Eagle Pharmaceuticals, Inc. (NASDAQ:EGRX) Q3 2022 Earnings Conference Call November 7, 2022 8:30 AM ET
Company Participants
Lisa Wilson – Investor Relations
Scott Tarriff – President & Chief Executive Officer
Brian Cahill – Chief Financial Officer
Conference Call Participants
Tim Lugo – William Blair
Brandon Folkes – Cantor Fitzgerald
David Amsellem – Piper Sandler
Operator
Good morning, everyone. My name is Todd and I’ll be your conference operator. At this time, I’d like to welcome everyone to Eagle Pharmaceuticals Third Quarter 2022 Financial Results. [Operator Instructions] As a reminder, this conference call is being recorded today, November 7, 2022.
It is now my pleasure to turn the floor over to Ms. Lisa Wilson, Investor Relations for Eagle Pharmaceuticals. Please go ahead.
Lisa Wilson
Thank you, Todd. Welcome to Eagle Pharmaceuticals’ third quarter 2022 earnings call. This is Lisa Wilson, Investor Relations for Eagle Pharmaceuticals. With me on today’s call are Eagle’s President and Chief Executive Officer, Scott Tarriff; Chief Financial Officer, Brian Cahill; and Vice President of Medical Affairs, Dr. Michael Greenberg. This morning, Eagle issued a press release detailing the financial results for the 3 months ended September 30, 2022. This press release and a webcast of this call can be accessed through the Investors section of the Eagle website at eagleus.com.
Before we get started, I would like to remind everyone that any statements made on today’s conference call that express a belief, expectation, projection, forecast, anticipation or intent regarding future events and the company’s future performance may be considered forward-looking statements as defined by the Private Securities Litigation Reform Act. These forward-looking statements are based on information available to Eagle Pharmaceuticals’ management as of today and involve risks and uncertainties, included in those noted in this morning’s press release and our filings with the SEC. Such forward-looking statements are not guarantees of future performance. Actual results may differ materially from those projected in the forward-looking statements. Eagle Pharmaceuticals specifically disclaims any intent or obligation to update these forward-looking statements, except as required by law. A telephone replay will be available shortly after completion of this call. You’ll find the dial-in information in today’s press release. The archived webcast will be available for 1 year on our website at eagleus.com. For the benefit of those who may be listening to the replay or archived webcast, this call is held recorded on November 7, 2022. Since then, Eagle may have made announcements related to the topics discussed, so please reference the company’s most recent press releases and SEC filings.
And with that, I’ll turn the call over to Eagle’s President and CEO, Scott Tarriff.
Scott Tarriff
Well, thank you, Lisa. Good morning, everyone and thank you for joining our call today. It was another strong quarter for Eagle, the earnings growth trajectory that we had expected continued in the third quarter with non-GAAP earnings per diluted share coming in at $1.12. For the year-to-date, we have sold $114.9 million of vasopressin and PEMFEXY combined. We are posting record earnings this year as evidenced by the fact that in the first 9 months of the year, we have already earned $6.69 per share. To put it into context, that number already tops our previous best full year ever of $4.34 in 2017.
So we really are on a solid path of earnings growth. And while there may be a disconnect with our current valuation, we believe 2023 has the potential to be another strong year for Eagle in terms of both revenue and profit. The story is fairly simple. We have a company which is generating a lot of cash with a very strong balance sheet. We have taken that money and used it to fund the acquisition of Acacia, the equity stake in Enalare, licensing of landiolol and the clinical development of CAL02.
Additionally, we repurchased $10 million of our shares this quarter, bringing our total repurchases to $246 million. We remain very excited about the Acacia products or BARHEMSYS and BYFAVO and hopeful for the potential of Enalare’s portfolio of novel NCEs, landiolol and CAL02. We had a strong first 9 months of ’22 and we expect 2023 and ’24 to be strong in terms of revenue and profit as well. To reiterate, we believe we will sell more PEMFEXY in 2023 than we did in ’22. And the bendamustine situation is very manageable. We anticipate increased revenue as we build out and realize the full value of the Acacia products and from the potential approval of landiolol. Additionally, we anticipate deploying the cash from our earnings and strong balance sheet not only to fund our key clinical initiatives but also to make an accretive acquisition to round out the portfolio.
We believe we have put ourselves in a strong position to achieve all of this through our disciplined approach to managing our cash and balance sheet. Between potential acquisitions and our pipeline, we believe Eagle can grow significantly in both the short and the long term. We are well on our way to achieving our stated objective of transitioning to a branded pharmaceutical company with a diversified portfolio of assets.
Now turning to the third quarter. The third quarter was an active and productive time for Eagle. We are relaunching BARHEMSYS and BYFAVO, the 2 products we acquired in the Acacia transaction. We submitted an investigational new drug application to the FDA for CAL02, a novel first-in-class broad spectrum anti-virulence agent for the treatment of severe community-acquired bacterial pneumonia. And in August, as you may recall, we took an equity stake in Enalare. We are thrilled to share that ENA-001, a new chemical entity being developed as an agnostic respiratory stimulant, had 2 big wins in the quarter. First, ENA-001 received orphan drug designation for the treatment of apnea of prematurity from FDA. And second, Enalare received an additional award worth up to $50 million based on achievement of milestones from BARDA to advance an intramuscular formulation of ENA-001. BARDA is the Biomedical Advanced Research and Development Authority which is part of the administration for strategic preparedness and response in the United States Department of Health and Human Services. This is incredibly exciting news for the program.
When we look at our business in its entirety, we have built a formidable stream of earnings from our legacy products, specifically BENDEKA, BELRAPZO, TREAKISYM in Japan, RYANODEX and most recently, vasopressin and PEMFEXY. This phase has provided us with a record year supported by record sales, profits and earnings. Eagle finds itself in a particularly strong position. As mentioned, we have a company whose revenue, earnings and cash flow are strong and at the same time, we’re able to invest heavily in our pipeline, a pipeline that has so much potential to contribute meaningfully to the options available to acute care and other physicians treating critically ill patients and/or perioperative patients as well as to diversify Eagle’s revenue stream.
While I will touch briefly on CAL02, landiolol and ENA-001 this morning, I strongly urge you to attend our Investor Day on December 6, when you will hear from a group of internationally renowned KOLs and physicians, who will provide in-depth explanations of the scientific and clinical rationale behind these programs as well as the substantial unmet medical needs that each address.
Let’s start with ENA-001, an agnostic respiratory stimulant under the development for 3 indications: postoperative respiratory depression, community drug overdose and apnea of prematurity. ENA-001 is designed to work clinically by inhibiting big potassium ion channels in the carotid bodies which are located in the neck. By pivoting these channels, ENA-001 is designed to utilize the body’s own ventilatory control system to stimulate breathing and it does so across multiple causes of respiratory depression. It’s helpful to think of ENA-001 as a pharmacologic ventilator. And as such, you can imagine the myriad of applications. ENA-001 is expected to enter a Phase 2 study with the first patient dosed early next year. The trial is expected to recruit about 200 subjects over 1 year.
Turning to CAL02, a novel agent with a unique mechanism of action for the treatment of severe community-acquired bacterial pneumonia, it’s being developed as an adjunct to the clinically indicated antibiotic treatment and it potentially offers unique therapeutic benefits to critically ill patients. Some of those benefits could include shorter duration of critical care management, such as mechanical ventilation and ultimately a reduced mortality risk as well as an immediate decrease in inflammatory biomarkers.
Severe community-acquired bacterial pneumonia is a challenging disease to treat and remains among the leading causes of death in infectious diseases worldwide. So there’s incredible opportunity to shift the treatment paradigm for patients with severe community-acquired pneumonia. The IND for CAL02 has been submitted and we aim to be dosing the first patients in this adequately powered Phase 2 study, enrolling approximately 276 patients at 120 sites worldwide as early as the beginning of 2023. And remember, too, that the NDA submission to FDA for landiolol is under review and the action date is May 31, 2023. The filing seeks approval for landiolol for the short-term reduction of ventricular rate in patients with supraventricular tachycardia, including atrial fibrillation and atrial flutter.
Our bendamustine franchise revenues continued with another strong quarter. There continues to be a shift in the United States market away from lyophilized TREANDA towards the liquid RTD products, BENDEKA and BELRAPZO which offer numerous advantages for patients and healthcare providers. According to IQVIA data, TREANDA’s share of the bendamustine market is now down from 15% to 9% since January. In Q3 of 2022, the gross profit generated by our bendamustine franchise grew by 9% compared to Q3 of 2021. These products have provided us with consistent high-margin contribution throughout their life cycle. Of note, we have historically paid a 10% royalty on all bendamustine products to our development partner. These royalties have a lifetime cap that we will soon reach helping with contribution of BENDEKA, BELRAPZO and TREAKISYM beginning in 2023.
Even as we continue to diversify our commercial portfolio with the additions of PEMFEXY, BARHEMSYS and BYFAVO, potentially landiolol, we expect the bendamustine franchise to remain a meaningful part of our earnings. Similarly, we are confident that we will sell more PEMFEXY next year than we will have this year. Our Q3 run rate is significantly higher than reported sales as the trade works off inventory. And as BARHEMSYS and BYFAVO make gains in the marketplace, we believe they will begin to approach the value levels that we anticipate.
We remain quite enthusiastic and you’ll hear more on our Investor Day which I will discuss before turning the call over to Brian. I encourage you all to attend our December 6 Investor Day, preferably in person at the Palace Hotel in New York or via webcast. You will be hearing from some of the best and brightest internationally recognized key opinion leaders who have first-hand experience treating these devastating conditions. They will speak to the urgent treatment gaps in hospital-based medicine today and how our pipeline and commercial products can play a significant role in addressing those gaps.
With that, I’ll turn the call over to Brian Cahill to discuss our third quarter financials. Brian?
Brian Cahill
Thank you, Scott and good morning. In the third quarter of 2022, total revenues was $65.9 million compared to $39.9 million in Q3 of 2021, primarily reflecting continued revenue from sales of vasopressin and PEMFEXY as well as the addition of BARHEMSYS and BYFAVO to our commercial portfolio. Product sales during the third quarter were $38.1 million compared to $12.1 million in Q3 of 2021. Vesopressin sales were $13.8 million and PEMFEXY sales were $1.7 million in the third quarter of 2021. PEMFEXY product sales were compressed for the quarter as we see customers working through launch order quantities. Actual PEMFEXY sales volume by customers was as much as 4x that of reported sales as trade inventory was reduced. BELRAPZO product sales were $8.5 million in the third quarter of 2022 compared to $4.9 million in Q3 of 2021. Third quarter RYANODEX product sales were $7.6 million compared to $4.5 million in Q3 of 2021.
3Q 2022 royalty revenue was $24 million compared to $27.7 million in the prior year quarter. Royalty revenue includes royalties earned on sales of BENDEKA in the U.S. and TREAKISYM in Japan. This quarter, we recorded $3.8 million of other revenue for cumulative sales milestone on the sales of TREAKISYM in Japan by our marketing partner, SymBio. We recorded $3.8 million milestone payment from the SymBio on TREAKISYM in 3Q, $1.2 million or $0.07 per basic and diluted share less than anticipated due to currency declines of the Japanese yen. Gross margin was 64% in Q3 compared to 79% in the prior year quarter. This decrease was the result of the addition of product sales of vasopressin, PEMFEXY, BARHEMSYS, BYFAVO to our portfolio which contribute lower margins than historical revenue mix which has been dominated by BENDEKA royalties. Also, compressing margin is the inclusion of amortization expense this quarter related to the newly acquired products which will continue going forward.
On the expense front, R&D expense were $9.3 million for the third quarter of 2022 compared to $23.3 million in the prior year quarter. This decrease was largely attributable to the nonrecurrence of upfront payments for CAL02 and landiolol licenses and launch preparedness for PEMFEXY and vasopressin from Q3 2021. This was partially offset by increased expenses in 3Q 2022 related to our CAL02 and fulvestrant clinical trials compared to the prior year quarter. Excluding stock-based compensation and other noncash and nonrecurring items, third quarter 2022 non-GAAP R&D expense was $8.7 million. We expect R&D spend in 2022 on a non-GAAP basis to be less than $40 million. This change in estimate reflects lower than previously expected near-term expenses related to the post-approval obligations for the newly acquired Acacia products and the timing of expenses related to the CAL02 clinical work.
SG&A expense in the third quarter of 2022 were $23.5 million compared to $18.5 million in the third quarter of 2021. This increase was driven by higher headcount and marketing spend, in this, our first full quarter with Acacia as well as increased spend for external legal and other professional services. Excluding stock-based compensation and other noncash and nonrecurring items, third quarter 2022 non-GAAP SG&A expense was $18.3 million. We expect our SG&A spend in 2022 on a non-GAAP basis to be USD64 million to USD68 million. This increase from prior period guidance is inclusive of the headcount costs associated with our expanded commercial efforts.
Net loss for the third quarter of 2022 was $3.5 million or $0.27 per basic and diluted share compared to a net loss of $5.6 million or $0.43 per basic and diluted share in the prior year quarter. Adjusted non-GAAP net income for the third quarter of 2022 was $14.9 million or $1.13 per basic and $1.12 per diluted share. compared to adjusted non-GAAP net income of $7.5 million or $0.57 per basic and $0.56 per diluted share in the prior year quarter. For a full reconciliation of non-GAAP measures to the most comparable GAAP measures, please see the table at the end of our earnings release.
As of September 30, 2022 and following the completed acquisition and synergizing of Acacia, the company had $15.4 million in cash and cash equivalents, $96.9 million in net accounts receivable and $59.3 million in outstanding debt, resulting in $53 million in net cash plus receivables. In the third quarter of 2022, we repurchased an additional $10 million of our common stock as part of our $160 million share repurchase program. From August 2016 through September 30, 2022, Eagle has repurchased $246.1 million of our common stock. This month, we have refinanced our collective debt facilities, including the near-term expiring TLA and revolver as well as the private loan acquired from Acacia. The company now has a new 3-year $150 million facility with a bank group led by JPMorgan that includes a $50 million term loan A and a $100 million revolving credit facility. The terms, including covenants of this facility have been publicly disclosed and are largely similar to those of the expiring facility.
With that, I’ll ask the operator to open the call for questions. Operator, please go ahead.
Question-and-Answer Session
Operator
[Operator Instructions] We’ll take our first question from Tim Lugo with William Blair.
Tim Lugo
Congratulations on the strong quarter. I think most investors I speak to regarding Eagle, there’s so many moving parts heading into 2023. You don’t need to give guidance, obviously but can you just discuss broadly how you think sort of product mixes will change in 2023, specifically, obviously, BENDEKA, it sounds like there might be some royalty payments coming off. I know you’re very bullish on PEMFEXY next year. So can you just maybe give us a sense of where those products will be moving next year?
Scott Tarriff
Thanks, Tim. Very, very thoughtful. As we look towards the future and maybe it’s good to discuss ’23 which is what’s on everybody’s mind but also ’24 and ’25. I think ’23 from a mix standpoint is going to be very similar to ’22. I believe we’ll have a strong bendamustine franchise from a revenue standpoint but certainly from a profitability standpoint, as you mentioned, as these royalties were paying going away. And the same thing with PEMFEXY, as we state, PEMFEXY is expected here entirely to be a larger product in ’23 than it was in ’22. And you can see the move over the last year away from lyophilized TREANDA to BENDEKA and BELRAPZO. And just for history, we earned no profit, we don’t receive a royalty on that TREANDA business. So as TREANDA declines, there’s a shift from that value over time to BENDEKA or BELRAPZO which we do receive value from. And when we speak to our customers and we look at the landscape, we just happen to believe that we created and developed products that our customers want to buy in BENDEKA, BELRAPZO and PEMFEXY.
So as we talk about the mix next year, you’ll see the mix pretty similar to this year and we think ’23 is potentially, depending on the value of those 3 products, to be another really strong earnings year for us. When we get past ’23, then you’ll start to see the growth of the Acacia products which we expect to have a solid year in ’23 but grow to those levels we’ve discussed in ’24 and ’25. Hopefully, we receive the approval for landiolol and that starts to contribute as it ramps, probably not a tremendous amount in ’23 but we have high hopes for it in ’24 and ’25. So just to try to shorten the conversation, ’23 similar to ’22, ’24 and ’25, these new products take hold. And as we’ve stated, we’re still anticipating making an accretive acquisition to further enhance the portfolio. We think we have plenty of room with the cash in the balance sheet to make a pretty sizable accretive acquisition relative to our size that will bring revenue into ’23, ’24 and ’25. And essentially, that’s why we’re so darn excited about the prospects of the company.
And if ENA-001 and CAL02 pass their clinical trials, their Phase 2 studies which we should get the results too at the end of ’23, then this company will never look the same. Those products are so significant in size. We will have met our goals of being a diversified pharmaceutical company and we’re just in great shape.
Operator
We’ll take our next question from Brandon Folkes of Cantor Fitzgerald.
Brandon Folkes
Congratulations on the progress. Two from me, just hearing what you’re saying about the market shift away from TREANDA but can you just think of help us think, should we expect the generic arbitrage on bendamustine when the TREANDA generics do show up? And then maybe just along the same lines, just on PEMFEXY, I heard your commentary on the inventory work down and the demand in the quarter. But can you just update us maybe just what you’re seeing in terms of pricing there and that erosion in terms of reimbursement for generic usage?
Scott Tarriff
Let me tackle the TREANDA. As we said before, TEANDA, llyophilized TREANDA is down to 9% and it’s 9% for good reason, BENDEKA and BELRAPZO are just improved products that our customers want and have benefits for the patients as well. And I know we’re all concerned about what happens when we have TREANDA generics coming to the market but that would be a therapeutic substitution, not a generic substitution. BENDEKA, we probably have another 5 years of exclusivity and our customers recognize that and they’re pleased about that. And so we have that 9% of the market on TREANDA to worry about but we never received any profit from that. And we believe that there’ll be minimal shift, especially in community oncology away from the 2 RTU products over to TREANDA.
And so, when you take a look at all of that, that’s going on in the marketplace, the way we’re reimbursed and then this 10% royalty going away, as of right now, we are still in the same ballpark that we’ve always been in this 25%, give or take, range of value that we’ll lose. And that’s very manageable with all the other growth that we have going on in the company which we still expect that ’23 is going to be a very strong year for us. If everything else that we’re forecasting goes according to our plan which brings us to your PEMFEXY question. And it’s the same thing. PEMFEXY is a brand It’s not a generic product and we treat it as a brand and we market it as a brand and we’ve hired some new sales reps calling at our customers and talking about the attributes of the product. And so our price remains at a branded level and we expect that we’ll be able to achieve sales because of those product benefits, greater than the sales that we achieved in ’22.
And again, it’s because BENDEKA, BELRAPZO and PEMFEXY are just better products that are wanted by patients and physicians that use them and nurses, by the way. So we’re confident in our ability to still maintain strong earnings in ’23 and use those earnings to not only fund our clinical programs that could just be remarkably exciting to patients but to continue to fund all of the work that we do here. And so we’re bullish as we turn the corner from this incredibly breakthrough year for us and being able to fund another acquisition to just continue to grow off of this new base that we’ve established for the company.
Operator
[Operator Instructions] We’ll take our next question from David Amsellem of Piper Sandler.
David Amsellem
Just a few. So first, on vasopressin, sorry if I missed this but can you comment on the extent to which there was any inventory headwinds or tailwinds along the lines of what you talked about in fact seeing any inventory impact for vaso during the quarter? So it’s number one. Number two, any comments that you can make on the potential impact of Amneal’s ready-to-use pemetrexed product that they have in the queue at the FDA, how do you think about the potential impact of that, if there’s any impact at all? And then lastly, on bendamustine. I know Teva has commented that they’re seeing declines in overall bendamustine usage due to changes in the overall treatment paradigm for NHL and CLL. So I guess with that in mind, how are you thinking about that in the context of pressure on bendamustine. Overall, do you expect that to continue as your thinking lineup with Teva’s there?
Scott Tarriff
Okay. So that’s a lot. Let me make sure I get to each of the 3 points. Let me take bendamustine first. Benda has for the last several years been a slightly declining marketplace in terms of use in CLL and NHL and that’s not changing. So the total market of bendamustine has been declining a little bit every year and that’s going to continue, right? That’s shouldn’t be a surprise to anybody. But as you saw with the way we’ve been handling it and the opportunity that we’ve had from a profit standpoint, look Q3 of ’22 grew 9% over Q2 of ’21. And I think that’s probably a surprise to people but when you think about it, if you’ve been watching the Rxs from TREANDA decline, those scripts have to go someplace. And they’re coming to either BENDEKA or BELRAPZO where we go from making no value out of a TREANDA sale, obviously, making value out of BENDEKA and BELRAPZO.
And our thinking is actually that over time, even with generics coming on to the market, that, that TREANDA market, the lyophilized market is going to continue to shift to the RTD products. And that eventually, as you get to the second half of ’23, there’s probably going to be a lot less lyophilized usage in the marketplace than there is today even with generics. And so that bodes well for us in ’23 as well as having that 10% royalty we’ve been paying going away.
Having said all that, we will have some declines in bendamustine overall. But we do have 5 years left of exclusivity, most likely with BENDEKA. And I think as you get through those 5 years, it will continue to decline slightly but still be a very meaningful part of the company into ’28 or ’29 where we have the exclusivity. So we’re really excited to keep the bendamustine business, I don’t know, alive and very healthy here at the company and just look at Q3 numbers and we’re very excited about it. In terms of PEMFEXY RTU, we’ve taken all of that into account as we’ve made our prediction to have more PEMFEXY sales. It’s just a very big market. I think the market for PEMFEXY, when ALIMTA was branded was $1.3 billion in the year. And so it’s a very big market.
So when we predict that we’ll sell more PEMFEXY in ’23 than in ’22, we’ve taken all this into account and we’re reasonably confident in now we’re forecasting prediction. And then when it comes to vasopressin, there hasn’t been much vaso inventory in the marketplace. So the vaso sales that we had this quarter are what I would call normalized.
So with that, I hope I’ve answered all of your questions.
Operator
It appears at this time, we have no further questions in queue. I’ll turn the floor over to Scott Tarriff for any additional or closing remarks.
Scott Tarriff
Thank you again for joining our call today. We’re very proud of the strong earnings growth trajectory we’re on as well as the outstanding pipeline progress that we’re funding for our commercial operations. But to gain a deeper understanding of the potential of these programs and products, please join us at the Palace Hotel in New York on December 6. I think it’s going to be a fantastic day. It’s going to be an engaging and educational few hours with some internationally renowned experts on hospital and critical care medicine. We hope to see you there. We look forward to it. We’re very excited about hosting it and I think it’s just going to be a fun day for all of us to participate in. And with that, thank you and we look forward to continue really wonderful quarters here at Eagle. Thank you, again.
Operator
This concludes today’s call. Thank you for your participation. You may disconnect at any time.
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