Adamis Pharmaceuticals Corporation
Q2 2019 Earnings Call Transcript

Published: 9 Aug 2019

[Operator:]

Good day. And welcome to the Adamis Pharmaceuticals Corporation's Second 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 very much. Hello, and welcome to Adamis Pharmaceuticals' second quarter 2019 earnings conference call. I am Dr. Dennis Carlo, President and CEO of Adamis. I'd like to thank everyone for joining us today for the update, and I'd like to extend a special welcome to our shareholders, analysts and anyone that is new to Adamis.Joining me on this call is our Chief Financial Officer, Rob Hopkins; Chief Medical Officer, Dr. Ronald Moss; and our Chief Business Officer, David Marguglio. As a reminder, all participants will be in a listen mode only. Once again 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 we will make it available for replay on our Web site at admaispharmaceuticals.com in the Investors section.Well as always, I will reference my comments with reminder that in today's call, we will make 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, in the future, any 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 make today. Additional information concerning factors that could affect our business and financial results is included in our most recent Annual Report Form 10-K with the Securities and Exchange Commission, and in other subsequent filings that we make with the SEC. These are available at the SEC Web site.Now with that said, I'll now move on to our formal part of the presentation. Well the first topic I want to discuss today is the recent public equity offering and explain why it was done at this time. At the closing of our public offering in August of last year, we believe we have raised sufficient cash to provide enough time for our sales of epinephrine products to begin contributing need of cash through Adamis. I feel certain we were as strong as we were when Sandoz announced the full launch of SYMJEPI last month.However, it took a little longer than we expected. On our first quarter earnings call, on May 9th, I stated my belief that a reduction in R&D expenditures, combined with profit share payments from Sandoz, potential upfront licensing fees and continuing sales growth from our US Compounding, could provide sufficient cash to carry Adamis through 2019. On that call, we also stated that if we were to conducting another equity offering in 2019, we would expect it to be for a smaller amount than our public offerings in prior years.While we following that call we received a patent challenges relating to ZIMHI, our net our naloxone product. Unfortunately, the kaléo dispute negatively impacted our share price, cash position and possibly the timing of a naloxone commercial license deal. In July, when we announced the resolution of the kaléo matter, as well as the Belcher patent dispute relating to SYMJEPI, our stock price did rebound to its prior levels. The message that we were hearing from investors, brokers, bankers and analysts alike, was that we had a significant financing overhang.[Leaving the race], as the concern during our Annual Shareholder Meeting. For all those reasons, we decided to conduct the public offering that we closed on Monday. By doing so I believe we've extended our cash position well into 2020. I've heard from many of you this past week, and therefore would like to continue my -- share my thoughts regarding the offering. There was a concern, not just with our decision to raise additional cash but also the pricing and the structure of the transaction.If you look at recent transactions and the capital markets overall, and more specifically, as transactions in our space with our market cap, you will conclude that our offering was representative of current market conditions. I too of the shareholder, we all are, and I understand the dilution is on good thing. However, I truly believe that this offering provide all shareholders the best potential to realize the future value, all that we've been doing and working towards. It gives us the necessary cash to move the company forward into profitability.Looking to Adamis' future, the full launch of SYMJEPI is very exciting. At Sandoz, there are many moving parts and much is happening all at once. Again, we all agree it's taken longer than we would have liked, but we also know that Sandoz is a very well respected and known for commercial execution. They pay attention to detail. They know how to launch product. And they've a proven track record of success. I remain very confident that we chose the best partner. With their sales and marketing campaign, I believe SYMJEPI sales will grow exponentially and eventually lead to a significant stream of revenue for both Adamis and Sandoz.That being said, Sandoz has publicly stated that effective immediately, over 60% of commercially insured people in the U.S. now have access to SYMJEPI through national and regional payers. These formulary additions demonstrate Sandoz's commitment to improving patient access from life saving medicines like SYMJEPI. Additionally, we believe that Sandoz has doing extensive marketing campaign and they will be visible in major scientific journals, as well as via press, such as USA Today and the New York Times.Before I turn it over to rest of the team to provide you with updates for each of their areas of responsibility, I want to provide you with my take on the state of company. Although, it is certainly not reflected in our low share price, I believe Adamis has never been more valuable. I will repeat that, never more valuable. With the potential upside of SYMJEPI and US Compounding reaching breakeven on the cash flow basis, as well as the possibility for receiving our third product approval in three years for ZIMHI, I still believe 2019 will be a great year for our company. I never once thought that we would not exceed. I believe our obstacles will eventually be turned into our successes.I will now turn it over to our CFO, Rob Hopkins, for discussion of the financial results.

[Rob Hopkins:]

Thank you, Dennis. Once again, I'd like to highlight just a few points on this call and encourage everyone to review our Form 10-Q for additional details and disclosures. First, the second quarter revenue grew 70.5% over the first quarter, approximately $5.8 million and $4.9 million respectively and 47% over the second quarter of 2018. This increase was attributable through the continued growth of US Compounding and manufacturing revenue related to the non-retail launch of SYMJEPI.Gross profit for the second quarter grew 64% in the first quarter, approximately $2.1 million and $1.3 million respectively, and grew 37.6% over the second quarter of 2018. This increase was attributable through the limited launch of SYMJEPI, and increasing margins at US Compounding.Selling general and administrative expenses for the second quarter decreased over 12.7% in the first quarter of 2019, approximately $7 million and $8 million respectively. But was an increase of 10% over the second quarter of 2018. The single largest contributor to the decrease was the restricting, including personnel reductions, at US Compounding.Research and development expenses for the second quarter of 2019 increased 29.6% over the first quarter, however, a decrease of 41.2% in the same quarter in 2018. We expect R&D expenses to continue to decrease in the second half of 2019. Such that we believe we remain on track to hit our cash burn rates we provided on our first quarter earnings call. Cash and equivalents at the end of the second quarter was approximately $4.1 million, and net proceeds from last week's public offering were approximately $12.7 million.Net cash used in operating and investing activities for the second quarter of 2019 decreased almost 50% from the first quarter of 2019. Our goal for the second half of 2019 is to keep cash expenditures, that is cash used in operating and investing activities in the range of $7 million to $8 million. If we meet our spending goals for the remainder of 2019, it should represent a reduction of approximately 37% from net cash used in operating and investing activities for 2018. As we forecasted on the first quarter call, US Compounding continued to improve during the second quarter and we would expect the division to be net positive to Adamis in the second half of 2019.Assuming that we can maintain our goal to keep our net cash expenses in the range of $3 million to $4 million per quarter, we feel that combination of cash on hand and net proceeds from the equity offering provides us with at least 12 months of operating capital. Any upfront licensing fees would further extend the runway. As Dennis previously stated, we feel this provides Adamis additional time to allow operating activities to generate sufficient cash flow to cover operating expenses. Please review our Form 10-Q for additional and disclosures.With that I will turn it over to our Chief Medical Officer, Dr. Ron Moss, for an update on our regulatory and pipeline development.

[Ronald Moss:]

Thanks Rob. I would now like to update everyone on the clinical progress of our high dose naloxone injection product known as ZIMHI. As a reminder, naloxone is an opiate antagonist and is considered the drug of choice for immediate administration to treat opiate overdoses. As you know, the accidental opioid overdoses have become a public health crisis to the United States, with the number of deaths due to opiates increasing fivefold since 1999.Importantly, the largest and fastest growing component of this high rate of mortality are due to the potent synthetic opiates, such as fentanyl. We believe that this dramatic increase in the [use] of synthetic opiates currently a brief approved dose to naloxone maybe inadequate. That is why we believe there's a public health need for our high dose ZIMHI product candidate.As a reminder, we filed an NDA for ZIMHI at the end of 2018, and the FDA provided us with a target action date of October 31, 2019. In response to a patent challenge we received in May, we amended our NDA to remove reference to kaléo FDA product. We've made this change after consultanting with the agency. And although, it will require us to conduct another pharmacokinetic study and supplement our NDA to include the data, we expect that this will be completed prior to our current FDA PDUFA date. If ZIMHI 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.As we discussed on our last quarterly call, we have slowed development of our other pipeline product candidates in order to reduce operating expenses. This includes a delay in the continuation of the start of patient enrollment for our Phase 3 study for beclomethasone HFA. We will evaluate the start of patient enrollment based on availability of capital to support the planned clinical trial. Also, upon further review of the feedback provided by the FDA for our NDA for sublingual tadalafil and following analysis of the time and resources required to generate the data requested, we have decided not to devote significant resources to further development work on tadalafil.Lastly, with respect to our dry powder inhale program, we are conducting development of a fluticasone dry powder inhaler product candidate for the treatment of asthma and COPD. We plan to complete the ongoing in vito work for proof of concept in the second half of this year with the goal of then seeking potential partners to complete the larger Phase 3 studies to support a new drug application.Now, I would like to introduce our Chief Business Officer, David Marguglio, for an update on litigation and out-licensing efforts. David.

[David Marguglio:]

Thank you, Ron. In the last quarter, we successfully disposed of all pending litigation relating to our product candidates. As we announced on July 18th, Adamis and kaléo agreed to settle all litigation between the two parties. As part of that settlement, kaléo agreed not to bring future action against Adamis relating to ZIMHI, so long as we did not reference kaléo product in the future with any future filings with the FDA -- to the FDA. And we also agreed not to bring further action against kaléo through actions that occurred prior to that settlement agreement.On July 24th, we announced we'd settled all litigation with Belcher pharmaceuticals. As part of the settlement with Belcher, Adamis was provided worldwide non-exclusive fully paid up royalty free license relating to Belcher's patent around epinephrine. And we agreed -- and agreed -- further agreed, not to make our future claims of infringement relating to ZIMHI. In turn, Adamis agreed to withdraw both the patent case filed in Florida and the patent challenge filed with the U.S. Patent and Trademark Office.We are pleased to have cleared all this litigations, so we may continue to focus on growing the business, and we expect SYMJEPI to be a significant part of that future growth. In addition to Sandoz full launch of SYMJEPI in U.S., we are in ongoing discussions with several groups regarding SYMJEPI commercial rights for territories outside the U.S. We hope to make an announcement for one or more ex-U.S. territories in the second half of 2019.Lastly, with respect to ongoing discussions regarding commercial rights for ZIMHI, certainly that process was impacted by the patent challenge and brief uncertainty regarding a possible 30 month stay to an approval for our NDA. However, with the kaléo litigation clear, those discussions are continuing to progress and we are still targeting to finalize the commercial agreement for ZIMHI prior to an approval with the goal of shortening the period from an approval to a commercial launch.With that, I believe we will open it up to questions.

[Operator:]

Thank you [Operator Instructions]. We will take our first question from Elliot Wilbur with Raymond James. Go ahead.

[Lucas Lee:]

This is Lucas Lee on for Elliot Wilbur. Congrats on the quarter, and I have a few questions that I would like ask. First one is on SYMJEPI. I see that SYMJEPI sales have doubled sequentially. Can you give us more color on the progress of the launch since Sandoz made the expanded launch announcement in early July?

[David Marguglio:]

This is David. I'll take that. Obviously, with just a few weeks passing since the launch, it's very early for us to make any sort of judgment. But the activity that we can see our with regard to marketing and commercialization efforts by Sandoz, we feel very confident and in the current trajectory. And so we would expect to see an increasing growth curve for that product now that it's launched into the majority of market.And although, we covered this, I think to some degree on the prior call, I'll go ahead and reiterate that the beginning of this phased launch that occurred earlier in the year only focused on the institutional market, which represents about 15%, one-five, of the overall market. Also, was exclusively with the 0.3 milligram dose. So now with the full launch that occurred in July that opens up, obviously, the other 85% of the market, as well as bringing on the second dose. So we think that the really jumping off point for this product started in the beginning of July.

[Dennis Carlo:]

This is Dennis. I'll answer the second half of that. I mentioned in my presentation but I think it's very important to say again. Sandoz has publicly stated that effective immediately over 60% of commercially injured people now have access to SYMJEPI through the national and regional players. I think they're doing a very good job and we all hope and we envision the sales of SYMJEPI to increase overtime. But again, we just started on July 9th.

[Lucas Lee:]

Next one is on US Compounding division. I see that the revenues are improving sequentially. How should we think about this revenue trend in the second half of 2019? Do you think this division could help slowing the cash burn for the parent company?

[Rob Hopkins:]

This is Rob Hopkins. Yes, that's the anticipation for the second half that US Compounding would begin to contribute back to the parent cash.

[Lucas Lee:]

Next one is on the two litigations that you have recently settled. Are there any residuals from these litigations that we need to worry about? Thank you.

[Rob Hopkins:]

Residual liability or...

[Lucas Lee:]

Yes, just liability or anything that we need to worry about that might come up in the future?

[Rob Hopkins:]

No. No, I think we went to great lengths to resolve both of these matters and such that we are not anticipating any residual overhang.

[Dennis Carlo:]

So, no. None whatsoever.

[Lucas Lee:]

And lastly, can you give us little more update on ZIMHI. I want to hear how the discussions being going with the FDA. You also indicated that you're working towards finalizing the partnership prior to the approval. Could you give us more color on that? And also if approved, how quickly do you think the partner could launch the product? That will be it, thank you.

[Dennis Carlo:]

So, Dr. Moss will take the first part and Mr. Marguglio will take the second part.

[Ronald Moss:]

So, this is Dr. Moss. We continue to work with the FDA throughout the NDA process, which is fairly typical. So far we have been able to, I believe, satisfy their questions that they've asked. And we are really focused on providing them with the updated clinical study report on the new study by the end of September, it was the target date. So overall, things are going well with them. And they worked with us very diligently with our proposal to change the reference drug as noted in the kaléo negotiations.

[David Marguglio:]

So this is David Marguglio. With respect to the partnering process, that is ongoing and those discussions are confidential. But the timing, as I've mentioned in my prepared comments, is targeting a resolution for our commercial plan prior to an approval for the product. The overall goal for that and doing so is to reduce the timeline to as short as possible with respect to the delta between approval and a launch.Now you asked directly what that time line may look like. Unfortunately, that's going to be determined by our eventual commercial partner. But I can tell you that we are going to great lengths to ensure that it is significantly compressed over what we went through with SYMJEPI.

[Operator:]

We'll take our next question from Jason McCarthy with Maxim Group. Please go ahead.

[Jason McCarthy:]

Hi guys. Thanks for taking the question. Congratulations on all the progress. First question around ZIMHI, just more of a mild high view, or your view. How do you look at what's happening in the opioid space? Because as you know there's been a tremendous amount of media coverage around all the litigation, and law suits, and Purdue and Teva. Does that impact partnering discussions in any way? I mean do you see maybe the opioid opportunity just contracting a little bit, or does this actually shed more light on it make it even bigger and bolster those partnering discussions?

[Ronald Moss:]

On the opioid prices, well, I think the recent data -- this is Dr. Moss. The recent data from CEC suggests that the overdoses due to the synthetic opioids continue to arise. So I would say that there is still an inherent need for the higher dose of naloxone, which isn't currently being provided by those doses that are out there now. So I think there is an opportunity to help reverse the opioid crisis with the higher dose products that we're developing.

[Jason McCarthy:]

And you had mentioned, as part of the issues with kaléo that you're doing a small PK study to supplement the NDA, and expect to do so well in front of the PDUFA. Is there a point where -- do you know about what timeline you'd have to have that data submitted by to make sure, or preserve the PDUFA date?

[Dennis Carlo:]

We really don't know. FDA is aware of our timeline. And at this point, we haven't received any notification of any change in our PDUFA date.

[Jason McCarthy:]

And just one last quick one, I don't know if I missed it. Can you just give us the breakdown of the compounding business in the SYMJEPI revenue?

[Rob Hopkins:]

So for the quarter, SYMJEPI represented $4.6 million and the balance $1.1 million was reflective of SYMJEPI sales. I'm sorry, US Compounding…

[Jason McCarthy:]

Yes, I got it figured. Thank you, guys.

[Operator:]

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

[Jason Kolbert:]

Hi guys. Thank you so much. Good questions have been asked already. But I'd like to get into the dynamics of what happens when a patient shows up at a emergency room walking, or gets a prescription for an epinephrine pen. Because what I'm seeing is that there's a lot of competitive battling and a lot of couponing. And I just like to get into the details and the nuances What Novartis is going to be offering? Should we expect to see advertising, a lot of detailing to physicians and a lot of couponing and rebase at the pharmacy and consumer level? And then I want to transition a little bit to the professional market, which has been underway for a while. And at the end, if you can help us understand of that $4.6 million, what percentage of that was represented by the setup that's been going on into the professional market versus we're all looking to understand how the retail market will develop too? Thank you.

[David Marguglio:]

So Jason, this is David. So to the first part about what Sandoz is doing in a way of marketing the product. As Dennis mentioned in his comments, I think that what everybody can be looking ahead to is some significant uptick in the amount of media coverage, amount of advertising that we'll be seeing in many different forms. But most significantly, I think in some of the professional and trade journals. And with respect to couponing and how Sandoz is combating the competitive landscape there. I can tell you that Sandoz publicly announced in July that they had instituted a coupon program, which basically puts them on even footing with all of the competitors. And so that, obviously, if you can remove the issue of any differentials between co-pay for any of the products then that makes the transitions one step closer. And then you asked about what, I'm sorry, can you rephrase…

[Jason Kolbert:]

I was trying to get a handle on the recorded sales and the proportions of where you are in the professional market. And I'm assuming that we really haven't seen at all the impact of the retail market, which could be quite significant. And I'd also like to dovetail onto that. How -- as a competition heats up and the epi market? How -- where is pricing today? Because depending on where I do a channel check, I get different number. So that would be very helpful, David.

[David Marguglio:]

Sure. So the institutional market, as I've previously stated, is obviously a small slice of the overall market. But this is important because there's a lot of influencers within that market. And that market as it defers from the point of sale transactions that you see on the retail side, tend to be contracted and those contracts tend to take significant lead time. So the good news is once you're in, those contracts are established and those relationships are moving forward that there's a sizable amount, I guess, from each of those individual customers that can be expected as far as revenue. But the offset to that is that those relationships take some time to put in place.So I think that is why the sales on an institutional side for the first -- not even Q4 quarters that we've seen have been a slow ramp. I think that we should expect to see a significant uptick on the institutional market. But as you alluded to, with retail being 85% of the market, even a slow ramp on the retail can quickly eclipse all the current sales on the institutional side.So with respect to pricing, the challenge here in pricing is that it really varies so much, it's a black box within the industry. So all we can really point to is what each company states as its wholesale acquisition price. And so the wholesale acquisition price for the least expensive competitors are Mylan's authorized generic of the EpiPen and Teva's generic to the EpiPen, which are both priced at $300 for a twin-pack on a wholesale basis. And Sandoz price are $50 below that at $250.

[Jason Kolbert:]

Got it, perfect. Thank you so much. I really appreciate the update. Dennis, I agree with you. My god, the stock has at a ridiculous valuation. This has got to be the trough as the SYMJEPI sales are realized and as naloxone moves forward, I got to believe that there is real catalyst in here. Congratulations on turning around the pharmacy compounding business to the point that it's now also turning accretive. Thank you.

[Dennis Carlo:]

Thank you very much. And I still -- Jason, our obstacles will turn into our success, because I really believe that.Okay. That will end the formal part of our call today. But before I close, I'd like to personally thank each of you for your participation and thank you for your continued interest in Adamis. I'll now conclude the call and look forward to our next quarterly call in November. Thank you.