the success of our professional and consumer promotional campaigns as well.
On the payor front, our market access team has worked really hard to remove barriers and gain more access for patients. At launch, with the largest commercial payors, we had about 35% coverage. Now, more than 85% of all commercially insured lives in the U.S. has TRULANCE coverage.
For Medicare Part D and managed Medicaid, coverage is in the single digits when we launched. Now, over 54% of all Part D and managed Medicaid lives have TRULANCE coverage. And we look forward to continuing to expand our coverage for TRULANCE, especially now that we have the IBS-C indication.
Because of the team’s efforts with our key customers, we grew fourth quarter net revenues to 9.4 million, up 88% over the third quarter. And for the full year, we reported 16.8 million in total net revenues.
And while we grew revenues, we also effectively managed our expenses highlighted by significant reduction in total operating expenses for the second half of 2017 compared to the first half of the year. This illustrates our commitment and ability to identify cost efficiencies while still ensuring strong revenue growth.
Finally, during 2017, we also successfully submitted the sNDA for IBS-C which led to our second FDA approval for TRULANCE in January 2018. The new TRULANCE label reflects the strong and remarkably consistent efficacy and safety profile that has been demonstrated across our CIC and IBS-C clinical trials that are evaluated over 4,700 patients. Bottom line, 2017 was a pivotal year for us and to really set a strong foundation for our future success.
So now, I want to take a moment to highlight some key launch metrics from 2017. So turning to Slide 5, here you can see TRULANCE prescription volume showed steady, strong growth month-over-month since launch in late March through December 2017. It is important to note that the darker orange bar is what IQVIA or IMS reports.
And you can see in the month of December, we had almost 12,000 total prescriptions. But IQVIA counts 90-day prescriptions as one prescription. If you were to convert the IQVIA data to 30-count packs using actual extended units, represented here by the lighter orange bar, you can see there were over 15,000 actual 30-count packs dispensed in the month of December, nearly a 30% difference than what was reported for the month of December.
We are seeing this trend of increasing 90-day prescriptions across the industry and we continue to believe that TRULANCE can particularly benefit from this trend because of its strong clinical profile.
Now based on IQVIA market data for the last several years, January and February have been slower months. And one big reason for that is managed care is getting reset their deductibles, coinsurance, changes in plans in general. So we did see this year the overall CIC and IBS-C market declined again in January and February.
Now fortunately, TRULANCE was able to maintain market share in both TRx and NRx and we expect to see a nice bounce back in the market in terms of volume in the March and April timeframe. And with TRULANCE now approved in both CIC and IBS-C, along with growing brand awareness and expanded market access, we have a significant opportunity to drive further growth in the coming quarters.
Now one of our key launch objectives was to establish a strong foundation with the most productive and influential prescribers. So establishing a beachhead with gastroenterologists was important not only because it’s an early indication of future growth, but they can play a pivotal role in educating other potential prescribers.
And as you can see on this slide, almost 75% of the busiest and highest prescribing gastroenterologists wrote TRULANCE in 2017. And we’re not just succeeding in penetrating the highest volume gastroenterologists.
When we look at penetration of the top three deciles that include all high prescribing healthcare providers, so primary care physicians, nurse practitioners, physician assistants and gastroenterologists, you can see that according to IQVIA, TRULANCE is outperforming other similar launch analogs that they have evaluated.
Overall, our ability to establish the foundation with the most productive prescribers is a testament to not only the strong TRULANCE product profile but to the hard work and excellent execution of our commercial and medical affairs organization, and now we must continue to grow not only with the most productive prescribers but increased penetration with additional prescribers as well. And we will do that because of our talented and highly experienced sales force supported by strong internal teams.
In fact, we are very encouraged by the rep productivity we have seen in our first 10 months launch-aligned with the most recently launched competitor. When looking at the IQVIA launch-aligned data and total prescriptions per rep or total prescriptions per FTE, our 220 sales representatives were more productive.
And it’s even more impressive because we had multiple competitors with just one indication and we dealt with a different managed care environment. So we are confident that this productivity will continue now and in the future. So 2017 was a great year and it really set the foundation.
Now moving forward, let’s look at 2018 key business priorities. They fall into three buckets, as you can see here on Slide 8. The first business priority is optimizing the value of TRULANCE, and that is grounded in creating demand and growth.
We continue to grow market share in CIC and we will look to accelerate TRULANCE uptake with the IBS-C indication and with our newly integrated sales force and they will continue to utilize a strong message platform and of course additional support from our internal teams to differentiate TRULANCE with our prescriber base.
Now in terms of direct to consumer or DTC advertising, we believe TRULANCE has the ideal profile for that approach. However, and we’ve said this before, it is imperative that you hit certain brand awareness and market access objectives before you start large-scale DTC or TV advertising.
We continue to access this opportunity and will plan to launch at the appropriate time. Now in the meantime we are continuing with our more focused direct to patient advertising approach to help educate those patients that are already Rx ready.
Regarding market access, our overarching payor focus is simply to maximize and expand coverage for TRULANCE by executing in three areas. First, we need to pull-through our wins. And part of the pull-through is to continue to provide support to patients through coupons and co-payor systems and other patient access programs.
Second, we need to continue to improve our national, commercial and Part D coverage and we are in active discussions with key plans now to expand our access in 2018 and into 2019 and having – I can tell you having both indications is very helpful.
And finally, it is important to identify key regional, commercial and Medicaid plans where we could not only expand coverage but also coordinate specific sales force-related pull-through activities to drive share.
Our second business priority is to ensure a strong financial foundation. Gary will discuss in more detail our commitment to deliver on this very important priority through continuing to achieve cost efficiencies and maintaining disciplined expense management while prioritizing investments in top line growth drivers and by ensuring continued access to capital and financial flexibility.
And the third priority, we are aggressively looking to execute on value-enhancing business development transactions. That includes potential partnering, co-promotes, in-licensing of assets that leverage our existing infrastructure and GI expertise. All options are on the table of being explored.
Again, the recently announced Canadian licensing transaction with Cipher Pharmaceuticals is just the first step as we continue to look for other ex-U.S. opportunities to provide the potential benefit of TRULANCE to more patients.
But as we focus on our financial foundation and strategic options, we must continue to drive growth and demand for TRULANCE. And the entire Synergy team is committed to do just that and deliver on our mission to maximize long-term value to our patients, customers and shareholders.
With that, I will now turn the call over to Gary to provide a financial update. Gary?
Thank you, Troy. As Troy mentioned earlier, 2017 was a transformative year for Synergy and we delivered solid operating results in our first few quarters as a commercial organization.
Since the launch of TRULANCE in late March, we’ve continued to drive demand in TRULANCE with net sales of 9.4 million in the fourth quarter, an 88% increase over the third quarter resulting in full year revenues of 16.8 million for 2017. Included in our fourth quarter net revenues is approximately $1.9 million of sales previously recorded as deferred revenue.
For the full year 2017, we reported total operating expenses of $207 million, excluding 22.7 million of stock-based compensation. All operating expenses discussed today exclude stock-based compensation expense. For a reconciliation of our GAAP to non-GAAP measures, please go to our presentation that has been posted to the IR section of our corporate Web site.
When you look at 2017 total operating expenses, the first half of the year reflects our commercial build and launch expenses for TRULANCE along with R&D investments primarily related to the IBS-C program. You may recall when we hosted our Business Update Call in September 2017, we said we were evaluating opportunities to improve cost efficiency measures while continuing to focus investments in key commercial activities that drive TRULANCE demand.
Looking at the second half of 2017, you can see we achieved a 26% reduction in total operating expense. Now this includes the winding down of R&D and initial launch investments, but it also reflects the results of our ongoing efforts and ability to effectively reduce our overall operating expenses by achieving cost efficiencies throughout the company, prioritizing investments in key top line growth drivers along with disciplined expense management.
When looking at our fourth quarter total operating expense then, we achieved a 13% reduction compared to the third quarter, again highlighting our continued focus and commitment to deliver on our key business priorities and ensuring a strong financial foundation. We ended the quarter with approximately $137 million of cash and cash equivalents on hand.
In terms of ensuring continued access to capital and financial flexibility, we were pleased to announce today that we successfully amended our debt facility with CRG. Our goal for amending this debt facility was to enhance our financial and strategic flexibility. The amended debt facility accomplishes this in two ways.
First, we reduced the total amount of commitment from $300 million to $200 million as the decline in the company’s market capitalization resulted in uncertainty in our ability to meet the requirements to drawdown on the original third and fourth tranches. We decided to forego access to those additional two tranches of up to $100 million in exchange for more flexible terms around the original second tranche.
We’ve amended that second tranche borrowing structure which originally required us to drawdown the entire $100 million in one tranche by February 28, 2018. The amendment allows for us to access the $100 million in three sub-tranches with no minimal cash balance requirement as follows; $25 million by June 30, 2018; $25 million by September 30, 2018 and $50 million by December 31, 2018.
This phased approach is critical as it allows the company to drawdown on funds as needed without incurring excess interest expense and subjecting the company to additional prepayment penalty.
We ended 2017 with a solid cash position, we have access to additional capital through the amended debt facility and this provides us with flexibility to evaluate and pursue the strategic and financial options that are available to us.
Our 2017 fourth quarter and full year operating results demonstrate our ability to effectively manage expenses, while still driving top line growth. While we are not providing sales guidance at this stage, we remain encouraged by the initial sales trajectory of TRULANCE and are continuing to evaluate all strategic opportunities to accelerate further growth.
With respect to operating expenses, while there is always variability quarter-to-quarter, we are forecasting our 2018 total operating expenses, excluding stock-based compensation, to be in a range of $175 million to $185 million, a reduction of 10% to 15% as compared to 2017.
As Troy mentioned earlier, our primary focus in terms of capital allocation remains on driving continued growth and uptick of TRULANCE. We are continuing to prioritize commercial investments in key areas that deliver the highest returns and growth to the company’s top line. This includes our commitment to our sales force.
We completed the rollover of our contract field force this quarter as planned to coincide with our IBS-C approval. Aside from some initial upfront costs, we expect the impact of the rollover to be cost neutral with the potential for longer term cost savings. We remain confident that we have the optimal sales force size to successfully execute on our launch strategy.
On the R&D front, we are currently focusing our investments on post-marketing commitments for TRULANCE while we continue to evaluate value-enhancing, in-licensing or partnering opportunities. This includes opportunities to advance dolcanatide development.
We continue to focus on driving TRULANCE growth, executing on value-enhancing BD opportunities and ensuring we remain disciplined in our capital allocation while prioritizing investments that deliver the highest return, all part of our commitment to achieve profitability as quickly as possible.
While we have no plans to commercialize TRULANCE outside of the U.S. ourselves, the licensing deal we just closed with Cipher Pharmaceuticals for TRULANCE in Canada demonstrates our commitment to maximize the potential benefit of TRULANCE globally.
Under the terms of this agreement, we received $5 million upfront and are owed an additional milestone payment upon TRULANCE approval in Canada and subsequent royalty payments on net sales, which are not being disclosed for competitive reasons. We are continuing to evaluate additional ex-U.S. opportunities for TRULANCE and look forward to building further on this transaction in the future.
With that, I will now turn the call back over to Troy for closing remarks.
Thanks, Gary. Again, we are very encouraged by what we accomplished in 2017 as we established a strong foundation for future growth and success. I will close by emphasizing our confidence and continued focus on our three key business priorities of first growing and optimizing TRULANCE, ensuring a strong financial foundation and to execute on value-enhancing business development opportunities.
I will now turn it over to the operator for questions. Thank you.
At this time, we will be conducting a question-and-answer session. [Operator Instructions]. Our first question comes from the line of John Newman from Canaccord. Please proceed with your questions.
Hi, guys. Thanks for taking the question and good progress, obviously keeping the nose to the grindstone. Just had a couple of questions. The first one is, would there be a point in time when you would consider bringing some of the contract sales force in-house? And the second question I had was, I know in the past you’ve given a little bit of color about the gross to net trend going forward. I just wondered if there’s been anything new that’s transpired there that would sort of change the outlook. Thanks.
Hi, John. It’s Troy. I’ll start. Regarding the contract sales force, we’ve already brought them onboard. Officially, I think the date was February the 7th. We have talked about this in the past in terms of we had a hybrid approach where we had the Synergy sales leaders were brought on, kind of your regional business directors, they were heavily involved in the hiring of the contract sales force representatives. And that was very important because we were able to hire highly experienced representatives. And fortunately for us, the majority of those folks stayed with us during the transition. So that has already taken place. Part of the reason for that of course was with the IBS-C launch and they are onboard and training and out there talking to our customers. I can start with gross to net, or do you want to --?
Sure. John, gross to net, we do think the gross to net that we saw in the fourth quarter are in the higher range. However, given that gross to net can fluctuate pretty significantly especially during the launch phase, we do expect to see them to start to stabilize and more fall in line with what the range you would see in the other marketed products in this space.
And then if I could sneak in one last question. One of the things that’s always been interesting to me is that you’ve commented in the past on the percentage of prescriptions that are for brand new patients. And I’m curious if you could tell us what that has been looking like, if you’re still – if you have still been maintaining a very appreciable share of new patients? Thanks.
Yes, as I mentioned earlier, we’ve seen consistency from launch. Almost half of our patients still are new to therapy. Now that’s a positive for several reasons. First is I think as we have the opportunity to educate clinicians, they hear the message and they’re comfortable with writing TRULANCE first line. These are 50% and I think that’s a really telling number in terms of not only what our representatives are able to do but also I think it talks to the clinical profile of the product as well. So, John, that has been consistently around 50% since we launched.
Great. Thank you.
Our next question comes from the line of Derek Archila from Oppenheimer. Please proceed with your questions.
Hi, guys. Congratulations on the quarter and thanks for taking my questions. Just I guess first question for Gary. As we think about the amended debt agreement, access to that extra $100 million, do you kind of view that as something that you needed to get to breakeven, or I know you had thrown out kind of year-end 2019 breakeven guidance. So just want to better understand how firm that is still. And then also just – I want to understand. So it sounds like the 4Q SG&A number did not have the sales force in-house yet. I just want to understand if those – what amount of those costs were already in that number? Thank you.
Sure, Derek. So regarding the amended agreement, we do view it as a positive. Our goal for amending the agreement was really to enhance the financial and strategic flexibility as I think this new agreement does accomplish or amended agreement does accomplish. I think as we ended the 2017 year with a solid cash position and having access to the capital, the additional $100 million in capital throughout 2018, it does give us the flexibility, as Troy mentioned, to pursue other strategic alternatives. We obviously just did the Canadian deal. I think that’s a good example of those types of opportunities and other what I’ll call sources of financing that we can gain through strategic alternatives and options.
And the other question about the CSO, with the exception of some upfront costs, for the most part, the expenses are very similar. And in fact in the future, there could even be cost savings. So we already had expenses for the CSO reps during that timeframe. That didn’t stop. We basically just converted them over in the February timeframe. We have some upfront cost initially but we do not see a difference in the coming quarters in terms of that expense whether they’re CSO reps or in-house.
And I think the way to view that is a bit of a tradeoff between the fees we would pay to publicists and building out a little bit more infrastructure within Synergy.
Great. Thanks, guys.
Our next question comes from the line of Liav Abraham from Citi. Please proceed with your question.
Good afternoon. I understand that you’re not providing revenue guidance but perhaps you can speak qualitatively to how we should think about the growth trajectory in the scripts going forward? You recently got the second indication on the label. We haven’t seen that much shift in weekly script growth yet. When should we see that? What are you guys hearing from physicians and what kind of inflection should we see?
And then on the expenses, maybe you can comment a little bit about where these efficiencies are coming from and just maybe confirm that they are not going to compromise in any way revenue growth in 2018? And then just lastly on the amended loan agreement, can you just confirm that the same revenue covenants, as they were previously, still apply to this amended agreement? Thank you.
This is Troy. Thanks, Liav. Let me first address your original question about the IBS-C indication, growth, et cetera. I think one of the things I want to reflect on, I mentioned this before. We looked at the IQVIA market data for the last several years and January and February have – they’ve been slower months. And the big reason for that is managed care. It does get reset. There are deductibles, coinsurance, changes in plans in general and we saw that again in January and February. Now fortunately we were able to kind of battle through that and we maintained market share. But we do expect just like we’ve seen in the IQVIA data in the past, the volume to come back in March and in April. So I think there are three or four things I think that add to the opportunity here for us to see continued growth.
I do think the IBS-C indication is one of them. It is a new indication. We want to have fresh promotional materials. We will have new data to share with the HCPs as well. They just got trained in terms of the messaging that just happened a few weeks ago. So I think that coupled with expanded coverage, as I mentioned, we now have 85% coverage in terms of commercial lives. We’re now over 50% with Part D and with managed Medicaid. And I can tell you that that’s really good considering we’ve been on the market for 11 months. We’re going to try to leverage that expanding coverage along with that new indication to continue to see those trends moving forward.
And regarding the cost efficiencies and where we’ve been able to obtained them from, as we said in previous calls, we’ve continued to look at finding ways of just being more efficient quite frankly and how we go about things, whether it’s just through our procurement process looking at multiple bids, looking at where we’ve been paying consultants versus doing things in-house, also looking at ROI on different investments.
We’ve – with few quarters of experience under our belts, we’re able to really deploy the investment into those areas that have a higher rate of return. And those typically are investing in the sales force and we continue to invest in order to not impact the top line. We continue to invest in driving demand which is evident by the gross to net as we talked about earlier. So I think that is where we’ll continue to spend our money and we’ll look to find – continue to find ways of keeping spend down outside of what’s driving the top line and giving us the best return on investment.
Regarding the sales covenants, there are no changes to the covenants in the amendment related to the original. So they stay the same.
Thank you very much.
Ladies and gentlemen, we have reached the end of the question-and-answer session. I would now like to turn the call back over to Troy Hamilton for closing remarks.
Thank you for your questions and for joining this afternoon. We look forward to keeping you updated on our continued progress as we move ahead. So have a great evening.
This concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation.