Adamis Pharmaceuticals Corporation
Q1 2019 Earnings Call Transcript

Published: 10 May 2019

[Operator:]

Good day and welcome to the Adamis Pharmaceuticals Corp First Quarter 2019 Conference Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Dr. Dennis Carlo, President and CEO of Adamis Pharmaceuticals. Please go ahead, sir.

[Dennis Carlo:]

Thank you. Hello, and welcome to Adamis Pharmaceuticals first quarter 2019 earnings conference call. I am Dr. Dennis Carlo, President and CEO of Adamis. First of all I would like to thank everyone for joining us today with the launch of SYMJEPI Adamis’ first commercial product this year, the directors and the management team thought it made sense to begin holding routine quarterly conference calls. In addition to me, I have on today’s call Chief Financial Officer, Rob Hopkins; Chief Business Officer, Dave Marguglio; and our Chief Medical Officer, Dr. Ronald Moss. Just as a reminder, all participants will be in a listen-only mode. The format for this call will consist of some remarks from senior management followed by an opportunity for some questions. This call is being webcast and you can refer to the company’s press release regarding the quarter and company developments at adamispharmaceuticals.com in the Investor section of our website. Well before I actually begin the presentation, I will do away with the mandatory legal remarks. I’d like to remind you that in today's call, we will be making certain forward-looking statements regarding our business based on current expectations and current information. Those statements speak only as of today and except as required by law we do not assume any duty to update the forward-looking statements made today. Of course, any forward-looking statements involve risks and uncertainties and our actual results could differ materially from those anticipated by any forward-looking statements that we may make today. Additional information confirming the factors that could affect our business and financial results is included in our most recent Annual Report Form 10-K with Securities and Exchange Commission and in other subsequent filings that we make with the SEC. These are available at the SEC’s website. I’d like to move now into the formal part of the presentation. Well, first of all, I’d like to extend a special welcome to our shareholders, analysts and anyone that is new to Adamis. As most of you know I've been with Adamis from the beginning. Despite some major challenges and obstacles along the way, I and the management team have never been more excited and optimistic about where we are as a company. I believe that 2019 will be a positive year for Adamis and I believe we are moving from a development stage company with product candidates and the pipeline into a commercial stage company with multiple sources of revenue and closer to our goal of company-wide profitability. Currently, I anticipated revenues from three different sources for our company. First, SYMJEPI sales, mainly coming from Sandoz retail launch, which as they made public yesterday, should occur shortly; second, sales from US Compounding, which have been steadily increasing; and finally, upfront payment and sales from anticipated commercialization of our naloxone product. Our product development is focused on improved methods of delivering well-known drugs that we believe has the potential to compete with large well-established markets. Adamis first product development utilizing this approach is our epinephrine injection product SYMJEPI. As you know SYMJEPI injection has been approved by the FDA for the treatment of anaphylaxis in both the 0.3 milligrams and 0.15 milligram dose to launch. In January of this year, we were very pleased to announce that our commercial partner Sandoz, a division of Novartis, started the first of a multi Phase 1s of SYMJEPI in the U.S. market. As Sandoz continues to ramp up sales of the 0.3 milligrams dose in the institutional channel we look forward to the addition of the 0.15 milligram dose and the launch of both into the much larger retail market in the near future. With the continued rollout of SYMJEPI into this large retail market, we, Adamis, anticipate that the revenue stream to ourselves will increase in future quarters. The second source of revenue is from the US Compounding, our wholly-owned drug outsourcing facility. US Compounding is acquired in 2016. At the time, it was a depressed asset with limited sales, but sales have been reasonably robust in the past. Consequently, we believe though the pent-up demands for products and sales would ramp up rapidly, well, that turned out not to be the case. I am personally very, very disappointed. It's taken us longer than we originally thought to turn this asset around. However, the good news today is I can report that we believe we've turned the corner. We've made significant changes over the last few months, including the elimination or lower margin products, reduction in operating costs and overhead, changes to senior management and investments and improvements to manufacturing processes with the goal of improving overall efficiency, reducing operating expenses and improving the margins. Net sales for the division have generally been growing consistently for the last two years. Last year, sales 2018 were $15.1 million. For the first half of 2019, we expect net sales for this division to be approximately $10 million and by year end to total $22 million. We achieved those goals. It would represent a 45% increase over 2018 and we would expect the division to be net positive for Adamis. I like to now move on to naloxone, our third source of revenue. As you know, at the end of 2018, we submitted a new drug application for our naloxone injection product. In March, we announced that the FDA had accepted our NDA for review and provided an October 2019 PDUFA date. Currently, we are in active discussions with multiple potential commercial partners. Our product is unique compared to other products on the market and that it contains 5 milligrams of naloxone. We believe this higher dose of naloxone is necessary to overcome overdoses due to the more powerful synthetic opioids such as fentanyl. In fact, our recent market research suggests that this product will be well received and it will fill an unmet medical need. Before I turn the call over to Rob, I want to underscore again how optimistic and excited I am about the remainder of 2019. We have come a long way. As I previously said, I believe we've turned the corner and that Adamis has never been in such a good position. With all the possible development milestones and the three future revenue streams ahead, I truly believe we’ll be a very good company, a very good year for your company. There's an old saying that states that a path with no obstacles usually leads to no place. Well, we've had our share of major obstacles and challenges. Now, I believe we are on the path to success. I will now turn the call over to our CFO, Rob Hopkins, for discussion of financing results. Rob?

[Rob Hopkins:]

Thank you, Dennis. I would like to highlight a few points on this call and encourage everyone to review our Form 10-Q for additional details and disclosures. First, our Q1 revenue grew 80% over the last quarter of 2018 and 53% versus the first quarter of 2018, approximately $4.9 million and $3.2 million respectively. This increase was attributable through the continued growth in US Compounding that Dennis mentioned earlier and in part from the initial launch of SYMJEPI. Selling, general and administrative expenses for the first quarter increased 23% over the first quarter of 2018, approximately $8 million and $6.5 million respectively. The single largest contributor to this increase is the annual maintenance fees that we paid to the FDA for SYMJEPI. Research and development expenses for the first quarter of 2019 decreased $5.6 million from the fourth quarter of 2018. The bulk of this reduction in costs was due to the completion of two late-stage development projects

[Ronald Moss:]

Thanks, Rob. I would like to spend the bulk of my time discussing our most advanced product candidate, our high dose naloxone injection, or APC-6000 product. Naloxone is an opiate antagonist. It is considered the drug of choice for a needy administration to treat opiate overdoses. Naloxone works by blocking the reversing the toxic effects of the opiates, including loss of consciousness, decreased breathing and extreme drowsiness. Without adequate opiate reversible by naloxone death can occur. Common abused opiates include morphine, heroin, oxycodone, hydrocodone and more recently, the more potent synthetic opiates such as fentanyl and related drugs. Our particular concern is the rise of the synthetic opiate abuse as fentanyl was approximately a hundred times more potent than morphine or carfentanil, a fentanyl analog is 10,000 times more potent than morphine. Accidental opiate overdoses unfortunately have become a public health crisis in the U.S. with the number of deaths through the opiates increasing five fold since 1999. According to the Center for Disease Control in 2017 drug overdoses resulted in approximately 72,000 deaths in the United States, or nearly 200 people per day are dying. Drug overdoses are now the leading cause of death for Americans under 50 and the proliferation of more powerful synthetic opiates such as fentanyl and its analogs could result in future increases in the number of deaths. Indeed, recent studies have revealed an 80% – 87% increase in deaths associated with the more potent synthetic opiates such as fentanyl. With this dramatic increase in the abusive synthetic opiates, we and others have recently published studies suggesting that the current recommended doses of naloxone may be inadequate. Repeat dosing of naloxone, particularly in the cases of the more potent synthetic opiates suggest to us there is a need for a higher dosage product. This was the stimulus for Adamis to develop a higher dose of naloxone injection using the already approved user-friendly SYMJEPI device. As Dennis already mentioned, we filed an NDA for a high dose naloxone product at the end of last year and received a notice from the FDA in March that it was determined that the NDA was sufficiently complete to permit a comprehensive review and the agency provided with a target action date of October 31, 2019. If this product is approved by the FDA and launched, we believe our high dose candidate could be an important part of the solution to this growing public health crisis of opiate overdoses. In order to focus our resources on our naloxone product and in efforts to reduce operating expenses as Rob described. We have slowed development of our other pipeline product candidates. This includes a delay in the continuation of the start of patient enrollment for Phase 3 study of beclomethasone for asthma and a hold on our sublingual tadalafil product for the treatment of erectile dysfunction. We will prioritize future development for these products based on the availability of capital to support them and our ongoing evaluation of commercial potential. I would now like to introduce our Chief Business Officer, David Marguglio, for an update on out-licensing efforts.

[Dave Marguglio:]

Thank you, Ron. Obviously the most important licensing development in the first quarter was Sandoz launch of our SYMJEPI injection product. As we stated back in January, they initially launched into the hospital and clinic market in the U.S. And as Sandoz recently announced, they are actively preparing for the introduction of both the 0.3 and the 0.15 milligram products into the larger retail market in U.S. To support that effort, Sandoz has also launched a new savings program in which eligible patients can pay nothing out of pocket for their SYMJEPI prescriptions. Also the SYMJEPI website is now live to provide instructions for use and other helpful information for the product. For the most up to date information on the SYMJEPI launch, please refer to the media release section of Sandoz's website. Certainly, the progress to get SYMJEPI fully launched in the U.S. has been slower than we had initially hoped, but the expectation of launch in the retail market in the near future, we remain confident in Sandoz ability to execute and we steadfastly believe that Sandoz is the right partner for this product. Regarding ex-U.S. rights for SYMJEPI, we are currently in discussions with several potential commercial partners to market and distribute SYMJEPI in territories outside the U.S. The pace of those discussions was slowed last year so that we could gain more experience with our commercial supply chain and engage if we would have reasonable manufacturing capacity to supply product outside the U.S. We’ve restarted those licensing discussions in the first quarter and those discussions are ongoing. Lastly, we are also in discussions with multiple potential partners for the commercial rights to our naloxone injection product. Our current goal is to be able to announce the commercialization plan for naloxone prior to an approval of the product. If we are successful in licensing commercial rights for naloxone, it is possible that the agreement would include upfront cash payments to Adamis in 2019. And with that, I think we will open it up to questions.

[Operator:]

Thank you. [Operator Instructions] And we'll go first to Elliot Wilbur with Raymond James.

[Elliot Wilbur:]

Thanks. Good afternoon. First question around the beclomethasone assets I guess prior to putting or pausing continued enrollment in the trial. Can you just give us an update in terms of where exactly you stand on that product with respect to an enrollment? And then remind us of what the trial size ultimately is going to be?

[Ronald Moss:]

Sure, this is Ron Moss. We began the work that preceded the patient enrollment. So, the study was prepared to sign up centers, gaining the review board approvals, et cetera. However, with the delay of the full launch of SYMJEPI, we determined the hold of enrolling patients into the study. Until such time, we have better visibility into the revenue resources as Dennis described. This study is a very – fairly large study. It involves approximately 550 patients and there are actually two studies that are identical in size that are part of the Phase 3 program.

[Elliot Wilbur:]

Okay. And I guess from just internal planning perspective from start to finish, how long will you expect trial duration?

[Ronald Moss:]

The current estimated – yes, so the estimated timeline, once we start enrolling to the time we received the clinical study report approximately 18 months.

[Elliot Wilbur:]

Okay, thanks. I want to ask a couple of lines of question around SYMJEPI as well. Obviously, the supply chain continues to experience shortages at least in terms of product being supplied by Pfizer. You can see that in terms of Teva grabbing additional share from Mylan accelerated quite a bit last couple of weeks. So it seems like an opportune time to kind of go in a full – with SYMJEPI. A little bit hard to see from our vantage point in terms of what's happening there. It looks like you shift about $0.5 million in the quarter, but anything you could say there in terms of kind of feedback you're getting from Sandoz with respect to market interest in the product where you're having success, where they may see some wins and anything you could say in terms of forward visibility with respect to future purchase orders and the like would be helpful.

[Ronald Moss:]

Sure, I know it's a great question and I know everybody is dying for us to provide some sort of guidance for what Sandoz is doing and get some feedback as you've asked for as far as what the market looks like right now. But the challenges we have is that the product is completely controlled. The commercialization process is completely controlled by Sandoz. So we're not able to comment on what their sales efforts are including any feedback. However, Sandoz has assured us that they are certainly open to any sort of questions. And they've also stated that as they rolled this product out, but they will provide as much detail as they can on where and what channels that they will be in.

[Dennis Carlo:]

I just want to comment – this is Dennis. First of all, potentially they are a Swiss company. They're known to be very methodical and very analytical. We all know that they move their own pace, but when they do, when they're ready, they commit and they produce. So do I wish things would move faster? Yes. But do we make the right choice? I say, yes. They have a proven track record. And I truly believe that once they are launching in this – in the full market that will be very successful. I'd like to bet on winners. And they do won in the past.

[Elliot Wilbur:]

Okay. And I just want to ask one last line of questioning, perhaps around the naloxone assets certainly seems like a potential high value addition to the portfolio. I know you mentioned you're in partnership discussions. Just kind of curious in terms of the level of interest you're seeing in the asset that – any descriptors you can provide in terms of sort of the types of players who are looking at this I mean that asset. Those assets right now seem to be kind of in the hands of small maybe mid-sized spec pharma players, but there's probably a couple of products out there in development that may be in the hands of larger pharma. So I'm just kind of curious what you're – what kind of inbound you're getting interest – what kind of inbound interest you're getting with sort of the type and size and scale of some of the potential partners that you're talking to?

[Dennis Carlo:]

Sure. Well, as we mentioned, we are in discussions with a number of them and they vary in size and they vary in focus. But the upside as far as the amount of interest in the product is that it is obviously a very highly visible product right now. And certainly, there's a lot of impetus to come up with a solution. So we are very I think pleased with the progress of those discussions. With those – through this type of process, obviously those discussions are subject to confidentiality. So we can't provide a lot of detail as far as who the parties are and even what necessarily is their size and shape that I can tell you that the interest has certainly been high.

[Elliot Wilbur:]

And then just maybe follow up to – just what do you see as the – sort of the gating factors to ultimately potentially we’ve been successful and realizing the partnership on the asset just a matter of sort of coming to mutual agreement in terms of the value of each party should obtain as a result of agreement. I mean digging more specifically about approval do you think that potentially companies share the ultimate economic value could increase significantly with approval? I mean it seems to be something that is relatively low from a regulatory risk perspective, so I am not sure that that would necessarily be a gating factor, but just curious on your perspective there.

[Dennis Carlo:]

Certainly, the strategy that we are undertaking with naloxone is different than what we went through with SYMJEPI. SYMJEPI obviously having gone through a process of executing a commercial agreement and then receiving a CRL and having to unwind that agreement when we started the process up again during our last NDA filing, we made this choice to wait until we had approval rather than going through that process again. So with naloxone, we have chosen a different path. And as I mentioned before, the objective is to be able to announce the commercial plan prior to an approval. As far as what the impediments might be for getting a deal done, each of these opportunities looks completely different. So from our perspective, the critical element is upon hearing what the commercial plan is for these different parties, making our determination as to which group we think will be able to ultimately bring the most value to the product in the marketplace.

[Elliot Wilbur:]

All right, thank you for the update.

[Operator:]

And we'll go next to Jason McCarthy with Maxim Group.

[Jason McCarthy:]

Hi, guys. Thanks for taking the questions. I don't know if I missed it earlier. Did you – could you provide the breakout of the compounding business revenue versus any revenue from SYMJEPI? And Mark [ph], can you give us a little bit more clarity with the beclomethasone and the tadalafil now delayed. And just until you get some more capital to move them forward. How can we think about the operating expense lines in the model?

[Rob Hopkins:]

This is Rob Hopkins. I can point you Jason to page 10 on the 10-Q where we do break down just SYMJEPI revenues versus US Compounding. And it was in the – during our opening remarks that we discussed the growth quarter-over-quarter, looking back at 2018 and then quarter-over-quarter between 2018 and 2019. So at page 10, it does break it down. And for example, US Compounding, about $4.4 million in revenue and the outsource manufacturing is titled $465,000.

[Jason McCarthy:]

Okay. And on with the delayed trials can you give us a sense of the cost savings in terms of R&D and SG&A expense?

[Rob Hopkins:]

Well, as far as the cost savings, I mean, just comparisons again in our opening remarks, we talked about the difference between this first Q – and the first quarter in 2018 and was reduced by $6.5 million. Going forward these – since we have slowed down our pipeline development, we do feel that stay within our cash and net cash parameters that we have on hand, a combination with the increase in cash flows from Sandoz and USC and the possible up front payment on the naloxone.

[Dennis Carlo:]

Okay. And just a real quick on it, it's about half of – I am sorry, it’s about half of what we have spent in the past.

[Jason McCarthy:]

Okay. And just really quick on naloxone with the NDA acceptance. Can you just provide some clarity on the review timeline? Is it expected to be full 10 to 12 month review period?

[Ronald Moss:]

Well, this is Ron Moss. Our PDUFA date, as we mentioned earlier, is October 31. We've had very positive interactions with the FDA and they've interacted with us and told us that they're going to review the NDA in a rapid fashion. However, it's impossible to predict that it will be faster than the PDUFA date, but certainly we have a solid PDUFA date of October 31.

[Jason McCarthy:]

Okay, great. Thank you for taking the questions.

[Operator:]

We'll take our next question from Jason Kolbert with Dawson James.

[Jason Kolbert:]

Thanks. Thanks everybody. Guys, great job. I really interested to see kind of how the cash conservation plays out especially versus all of the catalysts that you have had, especially the potential for another deal? I'd like to talk with you a little bit about what the dynamics of the auto injector market is looking like today. I mean a lot of things have happened in terms of auto injectors in epinephrine. A lot of pricing has been shifting around. So help me to understand what did you and Novartis learn from launching in the hospital clinics market. And what do you see happening in the retail market? Certainly, it's going to be very exciting and I can understand Novartis is time and effort to make that a zero copay with a really dynamic website for patients. That's going to be a really unique distinguishing feature. But can you talk with me just a little bit maybe, David, you can get into it. On what are the dynamics of the retail market today? Where is pricing going? Who's got what market share? How – what's overall market size today?

[Dennis Carlo:]

So, yes, thank you for the question, Jason. So obviously the market is fairly stable as far as both size and pricing over the last few years. So we see the market continuing to grow in low double-digit year-over-year. We also see that the institutional side which includes hospitals and clinics represent about 15% to 20% of that overall market. So obviously the retail side is the bulk of the market. With respect to pricing on the institutional side versus retail, it's difficult to say because it really varies depending on the customer on the institutional side and even to some extent on the payor by payor on the retail side. I mean all we can do as far as approximating where we are relative competition is sort of look at the WAC price that we publish, wholesale acquisition price for the competitors versus our product. And as Sandoz has stated the product was launched with the $250 price for the twin packets SYMJEPI. If you look at the other products on the market, you'll find that the lowest stated WAC price is currently at $300. So before any sort of discounting, negotiating, or contracting, already represents a significant savings to even the generic products that are on market.

[Jason Kolbert:]

That's for two units, right?

[Dennis Carlo:]

That's correct. All of the pricing, I mentioned is for two units.

[Jason Kolbert:]

Okay, good. Thank you. Can we, switch gears a little bit and talk about kind of the opioid crisis. It may include, it's almost impossible to get legally pain medication, but I guess that hasn't really stemmed kind of the black market. So I mean, has the need for naloxone product died down at all? And are you seeing partnering interests running very high here? It sounds like there is a lot of inquiries, you sound very hopeful of a partnership this year.

[Ronald Moss:]

This is Ron. The epidemiology is suggesting that the overdoses are not yet falling down. And we believe once again this might be due to inadequate dosing. So our approach we think is unique, higher doses we think may save more lives. And speaking to people in the field, there isn't any slowing down of this epidemic at this point in time. And at least others feel, as well as we do, that there's a need for higher doses of product. Many of these people will only have one opportunity for resuscitation reversal with naloxone. So we think the higher dose product makes a lot of sense. And there there's going to be a lot of interested parties in the field once we get out there and we’ll get this approved.

[Jason Kolbert:]

And Ron, remind me if I were to switch gears to tadalafil whether there is any sublingual versions out there today?

[Ronald Moss:]

Not that I know.

[Jason Kolbert:]

Okay. So that would be kind of unique. And is there a different onset and sublingual versus oral?

[Dave Marguglio:]

There should be a faster onset for most sublingual medicines.

[Jason Kolbert:]

Yes, I would think so. And I would think that that would be a very distinguishing product attribute. So I think we'll all be looking forward to that. I know Dr. McCarthy talked a little bit about the pharmaceutical compounding business and you referred to in Page 10. I just would like to talk a little bit about what are the dynamics that have allowed that business a turn? And where do you think that business could peek out over the next couple of years?

[Rob Hopkins:]

Well, this is Rob. Thank you for the question. Where could it peek out? Hard to say. There is approximately at any given time, 60 plus compounders in the 503B space. One of the things that we learned through this process in the early years with the compounding business was it has the ability to consistently produced product. In the space there is common shortages, manufacturing issues and one of the things that Dennis didn't allude to that is part of the success story of U.S. compounding is having solved the manufacturing process.

[Jason Kolbert:]

Okay guys, thanks a lot. That wraps up my questions.

[Dennis Carlo:]

Okay. Why don't we – I believe that you have time for just one more question.

[Operator:]

We’ll go next to [indiscernible] with Adamis Pharmaceuticals.

[Unidentified Analyst:]

Yes. I had just a quick question here, been an investor for many years. And I see that you're mentioning for the whole year that you guys will be finding cash flow for 2019 through the end of the year. But my question is, is for the long run are you guys looking as a small company to grow out of San Diego, you guys are looking to expand just get bigger and bigger. Many investors are wondering referred through different feedbacks from rumors of bigger companies looking to possibly merger even consider buying. Are you guys looking at just to grow single-handedly and just get larger and larger? And that is my question

[Dennis Carlo:]

Right now – this is Dennis Carlo. Right now we're focused on growing. And we can't predict the future right now, anything could happen. Obviously I've been in companies that were purchased in the past, but we are growing our business right now. That's what we're focusing on.

[Unidentified Analyst:]

Thank you.

[Operator:]

And ladies and gentlemen that does conclude our question-and-answer session for today. I'd like to turn the conference back over to Dr. Carlo for any additional or closing remarks.

[Dennis Carlo:]

Yes, okay, I'd like to end the formal part of the call today. Before I close I’d like to go over what I consider the three stages of truth. Many of you know for a number of years, I worked hand in hand with one of the most well-known scientists in the world, Dr. Jonas Salk that discover the polio vaccine. Dr. Salk would often tell me Dennis there are three stages of truth. The first stage is it can't be true. The second stage is if it's true, it's not important. And the third stage is we move it all along. The polio vaccine development went through those three stages. At first, most of the prominent scientists in the United States believe that polio vaccine would never work. And of course, when he did, many said, we knew it all along. Why believe we're approaching the third stage of truth at Adamis, we knew it all along. These had many naysayers over the years, but we persisted, we persevered, we never, never, never gave up, and we just focused on our objective. I believe by year end many will be saying we knew all along that it would be successful. I look forward to our next quarterly conference call. And I thank you for the time and continued interest in Adamis.

[Operator:]

And ladies and gentlemen, that does conclude today's conference. Thank you for your participation. You may now disconnect.