Baudax Bio, Inc.
Q2 2021 Earnings Call Transcript

Published: 8 Aug 2021

[Operator:]

Good morning and welcome to the Baudax Bio Second Quarter 2021 Financial Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. As a reminder, this conference is being recorded at the company’s request. I would now like to turn the call over to Claudia Styslinger, Investor Relations. You may begin.

[Claudia Styslinger:]

Good morning, and thank you for joining us on today’s conference call to discuss Baudax Bio’s second quarter 2021 financial results. This is Claudia Styslinger and I am joined today by Gerri Henwood, President and Chief Executive Officer; and Rick Casten, Chief Financial Officer. On today’s call, Gerri will provide some introductory remarks, provide a business update and discuss the continued progress around the commercialization of ANJESO. Following Gerri's prepared remarks, Rick will discuss the financial highlights from the quarter. Earlier this morning, we issued a press release detailing our financial results for the second quarter 2021. The press release along with the slide presentation that we will reference for today’s call is available on the Events page of the News and Investors section of our website at baudaxbio.com. Please note, the slides for today’s presentation are viewer controlled. Before we begin our formal comments, I’ll remind you that various remarks we make today constitute forward-looking statements, pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995, including statements related to our financial outlook. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our expectations and forecasts and can be identified by words such as anticipate, believe, could, estimate, target, expect, intend, may, plan, predict, project, grow and other words of similar meaning. The following are some of the factors that could cause our actual results to differ materially from those expressed in/or underlying our forward-looking statements. The ongoing economic and social consequences of the COVID-19 pandemic, including any adverse impact on the commercial launch of ANJESO or disruption in supply chain, our ability to maintain regulatory approval for ANJESO, our ability to successfully commercialize ANJESO, the acceptance of ANJESO by the medical community, including physicians, patients, healthcare providers, and hospital formularies, our ability and that of our third-party manufacturers to successfully scale up our commercial manufacturing process for ANJESO, our ability to produce commercial supply and quantities and quality sufficient to satisfy market demand for ANJESO, and our ability to raise future financing for continued product development and ANJESO commercialization, our ability to pay our debt and satisfy conditions necessary to access future tranches of debt, our ability to comply with the financial and other covenants under our credit facility, our ability to manage costs and execute on operational and budget plans, the accuracy of our estimates of the potential market for ANJESO, our ability to achieve financial goals and our ability to obtain, maintain and successfully enforce adequate patent and other intellectual property protection. This list of important factors is not all inclusive. Any such forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties. These risks are described in the Risk Factors and the Management’s Discussion and Analysis section of Baudax Bio’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020 and any other quarterly reports on Form 10-Q, which are on file with the Securities and Exchange Commission and available on the SEC’s website. Any information we provide on this conference call is provided only as of the day of this call, August 5, 2021 and we undertake no obligation to update any forward-looking statements we may make on this call on account of new information, future events or otherwise. I would now like to turn the call over to Gerri Henwood. Gerri?

[Gerri Henwood:]

Thank you, Claudia and good morning, everyone. Thanks to all those who have joined this call. I'm especially happy to be speaking with you this morning to give you what we see a good -- very good news of the further commercial progress of ANJESO and I will be referring to the slide deck that is posted on our website and is also being 8-Kd. I'm on slide 3 of that deck, which is the slide following the forward-looking statements. So happily we have the opportunity to observe that in the second quarter -- just the second quarter, we hit virtually the same numbers that we did for all of last year. And that is not -- beyond end of, but it is certainly a very positive step forward we believe and shows really good progress, and further uptake of the product. If we go to slide 4, here we're looking at what was the change that we saw in the second quarter for units sold to all customers. So this includes ambulatory surgical centers, hospitals, and other centers. So that was a 30% growth over the first quarter. Again, showing a nice trend that we hope to continue to see grow and deepens Delta variants not withstanding. If we look at slide 5, here we're focused on the increases in vials that have been sold to end-user hospitals and to ASCs combined. So the second quarter number showing a 46% increase with that population for the second quarter versus the first quarter of this year. And, again, very happy to see that as we'll go through in a minute, this is impacting hospitals as well as ASC usage. So we'll move on to slide 6. Here, on the left-hand side, we're tracking existing hospitals, hospitals that have been on formulary from the beginning of the year, and what happened to them in Q1 versus Q2. So 55% growth in units going to risen, again, just a reminder, many of you know, but our finding and that of others is that hospitals don't stock these products. They're typically buying once or more times a day, similarly for ambulatory surgical centers. And what we're seeing is that there -- that usage is real time and has gone through in that second quarter. So if we look at ambulatory surgical centers, these are new ambulatory surgical center customers. And what we've seen there is growth in the units that they're using from the beginning of the year in Q1 through Q2 150% growth. On slide 7, if we look at what is sort of our equivalent of same store sales account usage that is increasing per account in Q1 to Q2. You see that we've got a 40% increase. So multiple measures looking at the same thing and seeing that this is does not appear to be highly selective. This appears to be a more generalize those folks that have product on formula that have been using us or increasing their usage of the product. If we look at slide 8, just a reminder to you what are the sales techniques and tools that we've been using as we had described in our last quarterly call, we are using telesales to extend our hospital reach. I think it's important that we've kept that in place because there are certainly select places right now that have shut down access to reps again, because of the Delta variant, mostly in individual cities in the South that could spread further, but I think we've made some traction so this can continue to help us, have visibility. Also in the telesales arena, we've added a group with even deeper sales skills that will be doing an end-to-end solution in certain uncovered territories where we get interest and order. So the product we can go back and try to deepen that usage or initiate that usage where we have had some indications of interest. The product field teams still approximately the same size they were before, low 20s we are looking at and depending on what the environment is like, we'll be considering the opportunity to increase the size of that salesforce in a measured way before the end of the year. And territory advisors, we continue to use to help us to get access to certain surgical groups where they have had strong relationships to help introduce us and to introduce us to pharmacy in some instances where they have relationships and we have not yet developed them. I'm going to now turn the call over to Rick Casten, our CFO to cover the financial highlights in the quarter. Rick?

[Rick Casten:]

Thank you, Gerri. Good morning everyone. Since we issued a press release and filed our Form 10-Q earlier this morning outlining our full financial results, I will just touch on some of the key highlights. As of June 30th, 2021, we had cash, cash equivalents and short-term investments of $37.6 million, this reflected the registered direct offering transaction earlier in the quarter outlined in the recent business highlights section of our second quarter 2021 earnings release, net of our operating cash spend in the quarter. Net product revenue recognized according to US GAAP for the second quarter 2021 was $20 million and related to end user unit sales of ANJESO in the US. There was approximately $0.3 million of net product revenue recognized during the second quarter of 2020 associated with the initial stocking of our wholesalers as well as end users unit sales, as we have received FDA approval in February and began to sell product in the subsequent quarter of 2020. Cost of sales for the second quarter was $0.6 million and consisted of product costs, royalty expense and certain fixed costs associated with the manufacturing ANJESO, including supply chain and quality costs. We expected over time cost of sales will increase as sales increase and inventory value change to include all direct and indirect costs, manufacturing expenses and other expenses post FDA approval. There is approximately $700,000 of cost of sales for the second quarter of 2020. Selling, general and administrative expenses for the second quarter 2021 were $10.6 million, compared to $11.2 million for the second quarter of 2020. The decrease of $0.6 million was primarily due to a decrease in personnel costs of $1.1 million. This was partially offset by $0.5 million, as the second quarter of 2020 included reimbursement of general and administrative expenses related to the Transition Services Agreement with Recro Pharma, which ended on December 31, 2020. Baudax Bio reported a gap net loss of $15.3 million, or $0.21 per share loss diluted shares for the second quarter of 2021. This compared to a net loss of $30.4 million, or $1.72 loss per share for the second quarter of 2020. Adjusted net loss for the second quarter of 2021 was $11.2 million, which excludes a net non-cash charge of $4.1 million primarily associated with the change in fair value of contingent consideration, as well as stock based compensation, non-cash interest expense, depreciation and amortization which was partially offset by a non-cash benefits from the gain on extinguishment of debt and the change in fair value of warrants. This compares to an adjusted net loss of $10.6 million in the comparable period for 2020. With that, I will now hand the call back to Gerri for closing comments.

[Gerri Henwood:]

Thanks, Rick. I'd like to recap some of the key takeaways from today's call. We're encouraged to see the demand for ANJESO with more meaningful growth during the second quarter, total number of vials sold to all customers, up 30%. And then as we look at ASCs and hospitals seeing that get as high as 46% increase. We have increased our formulary listings that was as reported in the June timeframe over 100, that continues to grow period-to-period not a ton of action in July and August typically. But we did see more growth in June and early July, and expect that we will continue to see that as we get back into the non-vacation season. We've seen usage patterns in the surgical setting both for orthopedic and soft tissue growing in the US. And formulary growth is a pre-stage of more of that to come. We think our leadership team on the sales and commercial side are doing a very solid job and getting more growth, we expect the product to continue to show growth that will of course be mitigated in some cities or locations or possibly states, by what we're all seeing with the Delta virus. It's a rapidly evolving situation. But we remain hopeful and positive that there are areas where we're not seeing as big an effect and also areas where we're still seeing some usage even though those cities may be affected by Delta. So we'll keep you posted on that to the extent that we have further knowledge and insight on that. With regard to cash position, we close a quarter with just over $37 million. We continue to receive very positive feedback from those already using and just so and remain confident in our ability to achieve even more formulary listings and again through that to continue to see sales growth in the product. We look forward to keeping updated on the progress, as we continue to educate physicians and other healthcare professionals on the overall benefits of ANJESO in the acute care setting. I'll now turn the call over to the operator for any questions.

[Operator:]

Your first question comes from the line of Leland Gershell with Oppenheimer.

[Leland Gershell:]

Hey, good morning, Gerri, and thanks for taking my questions. Two questions. First, if you could just maybe, as we drill down on to the kind of changing landscape of COVID and the Delta, Gerri, and maybe just further characterize the -- just the geographic impact with respect to commercial footprint and where you're seeing the greatest uptick so far of ANJESO and how the sensors and maybe in kind of higher used areas maybe affected, and how you may see that playing out to the best of your ability, at least for the rest of the year. And then, question maybe more specifically for Rick, just -- you appreciate the encouraging growth metrics, at the same time, revenues look flat as such timing of revenue recognition or other factors we should be aware of. Thanks very much.

[Gerri Henwood:]

Sure. Thanks, Leland. So I'll talk about the Delta variant and where we assess. So, our sales predominantly are in larger metropolitan areas. We have enjoyed good sales, somewhat distributed around the North Central, Northeast, Mid Atlantic, Southeast, Texas, fairly large area of population cover there. California and a few spots in between, but we're not able to personally cover a number of what we'll call the square states in the far west. We do see some impact in Florida right now. The University of Miami hospital has shut down access for reps. We understand but not firsthand that they have slowed their elective surgery schedule. And there are some notions like that in parts like Orlando, Tampa, et cetera. Some selected areas in Texas, we hear that it is there and they're seeing a lot of it. There a lot of admissions in the ICU are full. But so far, we have not seen them choose to cut back elective surgery. And we -- none of us can anticipate is whether or not patients who might be set up for elective surgery, themselves want to delay a little bit in order to not -- be in the middle of what is being described to some extent by a number of public health people as you know, as a short-term peak that might resolve in the next couple of months. We're just trying to be prudent and keep going. We do see more so than we did in the peak of the original pandemic. We do see that there seems to be some continued use in some cases. It's a little skinnier than it was before, but with interest in the product. So we don't think it's related to anything other than the temporary impact of Delta. But that's -- my crystal ball is cloudy on that. We won’t -- we're not public health epidemiologist. So we're just doing the best that we can to predict that we do believe that we will be in a position to continue to see growth, but obviously that could be impacted by factors outside of our control. Rick, do you want to talk about the discordance between the great units that we're seeing and how that translates to dollars?

[Rick Casten:]

Yes. Absolutely. Yes. And Leland, great question. I think you hit the nail on the head from one of the metrics. So, I would articulate it from three perspectives and articulate it to three metrics

[Gerri Henwood:]

So well, where I'm coming from the end user consumption of the product is we think what is the bellwether for the future and that is encouraging in – robustness.

[Rick Casten:]

Absolutely.

[Leland Gershell:]

Right. Absolutely. Great. Thanks very much for taking the questions.

[Rick Casten:]

Sure. Thank you.

[Gerri Henwood:]

Thank you.

[Operator:]

Your next question comes from the line of David Amsellem with Piper Sandler.

[Unidentified Analyst:]

Hey, good morning. This is Zach on for David. Congrats on commercial progress in the quarter. Just a couple for me. So just – just based on what you're hearing so far, do you envision any impact on the recovery in the case of these TMT Committee Meetings with the rising cases of delta?

[Gerri Henwood:]

Yes. It's a really good question. And here we are in August, which historically, in normal times, where we didn't know what that was like, July and August tend to have fewer meetings scheduled, because they do make allowances for committee members to have vacations. So, compared to that, as a normal base, we're not seeing a big drop off. But there were not as on scheduled July and August spend away some and this seemed to be proceeding, but not as some of them. I think September will be more of a test for us. I'm hoping that some areas will be kind of over or like having had their peak and beginning to be on the upswing again. But the areas that I will certainly be keeping an eye on are Florida and Texas in particular, because those seem to be from what we're hearing from people on the ground in terms of ICU occupancy, and things like that, there seems to be more effective than other geographies at this time.

[Unidentified Analyst:]

Okay. Thanks. That makes sense. And then if I could just follow-up, just you sort of mentioned this briefly, but what is the current mix of procedures that you're seeing in institutions right now – in the institutions that are currently on formulary? I know, we've heard like anecdotally that ortho procedures are coming back a little bit faster than normalization. So just wondering, if you were seeing that same dynamic? And how you see that mix also just evolving over time?

[Gerri Henwood:]

Sure. So another good question. And we certainly are able to see good usage uptake and growth in the orthopedics arena that continues to be very encouraging. The internal hospital usage was lagging the ASC usage, you may recall that was part of our sales strategy to ASC is having a slightly lower hurdle to get onto formulary than most inpatient hospital systems do. We enjoy more usage in the ASC. The ASC tends to skew towards more orthopedic procedures numerically than for instance general surgery procedures. But we're seeing an interesting pickup in plastic surgery procedures where the products being used. So that isn't an ortho procedure, but is an area of growth in the ASC. On the inpatient side, we're seeing a more complicated medically, patients who are having orthopedic procedures and our sphere of use, as well as intra abdominal surgeries. Those don't seem to be quite at the pace that they would be in, let's say, 2019. But they seem to be coming back better than we saw during 2020. So that's encouraging. And we are seeing some usage in other procedures in the hospital setting. So we look at spinal surgeries as of course, being orthopedic, but in sort of a class of their own. And there does seem to be some growing usage in spinal procedures as well. So that answer your question ?

[Unidentified Analyst:]

Yes, that was perfect. Thanks.

[Gerri Henwood:]

Thank you.

[Operator:]

Your next question comes from the line of Jason Butler with JMP securities.

[Unidentified Analyst:]

Hey, it’s Ron for Jason. Thanks for taking our questions. I think you may be addressed this with Leland question, but just to clarify. It seems like there's been very little wholesalers swapping in 2Q, do you expect that to maybe pick up going forward and then I had a question on the sales team. You said you might increase it this year. Just how likely do you see to add field team? How many reps do you think you would add and what's going to determine that decision? Thanks

[Gerri Henwood:]

Sure, so let me start with your second question. And I'll get Rick involved in the first question. In terms of the sales team, we have areas of growing demand. And what we have done to date was try to lead with demand before putting staff into an area. And so that is – that would be hitting our criteria for doing some expansion. And we have previously said that we would like to get to 40 reps before the end of the year, if the environment is stable. So obviously, a lots going to depend on what evolution if any, we see with the Delta variants, over the next couple months, but if it – as it appears, if it has a more modest impact, we would proceed with recruiting for those territories that we see as fruitful expansion territories, offer the base where we are because, you know, we're going to get to a point where it's going to take too much windshield time for our reps to get from hospital A to hospital B to keep encouraging usage, which is what you need to do in the early days to get that usage to deepen and get more users in the institution to have gotten formulary approval, all those kinds of things. So I would say the max would be that but we're – we haven't hit the red button yet, and we're continuing to look carefully at what are the dynamics of this particular variant, but there is a growing opportunity for the product and there is a need to get more institutions on and they're interested in getting formulary approval so we're going to have to see how do we cover that. We don't believe that telesales can actually, if you will farm or grow those kinds of opportunities solo. It's the rare instance where that can work. You do need people doing the in-services, talking to the various communities', anesthesia, pharmacy, general surgery, orthopedic surgery, et cetera, so that's how we're framing and thinking about that right now. Rick, do you want to talk about.

[Rick Casten:]

Yes, and that’s from a wholesaler perspective. I mean, well, what I would say is, we look at it week to week and we see what the wholesalers are purchasing from a perspective of what they're ordering. As you know, hospitals and ASCs are not stocking up on these products. They're purchasing these products from hospitals and or pharmacies for the upcoming anticipated surgeries that they're planning. So, we monitor this every week from a perspective of what our wholesalers are buying and purchasing, but we are on to the ICS title model from a revenue recognition perspective. But at this time, we do see the wholesalers ebb and flow with the level of increased usage at hospitals and ASCs from that perspective. So, hopefully that helps answer your wholesaler stocking perspective.

[Gerri Henwood:]

I just would add Rick that as you said, unlike retail products, we don't typically see wholesalers putting in a ton of inventory. They have them often at their various distribution centers because they've got to be close enough to get to the surgery centre on that morning. But they don't keep high level of staffing there. So, they go through a fair amount and get fairly low before a shortly order. But the ICS titled models just doesn't allow us to flush everything through concert with what we're seeing is the demand utilization.

[Unidentified Analyst:]

Okay. Got it. Thank you.

[Operator:]

And we are showing no further questions. I will now turn the call back to Gerri for closing remarks.

[Gerri Henwood:]

Thank you, very much operator, and thank you for those who have joined the call this morning and for the questions that we've had. I appreciate everyone's time and your continuing interest in support as a company. We look forward to seeing some further growth in the sales of the product and hope to be reporting even better news to you as we come to the next quarter. Thanks so much for your patience and we look forward to talking to you again soon. Have a great day.

[Rick Casten:]

Thanks everyone.

[Operator:]

Thank you for participating. You may disconnect at this time.