Opiant Pharmaceuticals, Inc (NASDAQ:OPNT) Q2 2019 Earnings Conference Call August 8, 2019 4:30 PM ET
Lisa Sher – Senior Director of Investor Relations and Communications
Roger Crystal – Chief Executive Officer
David O'Toole – Chief Financial Officer
Conference Call Participants
Brandon Folkes – Cantor Fitzgerald
Carl Byrnes – Northland Capital Market
Greetings, and welcome to the Opiant Pharmaceuticals Second Quarter 2019 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.
It is now my pleasure to introduce your host, Lisa Sher, Senior Director of Investor Relations and Communications. Please go ahead.
Thank you, operator, and thank you all for joining us this afternoon. I’m excited to have recently joined Opiant Pharmaceuticals to lead Investor Relations and Communications along with Opiants Chief Executive Officer, Dr. Roger Crystal and Chief Financial Officer, David O'Toole, who are on the call with me today.
This afternoon, open issued a press release announcing financial results and providing a corporate update for the second quarter ended June 30, 2019. Please note that certain information discussed on the call today is covered under the safe harbor provision of the Private Securities Litigation Reform Act. We caution listeners that during this call, Opiant management will be making forward-looking statements. Actual results could differ materially from those stated or implied by these forward-looking statements due to risks and uncertainties associated with the company’s business.
These forward-looking statements are qualified by the cautionary statements contained in Opiant’s news releases and SEC filings, including in our annual report on Form 10-K for the year ended December 31, 2018, and subsequent filings. This conference call also contains time-sensitive information that is accurate only as of the date of this live broadcast, August 8, 2019. Opiant undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this conference call.
Now I’d like to turn the call over to Roger.
Thank you, Lisa. We are thrilled to have you join Opiant as we expand interactions with existing shareholders and our outreach to new potential investors and analysts. To everyone on the call with us, thank you for joining.
I’d like to begin with a brief overview of Opiant for those of you who may be new to the story. Our mission is the development of best-in-class medicines to treat addictions and drug overdose. Our programs are well funded from a revenue stream by royalties from the sales of NARCAN Nasal Spray and government brands from the NIH, in particular, NIDA and BARDA. We developed NARCAN Nasal Spray to reverse opioid overdose and license it – it licensed it to Adapt Pharma in 2014. Emergent BioSolutions, or EBS, acquired Adapt at $735 million in 2018, highlighting the value of NARCAN Nasal Spray. Recently, it has been reported that deaths from opioid overdose may have started to decline, which we here at Opiant, welcome. It is believed that this initial decline is largely due to the widespread use of NARCAN, and here at Opiant, we are very proud to have led its development.
Nevertheless, the opioid crisis continues to ravage America, and our work here is not done. The proportion of opioid overdose deaths from fentanyl and other synthetic opioids continues to rise. And there are over 2 million people in the U.S. suffering from opioid addiction. Therefore, opioid overdose remains a significant public health crisis and one that really has evolved into extension of crisis. It is now easier to obtain fentanyl and prescription opioids. And in 2017, with the 48,000 opioid overdose deaths, 55% was fentanyl related. While access to naloxone is critical to save lives, a substantial need exists stronger length – longer-acting opioid antagonists due to the rapid increase in fentanyl-related opioid overdoses.
We are developing OPNT003 nasal nalmefene to help address this issue. The data generated to date supported being more potent and longer-acting than naloxone. I’ll provide an update on its status later in the call. The royalties we received from the net sales of NARCAN Nasal Spray are used to advance our pipeline. A recent driver of our growing royalty from NARCAN sales is the increase in co-prescribing laws now present in nine states. This means that the patients receiving an opioid prescription would also receive a prescription for NARCAN. This has been primarily implemented when patients are considered at higher risk of an opioid overdose. For example, when they also receive prescriptions for sleeping medication alongside an opioid. Recently, New Mexico required naloxone co-prescribing alongside every single opioid prescription of five days or more duration.
Moving on to our pipeline. First, I’d like to discuss Drinabant, OPNT004 are Acute Cannabinoid Overdose program, or ACO, where we recently expanded our partnership with Sanofi. We in-licensed Drinabant for the treatment of ACO from Sanofi in December, 2018, and we recently expanded our relationship to include the drugs manufacturing by Sanofi. ACO is most often linked to the ingestion of both edibles containing large quantities of THC and synthetic cannabinoids, often referred to as K2 and Spice. These synthetic cannabinoids are more potent, easily obtained, often in local market and less expensive in cannabis-containing products. To make matters worse, these synthetic cannabinoids have even been linked to deaths when ingested alone or in combination with other substances.
According to the National Emergency Department samples, ACO resulted in over 1 million emergency department visits in the U.S. in 2016, the latest year, for which data is available. The number of reported emergency room visits for 2017 and 2018 is expected to rise with the increase in legalization of cannabis in North America. We view this indication as a substantial market opportunity for Opiant. ACO is already overburdening emergency rooms, acquiring intense monitoring and length of stay.
Sadly, many of these ER visits are from children who ingested THC-containing products, resembling cookies, candies or brownies. As the legalization of cannabis increases, we anticipate a potential cannabis crisis for which society is not prepared. Importantly, there are currently no approved treatments for ACO, and we know of no others that are currently in development. This increasing need for ACO treatment has us excited about our OPNT004 program. Drinabant has been shown to be safe and well tolerated, when taken orally. In Phase I and Phase II studies conducted by Sanofi, more than 700 volunteers and patients received oral Drinabant for up to 24 weeks.
In addition, in a study establishing proof of principal, in 36 subjects that were given oral Drinabant and then inhaled a THC, both subjective and objective effects of THC were blocked. Opiant will reformulate Drinabant as an injection, so it can rapidly reverse the symptoms of ACO in an emergency room setting. We intend to initiate formulation development studies this year and clinical trials in 2020.
With that, let me now provide an update on OPNT003. I’m pleased to report that our PK study will be underway in the third quarter, and we expect to report topline data for OPNT003 this year. Our objective remains to file an NDA next year, and we remain on track to do so. As a reminder, we have a confirmed 505(b)(2) regulatory pathway with the FDA. And therefore, a similar development pathway to NARCAN Nasal Spray.
In addition, OPNT003 has been validated by the U.S. government through a $7.4 million grant from NIDA and a contract for up to $4.6 million from BARDA. To accelerate the developments of OPNT003 as a medical countermeasure in the event of a fentanyl chemical attack. David will address the financial implications of these collective funds, but let me just say that we are very grateful to have the continued partnership with these key U.S. government agencies in its development.
Moving on to OPNT002. Nasal naltrexone, which we’re developing for Alcohol Use Disorder, or AUD, we have initiated the formulation selection study and begun preparations for a Phase II study, and expect to begin enrolling patients later this year. We continue to anticipate the completion of the Phase II study by the second half of 2020.
As a reminder, longer term, with a personal life essentially identical to naloxone – yes, with greater potency than naloxone, OPNT002 may also have potential as a treatment for opioid overdose. In addition to advancing our pipeline, we are busy telling our story to both industry leaders and the investment community. From an industry perspective, Dr. Phil Skolnick, our Chief Scientific Officer, presented a discussion on the development of Intranasal Nalmefene at the developing medical countermeasures to rescue Opioid-Induced Respiratory Depression Meeting sponsored by NIDA on August six.
In addition, over the next few months, David and I will have the opportunity to present the Opiant story to institutional investors at conferences that include events sponsored by Wells Fargo, H.C. Wainwright and Cantor Fitzgerald. Additionally, I will be presenting at the 10th Annual CNS Summit in Boca Raton, Florida.
Moreover, I’m excited to announce today that Opiant will be hosting an R&D event for investors and analysts on October 17. The agenda will be announced in the coming weeks, and we look forward to sharing further highlights of each of our programs with the investments community at this event. Finally, in support of our – sorry, finally, in support of our clinical developments program, Opiant remains in a strong financial position with cash of approximately $23.9 million at June 30, 2019, which does not include the majority of the $4.6 million BARDA contract or the remaining funds from the NIDA grant. With that, I will now ask David to discuss our financial results. David?
Thank you, Roger. I’ll begin with a brief discussion of the results for the second quarter ended June 30, 2019. We recognized $6.8 million in revenue in the three months ended June 30, 2019, compared to $3.2 million in the corresponding period of 2018. For the three months ended June 30, 2019, we recognized $6.1 million of revenue from the license agreement between us and EBS as compared to approximately $3.1 million in the comparable period of 2018. The $3 million increase in royalty revenue represents an increase of approximately 97% year-over-year, and was driven by higher net NARCAN sales of approximately $73 million in the second quarter of 2019, as reported by EBS.
G&A expenses were $3.7 million and $2.9 million for the three months ended June 30, 2019, and June 30, 2018, respectively. The increase was primarily due to a $0.9 million increase in royalty expense; a $0.2 million increase in legal, accounting and professional fees; partially offset by $0.3 million decrease in stock-based compensation expense. R&D expenses were essentially flat at $1.6 million for the three months ended June 30, 2019 and June 30, 2018. Net income for the three months ended June 30, 2019, was $1.6 million or $0.39 per basic and $0.31 per diluted share compared to a net loss of approximately $1.4 million or a loss of $0.52 per basic and diluted share in the comparable period of 2018.
Now let’s focus on the results for the six months ended June 30, 2019. We recognized $12.2 million in revenue in the six months ended June 30, 2019, compared to $4.9 million in the corresponding period of 2018. For the six months ended June 30, 2019, we recognized $9.9 million of revenue from the agreement between us and EBS as compared to $4.7 million in the comparable period of 2018. The $5.2 million increase in royalty revenue represents an increase of approximately 110% year-over-year and was driven by higher net NARCAN sales of approximately $138.5 million in the six months ended June 30, 2019, as reported by EBS.
G&A expenses were $7.4 million and $5.8 million for the six months ended June 30, 2019, and June 30, 2018, respectively. The increase was primarily due to a $1.3 million increase in royalty expense; a $0.7 million increase in legal and professional fees; a $0.4 million increase in personal and related expense, including recruiting expense; partially offset by a $0.8 million decrease in stock-based compensation expense.
R&D expense for the six months ended June 30, 2019, were approximately $5.2 million compared to approximately $4 million in the comparable period of 2018. The increase was primarily attributable to a $1.2 million increase in third-party expenses associated with our research and development programs, a $0.4 million increase in employee-related compensation expense, partially offset by a $0.4 million decrease in stock-based compensation expense.
There were no third-party license fees recorded for the six months ended June 30, 2019. We recorded $5.6 million in license fees during the six months ended June 30, 2018. These third-party license fees related to our obligation under the license agreement with EBS for certain payments made by EBS to third parties.
Net loss for the six months ended June 30, 2019, was approximately $0.2 million or a loss of $0.04 per basic and diluted share compared to a net loss of approximately $10.7 million or a loss of $4.11 per basic and diluted share for the comparable period of 2018. As of June 30, 2019, we had cash and cash equivalents of $23.9 million compared to $24.6 million at December 31, 2018. Again, the current cash balance does not include the majority of the $7.4 million NIDA grant and the $4.6 million BARDA contract.
We continue to project a cash balance of $17 million to $20 million at the end of 2019. However, this anticipated range does not include the potential one-time milestone payment of $13.5 million due to Opiant from EBS, when net NARCAN sales exceed $200 million in the 200 – in the 2019 calendar year.
Pursuant to the license agreement in the event that this milestone is achieved, EBS may reduce the amount payable to Opiant by the remaining $2.7 million of third-party license fees payable. Therefore, the net amount we will receive will be $10.8 million.
EBS recently reported net NARCAN sales for the first 6 months of 2019 of approximately $138.5 million. And they updated their guidance for full year 2019 NARCAN sales from $200 million to $220 million, upwards to two – now to $240 million to $260 million. Hence, the likelihood of net NARCAN sales reaching $200 million in either the third or fourth quarter of 2019 is extremely high. If net NARCAN sales exceed $200 million in the third quarter, we will receive the net sales milestone of $10.8 million in the fourth quarter of 2019.
Otherwise, net NARCAN sales will exceed $200 million in the fourth quarter of 2019, and we would then receive the $10.8 million net sales milestone payment in the first quarter of 2020. The receipt of the $10.8 million sales milestone in either the fourth quarter of 2019 or first quarter of 2020 will further fortify our solid financial position. In addition, as we did in the second quarter, we will have positive net income and earnings per share for the remainder of 2019.
With that, I’d like to turn the call back to Roger for closing remarks.
Thank you, David. We are excited about the growth of our company and our financial position, which allows us to continue to address, particularly in the U.S., continued addiction and drug overdose crisis, which has taken countless lives already. With a compelling late-stage pipeline that is partially funded via multiple U.S. government sources and an expanding royalty revenue base and a solid balance sheet, Opiant is well positioned operationally and financially to enhance long-term shareholder value.
With that, I will now ask the operator to open the call up for questions. Operator?
Thank you. [Operator Instructions] Our first question comes from Brandon Folkes with Cantor Fitzgerald. Please go ahead.
Hi, thanks for taking my question. And congratulations on the quarter. Firstly, are you able to provide, perhaps, any insight into what level of dates we may see when you do report 003 data related to this year? And will we get through the validation of the longer half life when the statement is released?
And then secondly, on 004, you mentioned the $1 million emergency room visits each year, and could you help us frame what percentage of those 1 million visits each year would be useful for 004?
Thank you Brandon, so firstly, in terms of the setting of timing of 003, the PK study. Yes, we will give more guidance on that, but it’s actually quite a big study, so we’ll just announce the data when it’s out rather than necessarily when the study is underway. In case that is a few weeks duration, I think it’s more likely to take this in Q4. But with, again, the data being available at same quarter.
And in terms of the longer half life, yes, that will – it’s a PK study, so obviously, we would – I would expect to see the similar half life characteristics OPNT003 that we’ve shown in our pilot data. On 004, I guess, in terms of the addressable market. Yes, I mean essentially, if someone is – we don’t have really granular data yet. One of the reasons being that this is, in many ways, quite an emerging condition that’s being better known amongst everyone.
Why do I say that because physicians, in my personal experience, having worked in the ER, when we see the patient with kind of an overdose but getting up to speed on – and then the – formally stuff you know it as a diagnosis and it takes a while, historically, because we didn’t see as many as they are around now. The point I’m getting at is, ultimately, anyone whose sufficiently unwell that is to be presenting at the ER, and therefore, not being able to manage their condition at home being brought in by others realistically, would all be suitable at this stage, as far as we can tell, for a reversal agent.
It’s something from our primary market research, certainly, supports that if their sufficiently unwell then they are a burden on the ER department. Even if they are on the mild end of the scale, but it’s still requiring observation and otherwise supportive care from an ER, like intravenous fluids and other forms of sedation, then it would be – obviously, you have an interest to rapidly reverse that. So they can be sent home safely and quicker.
Thank you. Our next question comes from Carl Byrnes with Northland Capital Market. Please go ahead.
Thank you. Congratulations, by the way. Considering EBS' guidance range of $240 million to $260 million – at the high end quarterly of $50 million to a low $60 million. Wouldn’t that place the royalty payout in the fourth quarter, the both of which you see, probably, in the 12% category with a small portion of it being at 10%? That’s the first question. Thanks.
Carl, thank you for attending the call, really appreciate it and thanks for the question. Yes, that would – based on the trends of where net NARCAN sales have been for the last two quarters. The range for the third quarter would only have to be $61 million, a little over, in order to earn the sales milestone in the third quarter, and therefore, get the payout in the fourth quarter.
To your second part of your question if their top end of the range is in the $260 million. Yes, anything over $200 million, which would be $60 million total, would be at the 12% range. And that would all be earned in the fourth quarter.
Great. Thank you. And then just from an accounting perspective, let’s assume that you get the $13.5 million milestone in the fourth quarter, which you would recognize in the fourth quarter that acts as a receive in the season in the first quarter. When would the adjustment hit? And what line item would grow – would you close up the $13.5 million and then adjust it in the expense line items to net at $10.8 million? Or would you only recognize 10.8.? Thanks.
Yes. The revenue side of it, the $13.5 million for us, when it’s recognized either in the third or fourth quarter would be the revenue line item. The expense for that – the payout of the license – the third-party license fee was recorded in the financial statements, December 31, 2018, because that is when it was actually – the obligation was recorded. And so there would be – from a P&L standpoint, there would be no reduction on the expense side.
Perfect, thanks so much.
There are no further questions. I would like to turn the floor over to Roger for closing comments.
Thank you. We are very excited about the prospects of our pipeline and significant market opportunities we are pursuing. Moreover, our R&D plans are well supported by our financial resources. Most importantly, we truly believe that the medicines we are developing have the potential to impact thousands of lives, and we are excited to continue advancing each in the clinic. As we advance our pipeline and execute on our key near term catalysts, including top line data from OPNT003, initiation of the trial for OPNT004 and continued royalties from the NARCAN Nasal Spray, we anticipate additional value creation.
Thank you for joining us today and for your interest in Opiant. We look forward to keeping you updated on our progress throughout the second half of 2019. Enjoy the rest of your day.
This concludes today’s conference. Thank you for your participation.