Correvio Pharma Corp. (NASDAQ:CORV) Q2 2019 Earnings Conference Call August 14, 2019 8:30 AM ET
Justin Renz - CFO
Mark Corrigan - CEO
David Dean - Chief Business Development Officer
Conference Call Participants
David Martin - Bloom Burton
Swayampakula Ramakanth - H.C. Wainwright
Brock Aynsley - CIBC Wood Gundy
Good morning, ladies and gentlemen, and welcome to Correvio's Second Quarter 2019 Financial Results Conference Call. There will be a question-and-answer session to follow. Please be advised that this call is being recorded at the company’s request.
I would now like to turn the call over to Mr. Justin Renz, President and Chief Financial Officer of Correvio. Please go ahead, sir.
Thank you. Good morning and welcome to our second quarter 2019 earnings call. With me today are Dr. Mark Corrigan, our Chief Executive Officer and Mr. David Dean, our Chief Business Development Officer. On the call today, Mark will provide an overview of recent corporate developments, and then I will highlight some of our second quarter 2019 financial results. Mark will then provide some summary remarks. We will then open the call up for your questions.
Earlier this morning, we issued a press release detailing Correvio’s results for the second quarter of 2019. The release is available on our website at www.correvio.com.
Before we begin our formal comments, I'll remind you that various statements contained during this conference call relate to future results, events and expectations and are forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995 or forward-looking information under applicable Canadian securities legislation. Forward-looking statements or forward-looking information involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the company or industry results to be materially different from any future results, performance or achievements expressed or implied by such statements.
These forward-looking statements include, but are not limited to the timing and outcome of any decision by the FDA on a resubmitted Brinavess new drug application, the timing of the FDA’s advisory committee meeting, the timing of the launch of Brinavess in the US in the event of an FDA approved the Brinavess NDA, the possibility of obtaining an extension to the Brinavess patents in the US, the potential for a transaction involving Brinavess, the size of the market opportunity for Brinavess in the US, the willingness of hospitals to embrace the use of Brinavess in the US, the timing of the submission of the MAA for Trevyent in Europe, and the timing of the launch of the product to the MAA be granted, the possibility of gaining regulatory clarity for Brinavess from the China FDA later in 2019, the sufficiency of our current funding to extend our cash runway into mid-2020 and to fully execute on the US Brinavess opportunity as well as the predicted financial results for any upcoming time periods.
A detailed discussion of the risks and uncertainties facing Correvio are discussed in our annual and quarterly reports and detailed from time to time in other filings with the SEC and Canadian securities regulators.
With that, I will now turn the call over to Dr. Mark Corrigan. Mark?
Thanks, Justin and thank you to everyone for joining us on today's call. Starting now, with slide 3, the first updates I'd like to highlight today relate to Brinavess, or intravenous Vernakalant, our antiarrhythmic for the rapid conversion of recent onset atrial fibrillation to normal sinus rhythm in patients with significant heart failure -- without significant heart failure, sorry about that.
Brinavess is currently approved in 41 countries and is marketed over 30 countries, including most of Europe and Canada. Brinavess works through a combination effect on cardiac potassium and sodium currents, resulting in substantial antiarrhythmic effects that are mainly concentrated in the atria, rather than involving ventricles. The key benefits of Brinavess include the easy administration, rapid action, high conversion rate, and superior tolerability compared to other approved pharmacotherapies.
Turning now to slide 4, following possible discussions with the FDA in October 2018, we submitted the Brinavess NDA during the second quarter of 2019. The NDA was accepted by the FDA in late July, and a target action date under the PDUFA Act was assigned for December 24, 2019. We expect the regulatory review period for Brinavess will be six months. So it is possible, we could receive a decision from the FDA during the fourth quarter of 2019, following a likely advisory committee hearing.
Regarding our US intellectual property stake for Brinavess, we've received independent regulatory and legal opinions that Brinavess may qualify for the maximum five year patent extension in the US, significantly lengthening Brinavess’ exclusive commercial rights into March 2031. If Brinavess is approved by the FDA, we anticipate working with the US Patent and Trademark Office to secure this formal extension, which we believe will have substantial positive implications for Brinavess’ commercial potential.
The recent advancement of Brinavess since the NDA phase has also opened up the potential for strategic transaction around this asset. In addition to this regulatory progress, on slide 5, we have an overview of some other important Brinavess highlights. In late 2018, reported top line results from SPECTRUM study. SPECTRUM was conducted as part of follow up measures agreed to with the European Medicines Agency in 2010. In this perspective and retrospective observational registry, 1,778 unique patients receiving a total of 2009 treatment episodes enroll to evaluate and obtain data on patients administered Brinavess.
The data for SPECTRUM was provided by 53 participating hospitals in the EU, and demonstrated the treatment with Brinavess successfully converted 70.2% of all atrial fibrillation patients into normal sinus rhythm. Even with Brinavess, showed a medium time to conversion of 11 minutes from the start of the first infusion among patients who successfully converted, most of them were successfully discharged from the emergency departments.
With respect to the safety results, the cumulative incidence of health outcomes of interest defined as significant hypotension, ventricular arrhythmia, atrial flutter, or bradycardia, were reported in less than 1% of patients. 28 serious adverse events reported for 26 patients and no deaths reported in the study. SPECTRUM data has been selected for presentation at the upcoming European Society of Cardiology 2019 Congress in September in Paris. We're also in the process of submitting the SPECTRUM data to a leading medical journal, with the goal of publication in 2020 to coincide with the potential Brinavess launch.
Since its approval in Europe eight years ago, numerous prestigious investigators and institutions have studied Brinavess in both investigator sponsored and post marketing approval studies across many countries in Europe, Scandinavia and South America, having extensive data about its use in real world clinical settings. As we await the FDA’s decision on Brinavess, we can proudly say that today, approximately 55,000 patients have been treated with Brinavess, not including the patients treated in the SPECTRUM study.
Turning now to slide 6, the market opportunity for vernakalant in the United States is substantial. Market research recently conducted by a top tier independent research firm, on behalf of Correvio concluded that atrial fibrillation is both common and growing rapidly. Today, there are 7.1 million Americans who experience atrial fibrillation each year, and that number is expected to grow to 9.8 million by 2030. Of those, over 0.5 million are treated with cardioversion.
If approved, we believe Brinavess would address many of the real world limitations of existing pharmacotherapy for cardioversion and electric cardioversion. The other pharmacologic agents that are currently available are generic and aren't currently promoted. They are either -- also either very resource or time intensive and have safety issues or both. This in depth market research concluded Brinavess has an overall market opportunity of $500 million. Collectively, all of these data give us great confidence Brinavess could have a meaningful impact on the US cardiology marketplace.
Moving on to slide 7, as I just mentioned, we hired a top tier independent firm that conducted extremely robust research. Their assignment was to determine the commercial opportunity and optimal positioning for Brinavess within the US marketplace. To that end, they completed extensive due diligence, including in depth hospital administration, pharmacy and payer interviews. They collected data from multiple sources, including payer codes from payers and processed 1.3 billion claims from 1.5 million healthcare providers, covering 165 million individuals in the US annually.
Key findings from all of this research were, one, the Brinavess is poised to address the market opportunity valued at over 1 billion, which is expected to grow to approximate 1.9 billion by 2030. Two, the hospitals are expected to embrace a new product like Brinavess. And number three, based on actual claims data, that Brinavess has the potential to generate peak sales exceeding $500 million.
Given its recent NDA status, Brinavess’ is gaining the bulk of our attention for our pipeline, but I now want to focus on our other medicines. Turning now to slide 8, we have a broad portfolio of market products that have been performing extremely well and are growing significantly. This portfolio generated 28.7 million in revenues for us in 2018 and 14.6 million for the first half of 2019, with expected stronger revenues in the second half from our larger distributor orders. The fastest growing segment of business are [indiscernible] products directly and control our business.
Very quickly, our marketed products are Aggrastat for acute coronary syndrome, which is sold in over 60 countries, both directly in Western Europe as well as through distributors; Brinavess, for acute onset atrial fibrillation, is sold directly in the Nordic countries and Western Europe and through distributors in various other territories. Xydalba, for acute bacterial skin structure infections, which is sold directly in eight countries in Western Europe, Zevtera Mabello for hospital-acquired pneumonia, which we acquired from Basilea in 2017 and have rights across the European countries and Israel. In development, we have Trevyent for pulmonary arterial hypertension. We licensed the rights to Europe, and we are now working with United Therapeutics on this program.
And if you'll now turn to slide 9, we have a quick update on the Trevyent program. Trevyent is a reformulation and novel delivery of the drug, treprostinil, also known as Remodulin, for the treatment of pulmonary arterial hypertension. In late June, Trevyent licensed SteadyMed, a subsidiary of United Therapeutics. We submitted the Trevyent NDA to the FDA. United Therapeutics has since granted Correvio access to the Trevyent NDA, and we're actually preparing a marketing authorization application for Trevyent in Europe, which we plan to submit in mid-2020.
Turning now to some highlights from our anti-infective franchise on slide 10. You can see from the slide that our anti-infective sales initiatives continue to positively impact sales trends for Zevtera Mabello and Xydalba, as both assets continue to perform well.
Before turning over the call to Justin to review the financials, I’d just like to take a moment to recap some of our upcoming milestones. For the Brinavess program, we're actively preparing for an advisory committee, which we expect to take place during the fourth quarter of 2019. Assuming a positive outcome from the adcom, we would look forward to our signed PDUFA date of December 24, 2019.
In parallel, with our Brinavess work in the United States, we are diligently working on an NDA submission in China, based on the existing global Brinavess data, anticipate getting regulatory clarity from the Chinese FDA later this year. Given the priority award rewarded to Brinavess in China, we continue to anticipate a rapid review period in China and look forward to sharpening our timelines following our meeting with the Chinese health authorities. For Trevyent, we're actively preparing an MAA submission for Europe, which we expect to submit in mid-2020. Assuming approval in Europe, we are planning to launch Trevyent in 2021.
With that, I'd like to now turn the call over to Justin for the financials. Justin?
Thank you, Mark. On slide 12, we have an overview of our second quarter 2019 financial results. Amounts unless specified otherwise are expressed in US dollars and in accordance with generally accepted accounting principles used in the United States of America. Revenue for the second quarter was $7.4 million and associated cost of goods sold for the same period was $2.4 million. This compared to $6.2 million in revenue for the second quarter of 2018 and associated COGS of $2.0 million in 2018.
Revenue between the two periods increased 20% in US dollars and 25% in local currencies and that was primarily attributed to an increase in sales of the company's antibiotic products, Xydalba and Zevtera Mabello. SG&A expense for the second quarter of 2019 and ‘18 was $12.6 million each. During the second quarter of 2019, we had higher regulatory and medical costs associated with the resubmission of the Brinavess NDA, while in the second quarter of 2018, included untimed business development and transaction of costs associated with the Cipher Pharmaceuticals deal.
Interest expense for the second quarter was $1.9 million, compared to $1.7 million for the same prior year period. The increase was due to interest being accrued on higher long term debt principal amounts. For the second quarter of 2019, we recorded a net loss of $10.5 million or $0.26 per share, compared to a net income of $5.4 million or $0.16 per share for the same period in 2018. The second quarter of 2018 included a one-time gain of approximately $18.5 million from the aforementioned Cipher Pharmaceuticals transaction.
In the second quarter 2019, our cash used from operating and investing activities combined was approximately $6 million. As of June 30, 2019, we had cash, cash equivalents and restricted cash of approximately $14.8 million. As of August 13, 2019, we have approximately 50.5 million common shares outstanding. In early August, we completed an underwritten public offering whereby we issued 9.2 million shares of common stock, which included the exercise of the underwriter’s over allotment option in full, a price to the public of $1.50 per common share. Aggregate gross proceeds to Correvio totaled $13.8 million before deducting the underwriting commission and estimated offerings expenses payable by the company.
Looking ahead to the remainder of 2019, with the proceeds from the recent financing and our existing cash on hand, we are entering the second half of the year from a position of financial strength with a cash runway to mid-2020 and sufficient resources to fully execute on the US Brinavess opportunity. We are also projecting year-over-year revenue growth of 20% to 25% between last year and this year. In addition, we continue to pursue non-dilutive options.
With that, I'll now turn the call back over to Mark.
Thanks, Justin. I'd like to wrap up by highlighting a few key takeaways. Today, Correvio is an established, fully integrated commercial specialty pharmaceutical company. We have an NDA stage acute care asset to mainly address the growing US market opportunity exceeding $1 billion. We have a broad portfolio of five marketed hospital products and a rapidly growing anti-infective franchise that has successfully generated revenues of $14.6 million during the first half of 2019 and sales were up 20% year-over-year.
Importantly, our newly strengthened balance sheet provides us with extended runway and sufficient resources to fully prosecute the US Brinavess opportunity. We are committed to delivering innovative hospital drugs into the hands of physicians and patients who need them. I'm confident that we can see the Brinavess opportunity across the finish line and continue to grow the overall portfolio.
With that, we'd be happy to take your questions. Operator?
[Operator Instructions] And your first question is from David Martin of Bloom Burton.
Good morning, I got a few questions. The first one with United having refiled Trevyent in the US. Why is it going to take as long as mid 2020 for you guys to file in Europe?
Thanks, David. It's a good question. It really hinges around the timeframe involved in obtaining the CE-mark. And so that European process is approximately 9 months. So we believe that if we can turn around the US file and for MAA formatting, and do a gap analysis of the pieces that we need, we're essentially driven by the timeframes associated with regulatory review around the CE-mark.
Okay, so it isn't the de-prioritization of that -- of the product. You're moving ahead with it full speed?
Yeah, actually, we've been eager to get our hands on the file and start that work. But, we are small. Obviously, we are -- our regulatory team is very engaged in the Brinavess adcom prep. But we believe we've been waiting for this. We've had a joint steering committee meeting with United, I've been in communications with their leadership there and it is not due to de-prioritization. We've been looking forward to the product for some time.
Okay. Second question is the 500 million or higher peak sales estimate for Brinavess? Is that based on an estimate or a forecast of 50% market share of peak, given that you see the market is $1 billion?
We see the addressable market as $1 billion. So, maybe, is David Dean on the line?
I am. Hello, David.
Maybe, you'd like to take that?
Sure. So, David, how that number was derived by the independent market research firm was, they looked at the various different penetration rates into the various different patient populations within afib, so, some patients are going to be more likely to be converted with Brinavess than others. So they look at each of those and apply the penetration rate that they felt was appropriate for that population and the end result came out with a number of patients and then they apply an expected range of pricing, which they did internally with -- through pharmacy and hospital administration and other payer review to determine what would be an appropriate price range for the product, and they came out with that number.
Okay, last question.
Maybe just to elaborate one thing about that is that we believe that there will still be clearly a role for direct current cardioversion, electrical cardioversion, but we certainly believe we’ll have best in class pharmacological conversion. So it's a combination, as David said, of a blended rate between, I think, a very high penetration on the pharmacological conversion market and some penetration into the DC current conversion market.
I'm wondering, are there European countries that their opinion of Brinavess or their use of Brinavess would be directly impacted if the US approves the drug?
Absolutely. We have held up and their big ones, most of the large addressable markets. Certainly, we believe the UK, France and Italy, all would have basically hit pause when the FDA hit clinical hold. And so we've been holding, for example, in France, the meeting with the pricing authorities in advance until such time as we can go in with the US approval. We think that that's a market opportunity for us.
Your next question is from Swayampakula Ramakanth from H.C. Wainwright.
Good morning. This is RK from H.C. Wainwright. Couple of quick questions. Regarding the IP extension to 2031, could you give us a little bit more color as to when you would be applying for this extension, and also help us with any examples that you could think of where such extension was provided upon approval?
Sure, so we have several patents that go out into various time periods between 2024 and later in the 2020s. There's a patent that we believe is most relevant that currently expires in March of 2026 pertaining to how you dose Brinavess, we've dosed Brinavess commercially the same way for many years. So we believe that once the drug is approved in the US, you are then allowed to reach out to the US Patent Office and ask for an extension, because this drug has been on clinical hold for more than five years. The limit is five years. And so as a result, we believe that we have the opportunity to get the full five year extension from March of 2026 to March of 2031.
And regarding the data, the SPECTRUM data that we're expecting at ESC in Paris, how would this help as investors to think about both adcom and also approval of Brinavess?
Yeah. RK, it's a great question. So we actually think, the FDA has seen summary level SPECTRUM data. In fact, it was the basis for a successful peel to the FDA to allow us to submit the -- resubmit the NDA. So they've seen it in an abstract form. Obviously, what we have submitted to them are the full data sets. And so, again, the way I think about it is that we are standing on three pillars with regards to characterization of the safety of Brinavess for the US, which is the key point we have to make with them. And they are a SPECTRUM, the investigator initiated studies, and then the overall exposure to 55,000 database. So it's part of our entire argument to the FDA with regard to really now that the drug has been out in clinical usage. And we think it has value as an observational study, because it not only speaks to the safety of the product, it also speaks to the physician’s familiarity with how to use it safely in a real world situation, which is different, obviously, from a randomized controlled clinical trial.
The last question for me is like, what gives you confidence for a better second half on the revenue line compared to what you've done in the first six months?
Sure. Thank you, RK. This is Justin. Basically two things. One, our direct antibiotic franchise continues to grow very well with excellent July and we're seeing real growth in the uptake of both Xydalba and Zevtera Mabello literally month over month. And secondly, we have what I'll call a little seasonality between our large distributor orders. So places like South Africa, and Pakistan and other Middle Eastern countries order in bulk. And so we are optimistic that we have several orders that will come in size that will be executed upon in both this quarter and in the fourth quarter.
[Operator Instructions] The next question is from Brock Aynsley of CIBC Wood Gundy.
Yeah, Justin, this is I think for you. If Correvio had to fund the phase 3 study, the size and the scope of SPECTRUM, what would have the approximate cost been to the company?
Thank you, Brock and good morning. That's an excellent question. So as you know, we funded this through the European operations because we didn't have that option in the US. And that's why the SPECTRUM study took us several years, as you know, to accomplish. I would think that a 2000 patient cardiovascular study in the US would be at least $50 million all in, perhaps a little more depending on what we have to outsource and use our internal team to do, but to give it a relatively generic number, I think 50 million is a fair estimate for a 2000 patient cardiovascular study over a couple of years.
Okay, because I'm looking at this and I see that you guys have got that study done. You’ve built a specialty pharma company, you've done that with the issue of about 30 million shares and 50 million in debt and I think what we're looking at down the road, you guys should be congratulated at what you've done there. It's read the finish line, and we're growing in Europe. So I just want to congratulate what you've done.
Brock, appreciate your support and your support over the years. Thank you so much.
Your next question is a follow-up from David Martin of Bloom Burton.
Yes. So Brinavess vernakalant went through an adcom years ago and the vote was 6-2 in favor of approving the drug. And I think the two dissenters said that they wanted more data. Now, you've got that more data. I'm just wondering, in all likelihood, the adcom will come out positive the last time the FDA voted or the FDA acted against the adcom recommendation. Why do you think the FDA wants an adcom again, since they had a positive one the first time around?
That's an excellent one. If you think about it administratively, we remain on clinical hold and -- which means that the FDA doesn't believe it's safe to be studied in clinical research conditions. And that’s a long way from that to an approval for widespread public use. And I think -- so I think this is a -- it's proven step by the FDA to ensure, I believe, that the field truly wants the drug. And now in light of this new data, they can listen to the field, express their view and at that point, lift the clinical hold and move on the process towards approval. I do think that if we were not on clinical hold that they may not have required the adcom.
Okay. And then I have one last question. So how much we're, I know you've returned the rights of Esmocard and regained the rights of Aggrastat in certain countries? How much were the revenues of Esmocard that you’re returning and how much are the revenues of Aggrastat that you're gaining? And do you have, is there a cost associated with selling Aggrastat in the countries that you're getting back?
Hi, David, this is Justin. So in 2019, we sold Esmocard for the first six months of the year. And so looking ahead, our anticipated, if we did not agree to the swap, would have been around $400,000 of Esmocard sales in the second half of the year. We anticipate roughly $600,000 of sales from Aggrastat in those territories in the second half of the year. So it’s accretive on the top line of approximately $200,000. Our margins on Aggrastat are much higher, our margins on Aggrastat are on the 75% range, whereas on Esmocard, they are in the 50% range. So our profit will be higher as well on those sales. From a cost outside of the cost of goods sold, we are going to add one person in Austria to further promote this product. But that person will also be promoting other products. So there's synergy to be had, having an additional person in the Austria/Eastern German part of our operations.
And by taking Esmocard out of Italy and France, are you taking your product out of the detailing bag of your sales reps there?
That was very much rewind on a tender process. So that was not something that our sales folks overly pushed.
Thank you. There are no further questions, you may proceed.
Thanks very much. Appreciate to everyone who is listening in onto the call. We appreciate the support for the company. We are looking forward to I think most -- amongst the most exciting periods in Correvio’s history, as we look for preparing the fall and appreciate the ability to update you in next quarter. Thanks very much.
Thank you. Goodbye now.
Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and we ask that you please disconnect your lines.