Opiant Pharmaceuticals, Inc.
Q4 2018 Earnings Call Transcript

Published: 22 Mar 2019

[Operator:]

Greetings and welcome to the Opiant’s Pharmaceuticals Fourth Quarter and Full Year 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Brian Ritchie of LifeSci Advisors. Please go ahead, sir.

[Brian Ritchie:]

Thank you, operator, and thank you all for joining us this afternoon. With me on today’s call are Chief Executive Officer, Dr. Roger Crystal; and Chief Financial Officer, David O'Toole. This afternoon, Opiant issued a news release announcing financial results and providing a business update for the fourth quarter and full-year ended December 31, 2018. Please note that certain information discussed on the call today is covered under the Safe Harbor provision of the Private Securities Litigation Reform Act. We caution listeners that during this call, Opiant management will be making forward-looking statements. Actual results could differ materially from those stated or implied by these forward-looking statements due to risks and uncertainties associated with the Company’s business. These forward-looking statements are qualified by the cautionary statements contained in Opiant’s news releases and SEC filings, including in our annual report on Form 10-K for the year-ended December 31, 2018, and subsequent filings. This conference call also contains time-sensitive information that is accurate only as of the date of this live broadcast, March 21, 2019. Opiant undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this conference call. Now, I’d like to turn the call over to Roger.

[Dr. Roger Crystal:]

Good afternoon, everybody. Let me begin by providing a brief update on the growing opioid epidemic. Unfortunately, this public health crisis is expanding across the U.S. Opioid overdose is now the leading cause of deaths in American males under the age of 50. This has worsened with increasing fentanyl abuse. We have been reminded twice in recent weeks of how critical an issue fentanyl abuse truly is. Firstly, it was reported that Senator Edward Markey from Massachusetts, wrote letters to Secretary of State Mike Pompeo and acting-Secretary of Defense Patrick Shanahan, asking whether their agencies have devised strategies to deal with the substantial weaponization of fentanyl. Senator Markey wrote that the combination of high demand, plentiful supply, and alarming potency has made fentanyl dangerously ubiquitous, and raised the prospects of falling into the hands for those who would use it for even more nefarious purposes. He also asked how fentanyl could be used in an attack, how likely such attacks are likely to be carried out and what could be done to prevent fentanyl from being used as a weapon. Second, just days after Senator Markey’s letters were reported on, the United States Customs and Border Protection announced that they had seized the largest ever illegal shipment of fentanyl, which was coming from Mexico and found for Arizona. Authorities uncovered 254 pounds of fentanyl, which they said was enough to kill 115 million people. The most recent events demonstrate that the opioid crisis has really evolved into a fentanyl crisis with over half of opioid overdose deaths in 2017 containing fentanyl. This is a backdrop against which Opiant continues to advance its addiction and drug overdose focus pipeline led by OPNT003, nasal nalmefene for the treatment of opioid overdose. We believe that the high affinity of nalmefene at the mu opioid receptors, combined with a rapid onset of action and the long duration of action, of OPNT003 makes it particularly well-suited to treat fentanyl related opioid overdoses. In 2018, we entered into a multiyear contract with potential funding of up to approximately $4.6 million , with BARDA, which is part of the U.S. Department of Health and Human Services to accelerate the development of OPNT003 as a medical countermeasure in the event of a fentanyl chemical attack. In addition, we received a $7.4 million grant last year from NIDA, the National Institute on Drug Abuse. Collectively, these awards fund the full development of OPNT003 through to a new drug application NDA and provide validation of the role of OPNT003. In 2019, we intend to conduct the pivotal pharmacokinetic study. The goal of this study is to replicate the findings from the pilot study. Top line data are expected later this year. This would position us to submit the previously referenced NDA in 2020 for the 505(b)(2) development path. Furthermore, Opiant retains for same full commercial rights to this product. Moving on to OPNT002 for alcohol use disorder, AUD. We believe that OPNT002 is well suited to treat AUD because it will be taken as a nasal spray whenever a patient has the urge to drink, without the need of prior abstinence. In addition, rapid nasal absorption ensures that the maximum amount of the drug is available when needed. We previously generated encouraging pharmacokinetic data for OPNT002, demonstrating its rapid nasal absorption. In 2019, we intend to initiate the Phase 2 trial of AUD that we expect to complete by the second half of 2020. Next, I'm excited to speak about the most recent addition to our pipeline, drinabant, a cannabinoid CB-1 receptor antagonist, for the treatment of ACO, acute cannabinoid overdose. We licensed it from Sanofi late last year. ACO could be a significant market opportunity for Opiant. It is characterized by panic and anxiety, feelings of paranoia, agitation, visual and auditory hallucination, psychosis and nausea. These symptoms often require emergency medical attention and can take hours to days to resolve. There are no currently FDA-approved treatments for ACO. ACO is most often linked to the ingestion of edibles containing large quantities of THC and synthetic cannabinoids such as K2 and spice that are more potent and less expensive than marijuana. Edibles, sold as brownies, cookies and candies, pose particular risks for children, who often consume these by accident. We estimate that ACO resulted in more than 1 million emergency department visits in the United States in 2016. With an increasing number of states legalizing marijuana for personal and recreational use, ACO rates are expected to rise, as evidenced by Colorado where there has been a 20% increase in ACO-related emergency department visits since its legalization in 2014. Importantly, Sanofi has already done a significant amount of clinical work on this compound that we can now leverage. In a previous clinical study conducted by Sanofi, when healthy patients were given oral drinabant and then inhaled THC, both subjective and objective effects were locked. Opiant will develop an injectable version that can now -- that will be able to rapidly reverse the symptoms of ACO in an emergency room setting. In 2019, our focus will be on reformulating oral drinabant into an injectable, and we intend to commence clinical studies in 2020. Like opioid overdose, ACO is on NIDA’s list of disorders where new effective treatments are urgently needed. Therefore, there is a possibility that OPNT004 could receive government funding. I would also like to mention OPNT005, Opiant’s heroin vaccine, which was codeveloped by researchers at the US Military HIV Research Program, MHRP; and NIDA. Opiant licensed this product in 2016. This programs is well-funded whereby the researchers received grant funding in Q4 2018 to potentially advance OPNT005 through clinical trials. With that, let's move on to OPNT001 for the treatment of bulimia nervosa. We recently announced the top lines results of our Phase 2 study whereby OPNT001 failed to meet its primary endpoint. So, Opiant will not advance this program. A few comments on NARCAN nasal spray, which we developed and was licensed to Adapt Pharma, which was acquired by Emergent BioSolutions, EBS, up for $735 million in 2018. Based on EBS’s outlook for NARCAN nasal spray, we anticipate a growing revenue stream from royalty. David, will review EBS’s latest 2019 guidance for NARCAN, shortly. Finally, I want to emphasize, Opiant continues to be in a strong financial position with the cash of approximately $24.6 million at the end of 2018, which does not include the majority of the funds from the BARDA contract or the NIDA grant. With that, I’ll now ask David to discuss our financial results.

[David O'Toole:]

Thank you, Roger. Before I review our financial results, I would like to first address the $8.1 million third-party license fee that we recorded at December 31, 2018. Under Amendment Number 2 which we executed this week with Adapt, this $8.1 million license fee which relates to a third-party license agreement entered into by Adapt in February of 2018, is payable by us in 2019 and 2020 as a reduction of the royalties or milestone we are to receive. Amendment Number 2 in general is a very positive outcome for us, as we were able to settle on a maximum significantly reduced third-party license fee spread over the next four quarters. In addition, we were able to secure provisions that still allow Adapt to enter into third party licensing arrangement. However, in order to exercise its right to deduct any future payments, with certain specified exceptions, after March 18, 2019, Adapt will need our consent as to whether the licensing arrangement is acceptable to us as provided in Amendment Number 2. In all instances, any third-party licensing arrangement and associated deductions, if any, taken by Adapt, must comply with the provisions of Amendment Number 2. Even, with this $8.1 million third-party license fee that will be paid by us over the next four quarters, we remain in a strong financial position. At December 31, 2018, Opiant had cash and cash equivalents of approximately $24.6 million, compared to approximately $8.1 million at December 31, 2017. In addition, as Adapt is now owned by EBS which has significant resources, both Opiant and EBS believe that NARCAN has significant growth potential. In fact, EBS has publicly provided guidance that they believe net NARCAN sales will exceed $200 million in 2019, which would translate into higher royalties during the year for Opiant as well as a potential one-time sales milestone under our license agreement with them of $15 million of which we would receive 90%, less certain potential deductions, as discussed previously. It is also important to note that we currently project our cash balance to be approximately $17 million to $20 million at December 31, 2019, which does not include the impact of the potential receipt of the net sales milestone, discussed previously. With that, I will now briefly review our fourth quarter financial results. First, please note that we changed our year-end from July to December as of December 31, 2017. Therefore, the income and expense numbers provided for the three months and the 12 months ended December 31, 2017 are pro forma and unaudited. We recognized $4.8 million in revenue during the three months ended December 31, 2018 compared to approximately $11.7 million in the corresponding period of 2017.The decrease in revenue of $6.9 million was primarily due to the fact that we recognized approximately $9.2 million of revenue from a non-recurring sales milestone under our license agreement with a Adapt for the three months ended December 31, 2017, offset by an increase in royalty revenue of $2.3 million recognized in the three months ended December 31, 2018 versus the same period in 2017. For the three months ended December 31, 2018, Opiant recognized $4.1 million of revenue from the license agreement between it and Adapt for the sales of NARCAN. G&A expenses were $2.6 million and $4.4 million for the three months ended December 31, 2018 and December 31, 2017, respectively. The decrease in G&A was primarily due to decreased personnel and related costs of $1.3 million and stock-based compensation expense of $0.7 million. Research and development expenses were $2.5 million and $1.9 million in the three months ended December 31, 2018 and December 31, 2017, respectively. The increase in R&D expenses was primarily due to an increase in expenses associated with our product development program. As noted earlier, third-party license fees were $8.1 million for the three months ended December 31, 2018. The third-party license fees related to our obligation under the license agreement with Adapt for certain payments made by Adapt to third parties. There were no third-party license fees for the three months ended December 31, 2017. Net loss for the three months ended December 31, 2018 was $9.5 million, for a loss of $2.49 per basic share compared to net income of $3.4 million or $1.59 of income per basic share for the comparable period of 2017. Now, let’s focus on the results for the full-year 2018. We recognized $14 million in revenue for the year ended December 31, 2018. For the 12 months ended December 31, 2017, we recognized approximately $15.6 million in revenue. During the year ended December 31, 2018, the company recognized $13.3 million of revenue from the license agreement between us and Adapt for the sales of NARCAN versus $11.7 million of which $9.2 million related to a non-recurring sales milestone for the 12 months ended December 31, 2017. During the 12 months ended December 31, 2017, Opiant recorded $3.8 million from the sale to SWK Capital of its right to receive royalties arising from the sale of NARCAN by Adapt. This was a one-time payment from SWK as provided under the royalty monetization agreement between Opiant and SWK. G&A expenses were $11.3 million and $10.3 million for the years ended December 31, 2018 and December 31, 2017, respectively. The increase of $1 million was primarily due to an increase in stock-based compensation expense of $1.6 million and $0.7 million increase in corporate overhead, which was partially offset by $1.3 million decrease in personnel and related expense. R&D expenses were $8.5 million and $4.9 million for the years ended December 31 2018, and December 31 2017. The increase in R&D expenses was primarily due to $1.5 million increase in third-party expenses associated with our R&D progress, a $1.5 million increase in stock-based compensation and a $0.6 million decrease in personnel and related expense. License fees were $13.7 million for the year ended December 31, 2018. Again, the license fees related to our obligation under the license agreement with Adapt for certain payments made or to be made by Adapt third-parties. There were no third-party license fees for the year ended December 31, 2017. Net loss for the year ended December 31, 2018 was approximately $21.2 million or a loss of $7.10 per basic share, compared to a net loss of approximately $2.6 million or a loss of $1.28 per basic share for the 12 months ended December 31, 2017. As I stated previously, at December 31, 2018, we had cash and cash equivalents of approximately $24.6 million compared to approximately $8.1 million at December 31, 2017. This cash balance does not include the majority of the recently awarded $7.4 million NIDA grant and the $4.6 million BARDA contract. In conclusion, with the robust and rapidly advancing pipeline that is partially funded externally, a growing royalty revenue base from NARCAN and a healthy balance sheet, Opiant is in a strong operating and financial position from which to continue to grow in 2019 and beyond. With that, I will now ask the operator to open the call up for questions. Operator?

[Operator:]

Thank you. [Operator Instructions] Our first question is coming from Brandon Folkes from Cantor Fitzgerald. Your line is now live.

[Unidentified Analyst:]

Hey, guys. This is Asif [ph] for Brandon. Thanks for taking the questions. So, I have a couple. So first, would you guys share some of your take on December FDA Advisory Committee meeting regarding the increased use of naloxone, and if this meeting specifically referred to naloxone but not opioid overdose medication? Do you think, if the development of the 003 is successful, that you will have to invest significantly behind nalmefene education access, or do you expect it to enjoy the same access as the naloxone from the start?

[Dr. Roger Crystal:]

So, thanks for your question. I think, at this point, obviously nasal nalmefene program is still in development stage. When we met with the FDA, the general discussion was around nasal nalmefene as an opioid overdose agent and this has essentially the same label as the original product injectable [indiscernible]. So, -- that we would think that this would be well suited for opioid overdose in the same way. But clearly we’re still in the development stage, so this would be predicated on further discussions with the FDA that time. But, as I discussed that this is a 505(b)(2) development pathway, and that will -- we'd expect the label indication with the previously FDA approved injectable version.

[Unidentified Analyst:]

So, okay. That's great. And so, as a follow-up for 003. So, could you give us some color on the development program and steps following a potential data readout for the 003 in 2019?

[Dr. Roger Crystal:]

Hello, can you hear me? Because the line went down for a second. Can you hear me okay?

[Operator:]

Please proceed.

[Dr. Roger Crystal:]

So, I think what your question was related to is the development timing for 003, if that's the case, and the intention is to come to a pivotal pharmacokinetic study this year, aiming with the data readout the second half of this year, probably in Q3, and with an intention to file an NDA in 2020 and we’ll give more specific guidance as the program continues.

[Operator:]

Our next question is coming from David Bautz from Zacks Investment Research, your line is now live.

[David Bautz:]

Hey. Good afternoon, guys. Real quick follow-up there on the 003 development. Are there any activities that need to conclude before you can get that PK study started?

[Dr. Roger Crystal:]

It's essentially having -- the general approach is the study of our PK study. So, we are on the way in terms of having the product ready, we put into the PK study, and the most specific, if you like the product is develop -- the PK study needs to be set up, you need to have a certain amount of stability data before you can even initiate that PK study, so like that. And as we announced previously, we have a contract with the device manufacturer. And so, that’s underway in terms of having the product ready.

[David Bells:]

Okay. I'm wondering what kind of interest are you seeing from potential collaborators about 003, and would you be comfortable taking that product to market on your own?

[Dr. Roger Crystal:]

We have not made any -- we are not going to give specifics around who the collaborators. I won’t think I -- the general scheme is that as this opioid crisis has evolved and increased demand and requirement for opioid overdose reversal agents, and that's reflected in the amount of interest out there from potential collaborators, compared to when we [indiscernible] on our nasal nalmefene, the NARCAN nasal spray program all those years ago. So, absolutely, there’s been a huge increase in interest in general. We're not looking to specifically license this program today and that we have the external funding from NIDA and BARDA to take this all the way through the NDA. And so, we are keen to continue on that process ourselves. In terms of commercialization, we've not given any specifics. The market -- the large market and commercialization regardless is challenging, but we’re certainly very encouraged by the market opportunity. And we certainly like to say, we have a greater participation in the commercialization of 003 than perhaps with NARCAN, EBS now -- Adapt [indiscernible]. So, that's where we are today.

[David Bells:]

Okay. And question about the amendment to the license agreement. So, just to confirm, the maximum amount that you could have deducted from your royalty income this year is $8.1 million, I think what I heard? And then, also, how likely is it that Adapt is going to need to enter into any additional licensing agreements?

[David O'Toole:]

Yes. So, this is David. Thanks for the question. It is a maximum of $8.1 million. The way the amendment, which is written, it is written both for SWK and us, and we retain 90% and SWK has 10%. So, our share with the maximum amount that can be deducted over the next four quarters is $8.1 million. So, regarding your second question, maybe Roger can chime in here also, but we're not aware of that much additional IP out there that Adapt may want to license and to protect the NARCAN franchise. But that doesn't mean that there isn't potentially some additional license agreements that they may want to enter into. We just are not aware of any at this point in time.

[Operator:]

Thank you. Our next question is from the line of Brandon Folkes from Cantor Fitzgerald. Your line is now live.

[Unidentified Analyst:]

Hey, guys. I just have one additional question regarding the NARCAN, right now. So, if Emergent to lunch and also generic of NARCAN at some stage, would you guys be expected to entitle to a royalty on the also the generic?

[Dr. Roger Crystal:]

So, there are provisions in both the Adapt agreement and the amendment that indicate as far as whether or not they would authorize a generic. And in some circumstances, we would be able to get benefits for those additional sales. And then, in other situations, we wouldn't. And authorized generic, the answer is probably yes. A generic product, the answer is probably no.

[Unidentified Analyst:]

So, as a follow-up, so that would be -- so the authorize generic, it would be the same kind of royalty structure as is right now seen?

[Dr. Roger Crystal:]

Correct.

[Operator:]

Thank you. We reached the end of our question-and-answer session. I'd like to turn the floor back over to Dr. Crystal for any closing or further remarks.

[Dr. Roger Crystal:]

Okay. Thank you, operator. To summarize, we're very excited about the prospects for our pipeline. We truly believe drugs we’re developing have the potential to save thousands of lives and we look forward to continuing to advance each in the clinic. Importantly, our development plans are well supported by our financial resources. Thank you for joining us today and for your interest in Opiant. We look forward to keeping you updated on our progress throughout 2019. Enjoy the rest of your day.

[Operator:]

Thank you. That does conclude today's teleconferencing. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.