Adamis Pharmaceuticals Corporation (NASDAQ:ADMP) Q1 2020 Earnings Conference Call May 18, 2020 5:00 PM ET
Dennis Carlo – President and CEO
Robert Hopkins – CFO
Ronald Moss – Chief Medical Officer
David Marguglio – Chief Business Officer
Conference Call Participants
Elliot Wilbur – Raymond James
Jason McCarthy – Maxim
Greetings and welcome to the Adamis Pharmaceuticals Corp. First Quarter 2020 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] Please note that this conference is being recorded.
I would now turn the conference over to our host, Dr. Dennis Carlo, President and Chief Executive Officer. Thank you sir, you may begin.
Thank you. Hello and welcome to Adamis Pharmaceuticals first quarter 2020 earnings conference call. I’m Dr. Dennis Carlo, President and CEO of Adamis. Thank you for joining us today for the update, and welcome to our shareholders, analysts and anyone taking an interest in Adamis. Joining me today is our Chief Financial Officer, Rob Hopkins; our Chief Medical Officer, Dr. Ronald Moss; and our Chief Business Officer, David Marguglio.
Once again, the format for this call will consist of some remarks from management followed by an opportunity for some questions. This call is being webcast and will be available for replay in the Investors section of our website, adamispharmaceuticals.com. In today’s call, we will make certain forward-looking statements regarding our business based on current expectations and current information. Those statements speak only as of today, and except as required by law, we do not assume any duty to update in the future any forward-looking statements made today.
Of course, any forward-looking statements involve risks and uncertainties, and our actual results could differ materially from those anticipated by any forward-looking statements that we make today. Additional information concerning factors that could affect our business and financial results is included in our most recent annual report on Form 10-K with the SEC and in other subsequent filings that we make with the SEC. These are available at the SEC’s website.
Prior to getting into my personal remarks, I would like to extend my heartfelt sympathy to everyone and anyone that has been significantly affected by the COVID-19 pandemic. We have been most fortunate that thus far none of our employees or their immediate families are suffering with or have died from COVID-19 and we hope that continues.
That’s not to say that Adamis has not been impacted. In March as the audit work was being completed for year-end financials, California was instituting a statewide lockdown and I determined to cancel our planned quarterly call to help us focus on instituting new systems and procedures to enable the continuation of operations all while ensuring the health and safety of our employees and with a hope to gain greater visibility into the 2020 year.
I expected that we would be able to provide more visibility into the impact of the disruption by now. But as much as the country enters into a third month of significant lockdown, it remains difficult to know the extent of its impact on the company, although we have been adversely affected.
We continue to monitor the situation on the state and local level and we’re taking prudent measures to ensure the health and safety of our employees and their families. Additionally, we continue to work closely with our manufacturing supply and research partners to try to mitigate Adamis’s business disruption.
I would like now to discuss a few points from our first quarter results and highlight some successes we have had year-to-date. After receiving a complete response letter from the FDA for our high-dose naloxone product, ZIMHI in November. In December, we submitted responses for the division [indiscernible] CRL to the FDA along with the meeting request. On February 12, we met with the FDA at its headquarters in Maryland. During that meeting, we discussed our responses and obtained concurrence with the agency on the specific information required for resubmission of the NDA.
The Director of the Division participated and during the meeting indicated our resubmission would be reviewed in a rapid and timely fashion. We’ve now completed the enabling work and I’m happy to report that we have resubmitted our NDA for ZIMHI on Friday of last week.
I’ll now move from naloxone to Epinephrine or SYMJEPI. In our last few quarterly investor calls, I described some of the sales initiative Sandoz plan to implement in their ongoing marketing of SYMJEPI. However, some initiatives specifically including a field based sales force were not implemented. We and others have always felt a sales force visiting the top prescribing allergists was the major way to drive the growth of SYMJEPI in the market.
That said during the first quarter of this year, we had discussions with Sandoz regarding alternatives for successful commercialization of SYMJEPI. On May 11, we announced that Adamis and Sandoz had mutually agreed to return to Adamis the marketing and distribution rights for SYMJEPI products and to provide for termination of our commercialization agreement. On the same day, we announced that we had entered into a new agreement with US WorldMeds for commercialization and distribution rights in the U.S. for both SYMJEPI and ZIMHI.
We remain confident in the value of SYMJEPI in the market and we look forward to working with US WorldMeds to successfully commercialize SYMJEPI and following an approval to commercialize ZIMHI in the United States market.
Obviously, Adamis has been negatively affected by COVID-19 and remains to be seen how quickly everyone can get back to a new normal. However, we continue to operate the business and we’re making progress on a number of overall objectives. We will continue to do our best to lessen the financial impact of COVID-19 on our business.
I would like now to turn it over to our CFO, Rob Hopkins to provide some highlights from the first quarter financials. Rob?
Thank you, Dennis.
As Dr. Carlo mentioned, I want to highlight a few items from our first quarter financials and I also encourage everyone to review our Form 10-Q for additional details and disclosures. First, revenues for the first quarter decreased 4.9% from $4.9 million in the same quarter in 2019 to $4.7 million in the latest quarter. This decrease was primarily attributable to the impact of COVID-19 on sales at U.S. Compounding.
It is unclear how long the lockdowns will persist. Therefore, the long-term impact due to the COVID-19 pandemic on U.S. Compounding is unknown. However, we expect that the decrease in revenues we experienced in the first quarter will continue at least in the near-term as hospitals canceled elective and non-emergency procedures.
Pain clinics were either shutdown or experience significant drop in office visits during the first quarter and the horse racing industry shut down. Steps taken to offset these events include the production of hand sanitizer, and the manufacturer of compounds that are in short supply and listed on the FDA’s drug shortages. Gross profit for the first quarter decreased 23.8% from the same period in 2019 approximately $1 million and $1.3 million respectively.
This decrease was attributable in parts reduced margins related to SYMJEPI and was partially offset by increasing margins at U.S. Compounding. Selling, general and administrative expenses for the first quarter of 2020 was $6.1 million compared to $8 million during the first quarter of 2019. The single largest contributor to this decrease was wages, benefits and other compensation expenses.
Research and development expenses were approximately $2 million and $2.2 million for the first quarter of 2020 and 2019 respectively. The decrease was primarily due to an ongoing reduction in development costs for our product candidates including SYMJEPI and ZIMHI.
Cash and equivalents at the end of the first quarter totaled approximately $10.5 million. In February, the company completed a registered direct offering and received net proceeds of approximately $6.2 million. In April, the company increased its cash position by accepting loan proceeds of $3,191,700 under the Paycheck Protection Program, established as part of The Coronavirus Aid, Relief, and Economic Security Act.
Please refer to our recent SEC filings for more information on the PPP. We continue to target cash expenditures that is cash used and operating investing in the range of $3 million to $4 million per quarter in 2020. Assuming we can meet that target and depending apart in the future impact of the COVID-19 pandemic, future revenues from sales and products by U.S. Compounding and developments concerning our PPP loan, we currently expect that we will have sufficient operating capital to carry the company through 2020. As I stated earlier, please see our Form 10-Q for additional details and disclosures.
I will turn it over to our Chief Medical Officer, Dr. Ron Moss for an update on our regulatory and pipeline development.
I’d like to provide an update on our high-dose naloxone injection product ZIMHI first also known as APC-6000. As everyone knows, Naloxone is considered the treatment for immediate administration for opiate overdoses. Accidental opiate overdoses continue to be a significant public health problem in the U.S., and deaths due to the more potent synthetic opiates continue to rise.
Furthermore, there’s been recent concern that opiate related deaths may increase due to the indirect effects of COVID-19 stay in place. That’s why we believe there’s a public health need for higher dose ZIMHI product candidate. As Dennis just mentioned, we met with FDA in February to discuss the manufacturing issues and the complete response letter.
We believe we have obtained an understanding of the regulatory path forward from the FDA at our face to face meeting. As you know, our team resubmitted the NDA to the FDA this Friday and we’re hopeful for rapid review. We will continue to work with the FDA to commercialize as much needed products. If approved by the FDA, we believe ZIMHI could be an important part of the solution to this growing public health crisis of opiate overdoses.
Finally, with respect to our dry powder inhaler platform, also known as APC-4000, we recently conducted in-vitro proof-of-concept studies and have confirmed the suitability of APC-4000 for further clinical and commercial development. Adamis is currently considering partnering opportunities for the future development and commercialization of APC-4000 as a product candidate and for the DPI inhaler platform as a whole.
At this time, I would like to turn this over to David Marguglio for an update on our partnering programs. David?
Thank you, Ron.
You may recall in the last several earnings calls, I’ve indicated we were in ongoing discussions with multiple potential commercial partners through ZIMHI. However, as our discussions with Sandoz regarding ZIMHI progressed to the point that it became clear, we might be looking at unwinding our commercial agreement. We approached some of the companies that were evaluating ZIMHI about commercializing both products. Multiple groups expressed interest and this led to additional diligence, and further discussions.
And as Dennis suggested earlier, we reached an agreement with US WorldMeds and we could not be more pleased with our new commercial partnership. US WorldMeds has a long and successful history of developing and commercializing pharmaceutical products and from our initial discussions, it was clear that ZIMHI would be highly synergistic to US WorldMeds Lucemyra product, Lucemyra is a first in class and only approved FDA, only FDA approved drug for the treatment of opioid withdrawal symptoms after abrupt discontinuation. As our discussions progressed with US WorldMeds, it became in their description that they intimated of multiple successes they had in turning around products that had stalled under other organizations. It was clear that US WorldMeds was also the right partner for SYMJEPI.
Adamis and US WorldMeds are currently working with Sandoz to smoothly transition commercialization and distribution to US WorldMeds and at the same time, US WorldMeds is planning for the commercial launch of ZIMHI, so they’re prepared to execute following an FDA approval.
Finally, last year, we were pleased to announce a partnership with Emerge Health to seek regulatory clearance and eventually market SYMJEPI in both Australia and New Zealand. We’re continuing to evaluate opportunities to market SYMJEPI outside the U.S. and we hope to finalize one or more of those opportunities in 2020.
With that, I will turn it over for questions.
[Operator Instructions] Our first question comes from Elliot Wilbur with Raymond James. Please state your question.
Thanks. Good afternoon, congratulations on the US WorldMeds deal, I wanted to direct my questions around that transaction. Specifically, in thinking about the structure or the triggers for milestone payments, any detail you can provide behind the aggregate number of $26 million that was disclosed previously and just thinking about whether or not the initial filing and subsequent FDA acceptance would in fact be triggers for at least a small component of the total milestones associated with the deal?
Yes, Elliot this is Dennis. I’ll let David answer that question for you.
Thanks for the question, Elliot. So as you mentioned, we disclosed the sum of both the near-term and performance milestones associated with the agreement. We haven’t given a breakdown as to exactly which component of each, but I suggest that it is, not too dissimilar from structure that we had with Sandoz. And that these tend to be the agreement itself tends to favor a more back ended structure and that, we were much more focused on the 50% net profit split that we ended up with than we were in initial milestone payments.
And so I believe was disclosed in the 8K that we filed last week, the net calculation for gross profit is pretty straightforward. In that we deduct from net sales, we deduct out the cost of goods which Adamis is supplying to US WorldMeds and from there, we deduct out and agreed to percentage of their direct marketing and sales expenses and the remainder is the net profit to be split equally between the two companies.
Okay, thanks. And then I want to ask you a couple of questions around the marketing game plan for SYMJEPI and ZIMHI understanding that US WorldMeds is running the show, but obviously you had extensive discussions with them around the licensing of the two assets. And specifically, I guess with respect to ZIMHI, it looks to be an attractive asset to pair with their existing opioid withdrawal product Lucemyra.
So I’m not sure if you guys were able to kind of dig into sort of the marketing game plan there in terms of what the overlapping call patterns would be between targeted prescribers for ZIMHI and Lucemyra. But that seems to be kind of a nice complementary asset there and just want to get your thinking on that observation.
And then with respect to SYMJEPI, I mean what are some of the factors that convinced you that US WorldMeds is kind of the right partner to sort of bring this asset back to life? Are they going to be in a position to have full control of it ahead of the or in time for the kind of the key back to school season?
Yes, this is David, I’ll take that again, since it’s directly related. The first part of that was with respect to why, what synergies we see with US WorldMeds related to ZIMHI, I think you already sort of identified that these the product that they’re currently marketing Lucemyra is very complementary to this product. And so as I alluded to in my earlier comments, that was one of the very early factors for us that that suggested that US WorldMeds will be a great fit for this, for ZIMHI. However as we progressed our conversations and inserted the opportunity of whether they would be interested, if we were able to get the products back from Sandoz.
One of the things that made them I think a really good choice for us and going that direction was one, as I previously mentioned, they’ve had a lot of success in turning around products that were with other companies and taking products that had either stalled in its growth or had otherwise lackluster performance and turning them into highly profitable products. And in fact, no one of the stories as they shared with us was that two of the products, two I think currently market about nine, two of the products they had acquired from a company and the track record on those two previous products had been five other failed attempts, which included the likes of [indiscernible] and others.
And they were able to as I said turn those products around fairly quickly with basically a concentration on the sales and marketing efforts. And so we, as Dennis suggested earlier, really felt and feel that the key to driving market penetration for SYMJEPI is to actually have a salesforce out there detailing the high prescribing docs and so that was a commitment that that US WorldMeds made. I will add that there’s also as it differs from our prior relationship with Sandoz, there is a joint steering committee made up of equal members of both companies that will oversee all of the commercial efforts as well as overall strategy, manufacturing considerations that type of thing.
So I think they will have a lot more visibility into overall effort and strategy. And I think that their commitment to feel the Salesforce to pull this through, I think is going to make a significant difference.
Elliot, this is Dennis, what convinced me when we discuss this whole thing with them, as David said, the dedicated Salesforce, I and many others believe that this is the key to success for SYMJEPI. As you know, and these individuals that do very aggressive, they’ve done very well in the past on selling products and even as early as this week. As you know, Ron moss, Dr. Moss is an allergist and pediatrician. He’s going to be involved in sales training this week, during this week with US WorldMeds.
So they’re moving rapidly on this program. We’re very excited. We think they’ll do a very good job. And to get back to one of the questions you asked, one of the questions you asked on David about the $26 million in the milestones if we get early approval ones on ZIMHI there’d be a significant amount of money coming very early to Adamis that $26 million.
Okay. And sorry Dennis, just to clarify. So when you say you get early approval, does that mean, is it earmarked to a specific date or would it just be earlier than the expected statutory review time, which I think most of us are assuming is probably going to be six months?
No, no specific date. No.
Okay. And just to confirm, David will the transition from Sandoz to US WorldMeds take place in time such that they’ll be falling the field promoting a product in advance of the back to school season?
That is certainly the target, yes.
And that’s why Ron is being involved in training this week, it was SYMJEPI reps at US WorldMeds.
Our next question comes from Jason McCarthy with Maxim. Please state your question.
Just want to pick up on that last point. Can you help us understand a little bit better about US WorldMeds potential or ability to penetrate the retail market, the single prescriber market versus maybe the shortcoming that your prior partner had where the focus seems to be more institutional and how that can play out in the upcoming school year and what is the timing of that because the school year obviously by the calendar, it can come up pretty quick from here, will that transition take place where it becomes meaningful for Adamis in this coming school year, if we even have one?
So yes, I mean that your last point there was going to be my first and it’s obviously sort of up in the air, how things play out with respect to the school year, but I can tell you that that, as you know historically the higher, the higher purchase months are during the summer leading into the school year. I don’t expect that there’s going to be a significant deviation from that this year because regardless of how things settle out the schools, there’s still products that are expiring, that need to be replaced. And to your earlier question, which was how do we see their efforts, US WorldMeds efforts it’s differing from Sandoz with respect to retail, well I think that what Sandoz did very well was laying out the case for institutional customers for why our product should be considered.
I think that, as we’ve mentioned a few times that in order to really penetrate the retail, it’s not as simple as just letting the public know that the product is out there. It really takes an effort to pull it through on the physician side. So I mean in my opinion that that was completely overlooked, not overlooked, but it just was not being actively pursued under Sandoz.
So I think that as they ramped their efforts, and as you know, even though this is a transition and not a re-launch, as a new company is sort of ramping their commercial efforts, it takes some periods for them to get up to speed and establish those call patterns. But I think that starting with a basis of zero on those call patterns that we should see some early successes with a hope,
that will manifest itself in sales going into this high demand season.
Jason with that meetings with key opinion leaders in this area. And they’ve all said, all the allergists said that we need to get out there and talk to the high prescribing allergists to tell them about SYMJEPI, what the major advantages are and the objectives. So that’s exactly what US WorldMeds is going to be doing. They’re going to have people knocking on the doors of the key allergists.
And Jason, one other point I want to underscore what Dennis has said is that, for a lot of these high prescribers and the conversations we’ve had with them, it’s as simple as just seeing the product in person. So I think that having salespeople call on them and be bringing to them, not only just sales and marketing materials, but also the trainer device to be able to show them how it functions, what it looks like in its size relative to the competitors, I think is really going to make a significant difference in the near-term.
Do you think as a follow-up to that, while schools are stocking up, and it’s months before, do you think that there could be any impact whether short-term or long-term from the approval of Palforzia because most of the schools are scared of not really of allergies, they’ve not rooms, et cetera, et cetera as you know. But now there’s a medication on the market. Do you think that could have any material impact to the Epinephrine space in general, or is it kind of a non-starter at this point it’s too early?
Could you repeat that name again, what you’re talking about?
Aimmune, it’s Palforzia it’s a drug for peanut allergy. That was approved. It was approved at the end of January.
Okay, yes. And actually yes that drug has been approved that’s the Aimmune drug and that actually requires that each patient undergoing immunotherapy has available Epinephrine devices. So that certainly is not going to decrease the need for Epinephrine, it might actually increase the need for Epinephrine depending on how much market share they get.
Okay, great. Thanks for taking the questions.
Yes, I think that would impact schools one way or the other. Certainly not in the next several quarters I would think.
No, I would think in the end, in the end, the long-term, it’s going to help us. We have a very safe product, easy to use, very small. So I think it is knowing that they have to have an Epinephrine injection with them at the time of a prescription it’s good for us.
Okay, I think we’re going to wrap it up for now and I want to thank everybody that’s been involved all the listeners and hopefully we’ll have some good information and good news coming in the next few months. Thank you very much.
Thank you. This concludes today’s conference. All parties may disconnect. Have a great day.