Eagle Pharmaceuticals, Inc. (NASDAQ:EGRX) Q4 2022 Earnings Call Transcript

Eagle Pharmaceuticals, Inc. (NASDAQ:EGRX) Q4 2022 Earnings Call Transcript March 13, 2023

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 Fourth Quarter and Full-Year 2022 Financial Results . All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer period. As a reminder, this conference call is being recorded today, March 13, 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 and welcome to Eagle Pharmaceuticals’ fourth quarter and full-year 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. Mike Greenberg. This morning, Eagle issued a press release detailing its financial results for the three months and full-year ended December 31, 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, including 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 one year on our website at eagleus.com.

For the benefit of those who may be listening to the replay or archived webcast, this call was held and recorded on March 13, 2023. Since then, Eagle may have made announcements related to the topics discussed, so please refer to the company’s most recent press releases and SEC filings. We will be discussing non-GAAP financial measures during this conference call in addition to financial information prepared in accordance with U.S. GAAP. These non-GAAP financial measures should be considered in addition to, but not as a substitute for the information prepared in accordance with GAAP. A description of these non-GAAP financial measures and reconciliations of these non-GAAP financial measures to their most comparable GAAP measures are set forth in our earnings press release available on our website at eagleus.com.

And with that, I’ll turn the call over to Eagle’s President and CEO, Scott Tarriff.

Scott Tarriff: Thank you, Lisa. Good morning, everyone, and thank you for joining our call today. 2022 was an outstanding year for Eagle. Our adjusted non-GAAP earnings per diluted share was $7.79 for the full-year 2022, compared with $1.68 adjusted non-GAAP earnings per diluted share posted in 2021, our previously best full-year. We earned $132 million in adjusted non-GAAP EBITDA in ’22, this is a very significant achievement for a company of our size. This $7.79 more than triples last year’s non-GAAP earnings per diluted share and came in at the top end of our expectations for 2022. The fourth quarter of 2022 our adjusted non-GAAP earnings per diluted share was $1.10, compared with $0.83 in the fourth quarter of the prior year.

Adjusted non-GAAP net income grew by 31.8% to $14.4 million in Q4 of €˜22, up from $11 million in Q4 of €˜21. Our earnings per share in the past few years have been strong and we expect that to continue in 2023. It’s not just that we tripled our adjusted non-GAAP earnings per diluted share year-over-year to how we did it. Let me point out once again that this was accomplished mostly organically. We have not raised any money through equity or debt finances in about seven years. In fact, we used almost $250 million, since 2016 to buyback our stock through our share repurchase program. In €˜22, we also spent about $100 million combined in cash and Eagle shares to acquire Acacia Pharma and its two commercial acute care products for BARHEMSYS, BYFAVO and we still have net cash and receivables after all of this.

Our cash and cash equivalents is held almost entirely at JPMorgan in operating accounts. And we have outstanding $63.8 million of debt on our $150 million credit facility with JPMorgan. As of today, we hold less than $1 million in a small number of accounts at Silicon Valley Bank with no individual account in excess of $250,000 not only are we in very strong financial shape, but it places us in good position to acquire assets or companies. Eagle has successfully managed expenses and had strong profitability. We expect to earn $74 million to $80 million of adjusted non-GAAP EBITDA in ’23, assuming the mid-range of this €˜23 guidance, this would represent a compound annual growth rate for the four-year period of 2020 to 2023 of 6%. As an organization, we are keenly focused on developing important products for the patients who need them.

At the same time, we have tried to achieve this in a manner that creates profitability. I doubt our mindset will change in the near-term. Let’s discuss the strength of our year. Our fourth quarter €˜22 gross margin reflects both the expiration of our 10% bendamustine royalty and the buy down of our PEMFEXY world. We expect these positive impacts to continue in €˜23. I will point out that in the fourth quarter of €˜22, we had just over $12 million of PEMFEXY net sales and exited the quarter with a 6% share of the U.S. market in community oncology. We previously stated that we anticipated doubling that share to 12% by the end of the first quarter of €˜23 and it continues to be our expectation as we have already captured 10% share through February.

In €˜22, PEMFEXY net sales reached $67 million, we expect that net sales of PEMFEXY in €˜23 will be higher than $67 million. As a reminder, in Q4 of €˜22, we reduced future royalties on PEMFEXY profits in exchange for a one-time payment of $15 million to eliminate the royalty on the first $85 million of profit on PEMFEXY beginning October 1 €˜22 and for a reduced royalty thereafter. Let me speak now to our bendamustine sales and profitability and provide an update on where we are thus far in the first quarter of €˜23. In €˜22, we had year-over-year revenue growth in both BELRAPZO and TREAKISYM net revenues of 42% and 97%, respectively, while BENDEKA declined. In total, our bendamustine franchise revenue grew in €˜22 over €˜21.

As we have discussed many times that bendamustine franchise faced competition for the first time on December 7 €˜22. Eagle’s strong fourth quarter of €˜22 earnings reported today and just discussed obviously include those three weeks of competition in December. Based on IQVIA data through February 24, BENDEKA and BELRAPZO hold an 88% share of the U.S. bendamustine market where historically those two products have held about a 90% share. We continue to believe that BENDEKA is a meaningfully superior oncology product for patients and healthcare providers, compared to TREANDA or generic TREANDA, and that it will continue to maintain strong market share positions throughout €˜23. As we’ve been saying for some time, we expect BENDEKA and BELRAPZO to maintain approximately 75% of our gross profit in ’23, compared to €˜22.

In the nearly 90 days since competition entered the market, we can see that our products are holding up quite well relative to our forecast erosion to support our expectations. Let me also point out that we no longer pay the 10% royalty in our bendamustine products a royalty obligation that came out of gross profits until it expired in Q4 of €˜22 and had a lifetime cap. Turning now to the Acacia products for BARHEMSYS and BYFAVO. Although still a small base, the nearly $1.5 million in combined sales of BARHEMSYS and BYFAVO in the second-half of €˜22 represents a doubling from Acacia’s reported net sales of 722,000 for these two products in the second-half of €˜21. In ’22, sales for the two products included $1.2 million by Acacia prior to the closing of our acquisition of the company on June 8 and $1.6 billion by Eagle post close.

Keep in mind that Q1 of €˜23 is the first quarter in which we have our full size and fully trained sales team. We are extremely encouraged and hopeful the growth trends will continue. Both products are patent protected until 2031. Net sales of RYANODEX increased year-over-year by 19% for the full-year ’22 in vasopressin and PEMFEXY our two new launches in €˜22 generated $131 million combined in net sales in €˜22. During the first quarter of €˜23, we decided to exit the vasopressin market by discontinuing all related manufacturing and halting sales beyond the current inventory levels. So this is our opportunity to proudly discuss our record year in €˜22. The question on everybody’s mind is what about €˜23 and beyond? Once again, as we have indicated in the past, we believe our product and pipeline opportunities are collectively strong with seven commercial products on the market and three exciting pipeline programs.

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Our guidance of $74 million to $80 million of adjusted non-GAAP EBITDA for full-year €˜23 would represent an historical record, second to our record year for adjusted non-GAAP EBITDA in €˜22. Taking a look even beyond ’23, as we have indicated in the past, Eagle desires to make an accretive acquisition for additional patent protected assets to solidify our growth for several years. This brings us to our cash and balance sheet. We’re being very selective, but we believe we have the ability to make a meaningful acquisition one that would expect to potentially go a long way in positioning Eagle as a growth company for many years to come. If we can accomplish this while we work towards our objectives for BARHEMSYS and BYFAVO, we believe it would have huge impact on our ability of future growth.

These are our belief that our pipeline opportunities offer not only potentially first-in-class products, which could have significant impact on treatment options. But the potential market could possibly have dramatic impact on Eagle size and value successful. The significant pipeline opportunities include ENA-001, an investigational one-of-a-kind new chemical entity. It is an agnostic respiratory stimulant being developed by Enalare for the potential treatment of postoperative respiratory depression, community drug overdose and apnea of prematurity for which FDA granted orphan drug designation in Q4 of €˜22. As a reminder, we acquired approximately a 17% equity stake in in Enalare an exchange for two upfront investments paid in August of €˜22 and February of €˜23.

And we have an option to purchase the rest of Enalare in the event specified milestones are achieved. CAL02, a novel first-in-class broad-spectrum anti-virulence agent for the treatment of severe community-acquired bacterial pneumonia for which a local Phase 2 study is underway with 276 expected patients and 120 centers expected in 22 countries. And our NDA for landiolol is under FDA review. The filing seeks approval for landiolol for the short-term reduction a ventricular rate in patients with supraventricular tachycardia, including atrial fibrillation and atrial flutter. We expect to have informative data readouts on Enalare and CAL02 in about a year or so. In the meantime in €˜23, we are projected to use cash to support Enalare, ENA-001 through an additional equity investment and for CAL02 through R&D expense of about $35.5 million to $37.5 million combined.

This does not include any cash that would be required in the event that Enalare achieve certain milestones or that we exercise our option to purchase the remaining shares of Enalare. As we transition into a diversified pharmaceutical company, we see two avenues open to us to meet this goal: clinical development and acquisitions. For now, we plan to balance both required Acacia Pharma and hope to make an additional acquisition. We recognize that clinical development carries more risk, but with a potentially higher return. To be clear, if we do not succeed with the CAL02 and Enalare clinical programs, we intend to add the cash we would have spent on development and any accompanying earnings back to the company and then concentrate on acquisitions.

If we are successful, then we believe our investment will be money extremely well spent. In summary €˜22 was an outstanding year for Eagle, and we believe €˜23 is shaping up to be another very strong year. We hope to make a meaningful acquisition, focus our efforts on BARHEMSYS and BYFAVO, to support the development of ENA-001 and work hard on advancing (ph) over the next year or so and see how those turn out. Well, with that, I’ll turn the call over to Brian Cahill to discuss our fourth quarter and full-year financials. Brian?

Brian Cahill: Thank you, Scott, and good morning. In the fourth quarter of 2022, total revenue was $60.7 million, compared to $42.3 million in Q4 of 2021, primarily reflecting continued revenue from sales of vasopressin and PEMFEXY, which we launched in 2022, as well as the addition of BARHEMSYS and BYFAVO to our commercial portfolio. Full-year 2022 revenue was $316.6 million, compared to $171.5 million in 2021. Net product sales during the fourth quarter of 2022 were $37.2 million, compared to $16.2 million in Q4 of 2021. Full-year 2022 net product sales were $214.5 million, compared to $65 million in €˜21. Vasopressin net product sales were $3.6 million and PEMFEXY net product sales were $12.1 million in the fourth quarter of ’22.

For the full-year €˜22, vasopressin net product sales were $63.2 million and PEMFEXY sales were $67.5 million. Regarding vasopressin, during the first quarter of 2023, we notified customers and the FDA of our decision to withdraw from the vasopressin market, inventory on-hand and in distribution channels is expected to be depleted by the end of the second quarter of 2023. BELRAPZO net product sales were $11 million in the fourth quarter of €˜22, compared to $5.5 million in Q4 of 2021. For the full-year, BELRAPZO net product sales totaled $33.7 million, compared to $23.7 million in 2021. Fourth quarter 2022 RYANODEX net product sales were $7.2 million, compared to $6.1 million in Q4 of 2021. Full-year of €˜22 net product sales of RYANODEX totaled $30.2 million, compared to $25.3 million in 2021.

Q4 2022 royalty revenue was $23 million, compared to $26.2 million in the prior year quarter. Full-year 2022 royalty revenue totaled $98.3 million, compared to $106.5 million in 2021. Royalty revenue includes royalties earned on sales of BENDEKA in the U.S. and TREAKISYM in Japan. During 2022, we recorded $3.8 million of other revenue, a cumulative sales milestone on sales of TREAKISYM in Japan by our marketing partner SymBio. Gross margin was 67% in Q4, compared to 71 % in the prior year quarter. This decrease was the result of the addition of product sales of vasopressin, PEMFEXY, BARHEMSYS and BYFAVO to our portfolio, which contribute lower margin than historical revenue mix, which has been dominated by BENDEKA royalties. Also compressing margin is the inclusion of amortization of intangible assets related to the newly acquired products and the reduction of the PEMFEXY buy down beginning on October 1, 2022, which will continue going forward.

On the expense front, R&D expenses were $7.2 million for the fourth quarter of ’22, compared to $3.8 million in the prior year quarter. This increase is largely attributable to CMC and clinical trial spend on our CALO2 program. Excluding stock-based compensation and other non-cash and non-recurring items fourth quarter 2022 non-GAAP R&D expense was $6.6 million. Full-year 2022 R&D expenses were $34.1 million, compared to $51.3 million in 2021, primarily reflecting the non-recurrence of a $10 million upfront payment related to our license agreement with Combioxin for CAL02 and $5 million upfront payment related to our license agreement with AOP Orphan for landiolol, lower headcount also — lower headcount costs of $1.3 million and lower spent on vasopressin of $7.6 million.

RYANODEX and EA111 of $3.1 million and PEMFEXY of $2.2 million. This was partially offset by $10.7 million of CMC and clinical expenditure on our CALO2 program in 2022. Excluding stock-based compensation and other non-cash items, adjusted non-GAAP R&D expense for 2022 was $31.5 million. SG&A expenses in the fourth quarter of 2022 were $24.1 million, compared to $20.3 million in the fourth quarter of 2021. This increase was driven by higher headcount and marketing spend related to our newly acquired products BARHEMSYS, BYFAVO and PEMFEXY, which launched in February of 2022. Excluding stock-based compensation and other non-cash and non-recurring items, fourth quarter €˜22 non-GAAP SG&A expense was $19.9 million. For the full-year of 20 22, SG&A expenses were $106.6 million, compared to $75.3 million in 2021.

This increase primarily reflects costs associated with the acquisition of Acacia, including severance expense and other deal costs, also higher headcount on marketing spend related to our newly acquired products BARHEMSYS and BYFAVO and PEMFEXY, which launched in February of 2022. Excluding stock-based compensation and other non-cash items, adjusted non -GAAP SG&A expense for 2022 was $70 million. We expect our SG&A spend in 2023 on a non-GAAP basis to be between $68 million and $90 million. Net income for the fourth quarter of 2022 was $8.2 million or $0.63 per basic and $0.62 per diluted share, compared to net loss of $6.2 million or $0.48 per basic and diluted share in the prior year quarter. For the full-year 2022, net income totaled $35.6 million or $2.76 per basic and $2.73 per diluted share, compared to a net loss of $8.6 million or $0.66 per basic and diluted share in 2021.

Adjusted non-GAAP net income for the fourth quarter of 2022 was $14.4 million or $1.11 per basic and $1.10 per diluted share, compared to adjusted non-GAAP net income of $11 million or $0.85 per basic and $0.83 per diluted share in the prior year quarter. For the full-year 2022, adjusted non-GAAP net income totaled $101.8 million or $7.87 per basic and $7.79 per diluted share, compared to adjusted non-GAAP net income of $22.3 million or $1.71 per basic and $1.68 per diluted share in 2021. For a full reconciliation of non-GAAP measures to the most comparable GAAP measures, please see the table at the end of our earnings press release. Also please note as disclosed in the footnotes to this morning’s press release beginning in the fourth quarter of 2022 Eagle no longer excludes expenses for in process research and development from its non-GAAP results.

Historically, the company excluded these charges, these charges have been made, these changes rather have been made to align with the views expressed by the U.S. Securities and Exchange Commission. Prior periods have been recast to reflect these changes. As of December 31, 2022 and following the completed acquisition and synergizing of Acacia, the company had $55.3 million in cash and cash equivalents, $72.4 million in net accounts receivable and $63.8 million in outstanding debt, resulting in $64 million and net cash plus receivables. In 2022, we repurchased $18 million of our common stock as part of our share repurchase program from August 2016 through December 31, 2022, Eagle has repurchased $46.1 million of its common stock. During the fourth quarter, we refinanced our debt facility.

The company now has a new three-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 similar to those of the prior expiring facility. With that, I’ll ask the operator to open the call for questions. Operator, please go ahead.

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Q&A Session

Operator: Yes, sir. Our first question comes from Brandon Folkes with Cantor Fitzgerald.

Brandon Folkes: Hi, thanks for taking my questions and congratulations on a very strong year. A few from me, maybe just firstly, just on the — well, let’s start with PEMFEXY, maybe just — can you talk about the moving pieces around 2023 revenue? As you gain this market share, any dynamic that revenue should not track around a similar growth rate?

Scott Tarriff: Yes, can you repeat that again? Brandon, we lost you for a second.

Brandon Folkes: Sure. Apology, so on PEMFEXY, can you just talk about the moving pieces around 2023 revenue? Just as you’re gaining market share, any dynamics that revenue should not track around about a similar growth rate?

Brian Cahill: Oh I see. Well, thanks for the question, Brandon, and good morning. Yes, so we are out in the marketplace with our sales force concentrating on PEMFEXY, we’re thrilled about the growth that we’ve had so far, the announcement today, the $12 million in Q4 and then the market share of about 10% where we are today. And I think if I understand your question, it’s really about how inventory levels relate to sales and how that shakes out in the course of the year? For the most part, our customers have acquired inventory in anticipation of their future growth. We expect the 10% to grow to 12% by the time we get through March and then grow beyond that standpoint. It may not track exactly from quarter-to-quarter with activity, we’ll just have to see how that all shakes out and see where the market share winds up.

But at the end of the day, we’ll expect to have sales in excess of last year’s number of $67 million, and right now, we’re on track. We’re right where we thought we would be. We’re hoping to have and still have high expectations that we’re going to have a strong year. For the product, and remember, the profitability of the product has improved this year, as well as we bought down that royalty payment. So it’s exciting year for us as it relates to PEMFEXY. Did that answer you, Brandon?

Brandon Folkes: It did, yes. And then maybe on BELRAPZO, so now that we have the TREANDA generics on the market, did your strategy around that product change at all?

Brian Cahill: We are doing our best to protect our franchise. We have an oncology sales force that is very focused on the product. We just think we have two really good products, especially in BENDEKA, the 10-minutes infusion. BELRAPZO being a liquid product, I think we’re just going to stay very focused, we’ve committed before or at least expressed that we thought we would be within this 25% loss, keeping 75% of our product. And you can see after the first 90 days, Brandon, we’re really in very good shape. We’ve been able to do a really nice job keeping our products. And we expect that we’ll just going to have a strong €˜23 as it relates to the bendamustine franchise both BENDEKA and BELRAPZO, combined with what we’ve just articulated on PEMFEXY, we’re expecting to have another strong year across the board with our products in ’23 it’s an exciting time for us.

Brandon Folkes: Great. Thank you very much.

Scott Tarriff: Thank you.

Operator: Thank you. Our next question comes from Tim Lugo with William Blair.

Lachlan Hanbury-Brown: Hey, guys. This is Lachlan on for Tim. Thanks for taking the question and I’ll add congratulations on a strong 2022. So on PEMFEXY, those the market share data you provided is very useful. I was wondering if you can talk about, sort of, how much of the market you call with the sales force to help us think about where that market share could get to? And then on — yes, so I’ll leave it there.

Brian Cahill: Well, let’s start with and thank you. So our sales force covers the entire market, the market is slipped between commercial and the hospital market to 340B market pretty evenly. We’re mostly focused with the sales force on the community side and those are the shares that we’re referring to is the share in community. So it’s a big marketplace, we’re very focused on it. We expect the share to continue to grow throughout the year. We haven’t guided to where we expect to go. We’ll take it quarter-by-quarter, but we feel pretty confident that the 12% level as we leave March, especially considering that we’ve already grown from 6% to 10%. And then we do have a focus on hospital market obviously as well. We’ll see how that goes, but right now, very focused on community the sales force covers 100% of that business and as of today we’re feeling pretty good about it.

Lachlan Hanbury-Brown: Awesome. Thank you. And then you mentioned in the press release and in the prepared remarks that you anticipate growth in BARHEMSYS and BYFAVO, now that the sales wasn’t fully scaled, can you just talk about when that sort of happened? When did you complete that scaling and sort of how big is it now compared to what it was last year?

Scott Tarriff: Yes. So the scaling is really just coming into play, we only purchased the company closed on in June. And so we went back to the territories now that we had these new products and we made some changes, we made some expansions, at the end of the day, we have more reps today than we had last year by a few. And we’re just really very excited about the ramp, it’s looking good. I realize it’s a small base, but you can see by the remarks we made today, there’s strong growth there. We’re expecting €˜23 to be a very solid year and lay the foundation for future growth and we still have really high expectations. The two products are wonderful, getting great feedback from our customers and the users of the product. We had the — we had what I thought was a really very strong Investor Day a couple of months ago and we just keep hearing wonderful things and let’s see how the growth goes. But right now, we are also very enthusiastic about the trends for the product.

Lachlan Hanbury-Brown: Got it. Thank you. And I guess on the topic of sales force, if I could just quickly ask, are you expecting much incremental expansion around landiolol potential approval?

Scott Tarriff: No, I think we’re right sized for all of our launches and all of our business this year. I think the step up that we took and the people that we have now is sufficient to get us through at least the next year.

Lachlan Hanbury-Brown: Great, thank you.