Earnings Transcript for ADMP - Q2 Fiscal Year 2020

Operator: Greetings and welcome to the Adamis Pharmaceuticals Corporation’s Second 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 this conference is being recorded. I would now like to turn the conference over to our host, Dr. Dennis Carlo, President and CEO. Sir, you may begin.

Dr. Dennis Carlo: Thank you. Good afternoon and welcome to Adamis Pharmaceuticals second quarter 2020 earnings conference call. I’m Dr. Dennis Carlo, President and CEO of Adamis. Thank you for joining us today for an 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 Securities and Exchange Commission and other subsequent filings that we make with the SEC. These are available at the SEC's website. Since our call in May, California’s COVID restrictions have eased somewhat and we no longer required to work remotely. However, we continued to take measures to safeguard and safety of our customers and employees. Most, like most businesses, Adamis has been negatively impacted by both the pandemic and facility locked down, but we continue to try to minimize the impact as best we can and things appeared to be improving. Now, I'd like to discuss a few points from our second quarter results and highlight a few items. As we discussed on our last earnings call, we supplemented our NDA for a high-dose naloxone product ZIMHI and the FDA has provided us with the target action date of November 15. We feel that the increased number of drug overdoses reporting over the last few months and the increases of fentanyl underscores the need for a high-dose naloxone product such as the ones we are in development. I feel confident that the FDA will approve our NDA as a conclusion of their review, and I feel very confident that the US WorldMeds will do an excellent job in selling and marketing our high-dose naloxone product. Shifting to SYMJEPI. During the second quarter, we announced our agreement to terminate our marketing and distribution agreements with Sandoz and we assigned those rights to US WorldMeds under new commercialization agreement. Adamis and US WorldMeds also entered into a transitional services agreement with Sandoz with the goal of enabling a smooth transition from Sandoz to US WorldMeds. In part, we expect to complete the transition over the next couple of months. I am very happy to report that on August 3rd, US WorldMeds with 30 sales reps in the field to details SYMJEPI. Each sales rep was given the names of the top 50 prescribing doctors in each of their specific territories. In addition, US WorldMeds is currently in contract negotiation with numerous customers in multiple channels, both on the institutional and retail side of the business. I can't overemphasize how pleased I am with their progress in such a short period of time. I'm looking forward to our next investor conference call, by then I believe I'll be able to give you some more clarity and additional information regarding the topics I just discussed. In June, we entered into a license agreement with Matrix Biomed for license rights related to Tempol. The exclusive license includes worldwide use under license patents for the fields of COVID-19 infection, asthma, respiratory syncytial virus infection and influenza infections. Additionally, the license includes use of Tempol as a therapeutic for reducing radiation-induced dermatitis and patients undergoing treatment for cancer. In July, we submitted a pre-IND request to the FDA for guidance on the use of Tempol for the treatment of COVID-19. We're now in the process of preparing applications for government and other forms of funding to conduct clinical trials and intend to work closely with the FDA with the goal of expediting their testing. Tempol been a subject of numerous publications and has been studied extensively by many different -- in many different areas. Tempol has demonstrated anti-inflammatory, anti-coagulant and antioxidant activity. I'm hopeful that Tempol can be part of the solution to the current pandemic. We expect the development of Tempol to be a significant value driver for Adamis going forward. In addition to its potential role in controlling some of the infection of COVID-19, Tempol has often been shown to have positive impact and reducing radiation dermatitis in patients undergoing treatment for cancer. Currently, the design of our Phase 3 study is being undertaken. It is interesting to note that the current FDA Commissioner, Dr. Stephen Hahn has firsthand experience with Tempol in that he showed in public that Tempol protected against hair loss in patients undergoing brain radiation. In few minutes, Dr. Moss will provide a more significant description of Tempol and their clinical plan, but first I would like to turn it over to our CFO, Rob Hopkins, to provide some highlights from the second quarter financials. Rob?

Rob Hopkins: Thank you, Dennis. As Dr. Carlo mentioned, I want to highlight a few items from our second quarter financials, and I also encourage everyone to review our Form 10-Q for additional details and disclosures. First, I'd like to emphasize the COVID-19 continues to have a negative impact on US Compounding sales. For the most part, hospitals and clinics still remain close to our business and these for the most part are the greatest contributors to our sales numbers. Year-to-date revenues were approximately 8.6 million and 10.7 million for the six months ended June 30 2020 and 2019, respectively. Selling, general and administrative expenses for the year-to-date period ending June 30, 2020, was 11.7 million compared to 15 million for the same period of 2019. The single largest contributor to these decreases was wages, benefits, and other compensation expenses. Research and development expenses were approximately 5.1 million and 5 million for the period year-to-date 2020 and 2019, respectively. Cash and equivalent at the end of the second quarter totaled approximately 7.9 million. We have targeted our cash expenditures to be in the $3 million to $4 million per quarter range, but due to the impact of COVID-19 on sales, the 3 million to 4 million could very well post 5 million or greater. As I stated earlier, please review 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 developments.

Dr. Ronald Moss: Thanks Rob. First, I'd like to providing update on our high-dose naloxone injection product ZIMHI. If you're aware, naloxone remains the treatment of choice 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 such as fentanyl continue to rise. Recent data showed significant increase in opioid related deaths due to the indirect effects of the COVID-19 pandemic. This is why we believe there's a public health need for higher dose naloxone product ZIMHI. As Dennis mentioned, our team resubmitted the NDA to the FDA on May 15th, and we were provided or PDUFA date of November 15, 2020. We continue to work with the FDA and assess the public health importance of commercializing this much needed product as soon as possible. Regarding our newly licensed Tempol, we have made much progress in preparing for a Phase 2 study. Tempol is an antioxidant that metabolizes the harmful reactive oxygen species that cause systemic inflammation in many different diseases, including COVID-19. In July, we submitted a pre-IND package to the FDA, which included the scientific rationale for the use of Tempol in early COVID infection. In addition, we provided a detailed protocol to study to examine Tempol in early COVID infection. This concept focuses on the role that Tempol may plays in preventing inflammatory manifestations of COVID-19, and therefore the goal of preventing complications of the disease including the need for hospitalization. The feedback from FDA in our proposed program was extremely valuable and necessary, in that it now allows us to apply for government partnerships, which have mainly to-date been focused on vaccines. We now have identified a government contract to Operation Warp Speed that fits our strategy for Tempol. We were applied through a formal process for -- to Operation Warp Speed, which includes the pre-submission proposal. In addition, now that we have FDA feedback, we will also apply for a presentation to be given to the government's CoronaWatch program in order to provide greater visibility of Tempol to the government. Furthermore, we have received multiple proposals from clinical research organizations to operationally conduct the study once funded. In addition to the larger study that I just described, we also will be applying -- which we will be applying for funding, we are also in discussions regarding a smaller proof-of-concept study of Tempol in COVID positive patients that we're hoping we can implement rapidly after FDA review. Lastly, with regard of Tempol for radiation induced dermatitis, we're in discussions with a large oncology group consortium regarding the testing and funding the Tempol for the indication of radiation-induced dermatitis. At this time, I will now turn this over to David Marguglio for an update on our partnering program.

David Marguglio: Thank you, Ron. As Dennis previously mentioned, during the second quarter, we finalized our agreement terminating Sandoz's commercial rights to SYMJEPI, and we also entered into a new commercial agreement with US WorldMeds and which they assumed marketing and sales responsibility for some SYMJEPI in the U.S. as well as ZIMHI upon receiving FDA approval. As part of the termination agreement with Sandoz, Adamis and US WorldMeds entered into a separate transitional services agreement with Sandoz to facilitate a smooth transition of SYMJEPI sales and distribution from Sandoz to US WorldMeds. In parallel, we've been working closely with US WorldMeds, as they prepare for commercial launch of ZIMHI such they will be ready for to proceed with a launch closely on the heels of approval. We hope we will attain in the fourth quarter of this year such that we would be able to turn around and launch the product before the year end. Finally, our Australian partner, Emerge Health submitted a regulatory dossier for some SYMJEPI, which was accepted by the TGA in the second quarter. The TGA's review could take up to a year however given recent shortages of epinephrine in Australia, it is quite possible that submissions will receive an accelerated review, and we will update the investors accordingly. With that, I will turn it back over to Dennis to open up for questions.

Dr. Dennis Carlo: Thank you. Before we conclude, we'll open up the questions and we have any questions.

Operator: At this time, we'll be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Elliot Wilbur with Raymond James.

Elliot Wilbur: Maybe just a quick financial questions for Rob upfront, specifically looking at performance trends in the USC business and the sterile injectable component of that. Can you just maybe give us a little bit better sense of maybe how things have trended exiting the quarter and over the last couple of weeks? Obviously, the business was quite soft and in the quarter, but just trying to get a sense of maybe where we are in terms of revenue recovery trajectory in that segment? And then also, maybe just some commentary on the gross margin performance in the USC businesses as well, now, it's relatively low in the second quarter. I know there were some one-offs that impact that but just kind of get a sense of how much of the softness was due to the one-off versus underutilization product mix, maybe just some color commentary on that particular item?

Rob Hopkins: So, I am happy to answer those. As you can imagine, the transition from March is we started to see a follow-up towards the end of March, but April really cratered individually for the month for US Compounding, and we've seen a steady trend upward in May and June. July was -- we can't report on July yet because that -- we haven't finished that quarter. But for the quarter ended 6/30, we did see continued increases from April, May into June. Currently, again, we're hopeful for increase in improvements over the third quarter. But again, to set expectations, we just have to be very cautiously optimistic that the business will recover to previous levels, previous COVID-19 levels. To talk about your second part of your question, in gross margins, yes, you've targeted exactly what I was going to say. Because of the slowdown, our inventory dating caught up with us and we had significant write-downs within the quarter, and it showed up and it dramatically hurt our gross margins. So, I think we've gotten the production lines up with current trends going forward. We shouldn't see as significant write-down, all in the third quarter. And we -- again, it just caught everybody off guard and not for nothing within the compounding space. The greatest dating that we can have that any one product we've made is only 180 days. So, you don't see a traditional dating as you do with an FDA approved product.

Elliot Wilbur: Then, for Ron and/or Dennis just a couple of questions on Tempol as well, and thinking about this compound, I'm wondering, if -- has all the data that's been generated to-date been entirely based on the topical formulation in radiation deduced dermatitis or have there been other studies of other dosage forms?

Dr. Ronald Moss: Hi, this is Ron. Actually, there's been studies in all dosage form. So, the dermatitis and alopecia studies have used the topical. The mucositis studies, which are well advanced, have used the oral formulation. For COVID-19, we're quite focused on the oral formulation. And for radiation-induced dermatitis, we're focused on the topical, of course.

Elliot Wilbur: And then with respect to COVID-19, I mean, what do the, I mean, what are the animal models suggest in terms of where this would be administered in the course of the disease? I mean, everything that seems to be coming out lately, as you know, suggests that earlier is better, but just curious what you've seen and kind of what you're thinking about there?

Dr. Ronald Moss: Sure, that's a good question. Well, there's a lot of data on Tempol in terms of its ability to decrease inflammatory cytokines and markers and we totally agree with the concept of treating early. So our proposal to FDA is to treat early and to look at the rate of hospitalization. So, the goal here is to prevent buildup of systemic inflammation with Tempol and prevent the need for hospitalizations and more severe disease progression.

Elliot Wilbur: So, this would be for any all patients that test positive then the endpoint is prevention or hospitalization or prevention or diminishment of disease?

Dr. Ronald Moss: Yes, prevention of hospitalization which is accepted endpoint by the FDA. And we would look at COVID positive patients early, but who are risk comorbidities and risk factors for making them a greater risk of being hospitalized in the near-term.

Elliot Wilbur: So this is basically just an oral pill, test positive, you're in high risk group, and then the goal is to prevent hospitalization simply?

Dr. Ronald Moss: Correct, and we will of course also measure inflammatory markers to demonstrate the mechanism of action.

Elliot Wilbur: And given that this potentially could be very significant program for the Company and the level of attention being paid to therapeutics in the area. What are the next data points or milestones that you're going to be able to disclose in terms of giving us a sense of the direction of that program?

Dr. Ronald Moss: Yes. So, as I mentioned, we've had discussions with FDA for the guidance, FDA, they've reviewed our protocol, our plans. So our next step right now that box is checked is to apply for funding, and we have identified a specific grant contract to Operation Warp Speed its target targeting that we believe Tempol and our goals would fit into. So, our next plan here is to submit a pre-submission document to the Operation Warp Speed for review. If that is seen as positive then we will be requested to submit a complete submission.

Elliot Wilbur: Okay.

Dr. Ronald Moss: That's for Tempol for COVID-19. The other area that we're developing Tempol is as you know is for dermatitis radiation-induced dermatitis. And we are in discussions with a large oncology consortium where they would fund the trial and we would provide them topical Tempol and to examine the Phase 2/Phase 3 trial, looking at the effects of Tempol and radiation dermatitis. As you know, a Phase 2 study of Tempol and radiation dermatitis has been completed and Matrix, who we licensed the drug from, has had discussions with the FDA and the Phase 3 design.

Elliot Wilbur: And then obviously, everything within Operation Warp Speed is moving quickly by design. But are there specific timeframes associated with some of the steps that you need to take in order to determine whether you cannot even get funding?

Dr. Ronald Moss: Yes. So, the step that we're taking, as I mentioned, is a pre-submission proposal or white paper that will be submitted shortly. The paper is written. We're reviewing it. And then, they will review and then the next step is. They will let us know whether we should submit a full proposal. It will be very optimistic, if they do ask us to submit a full proposal. My understanding is most submissions that go to that level do get funded.

Elliot Wilbur: And is there -- are there statutory timelines that operate under in terms of issuing those? Or is it just processed and based on the workload that's there? Just trying to get a sense of how -- is this something that could take six months or three months?

Dr. Ronald Moss: This particular proposal that we're looking at which just came out is an open proposal. There's no specific deadlines or timelines, it's is a rolling proposal. So we're hoping to get our white paper in very shortly to be there very early in the funding process.

Elliot Wilbur: And then last question perhaps for Dennis. So, you gave some commentary around USWM marketing efforts behind some SYMJEPI. I think you said that the reps basically just began detailing the product I think in early August. So I don't know if I misinterpreted your comments or if that's, in fact, correct. But it seems like at least over the last six or seven weeks, there's been a fairly noticeable uptick in the prescriptions for the product, I think last week was actually an all time high. So, whatever they're doing initially seems to be working, but just want to give it a little bit more insight perhaps into kind of where they are in terms of the rollout of sort of the new marketing push behind the product?

Dr. Dennis Carlo: Elliot, as I mentioned, they just started the first week of August. They put 30 sales reps in the field, and each sales rep was given the top 50 subscribers in those different areas. So, we're excited about what they're doing. I can't go into details, but I know they're developing new contracts with very large prescribers. So, we're excited. I think the sales people are excited. I'm getting feedback from the sales groups out in the field. When they visit the doctors, the doctors also say they are open, not all are open as you know. But once they are open, they didn't know about SYMJEPI. They're just learning about SYMJEPI and they're starting to write prescriptions. I mean, the one sales guy told me. He's just waiting to see a doctor and he didn't know anything about the SYMJEPI, I told him about it and he loved it and he wrote a prescription right there. So, we think that this coming year, next year, 2021 is going to be very good for some SYMJEPI and for naloxone. These guys are very aggressive, very good at sales and marketing. I'm excited about what I know and what's going on.

Operator: [Operator Instructions] Our next question comes from line of Naz Rahman with Maxim Group. Please proceed with your question.

Naz Rahman: On ZIMHI, I was curious, do you guys -- are you guys expecting a manufacturing plant reinspection or has a plant and we inspected recently?

Dr. Dennis Carlo: Yes, the plant was inspected not too long ago.

Naz Rahman: Okay. You guys didn't receive any 483s or anything, right?

Dr. Dennis Carlo: Nothing at all, we're pretty confident that naloxone will be approved either on PDUFA data before based on the feedback we're getting from the FDA,

Naz Rahman: Okay. So once approved, is there any additional work that would have to be done prior to launch? Like, would you guys have to manufacture any validation batches or anything? Or is there any additional work whatsoever that has to be done?

Dr. Dennis Carlo: No, we've been actually working on it all along. So, we're ready. Once we get approval, you'll see that it's going to be out in the field almost rapidly, very rapidly.

Dr. Dennis Carlo: Thank you very much. Well that's all we have a question today. So I want to thank everyone for attending, and we look forward to our next conference call. Thank you.

Operator: This concludes today's teleconference. You may now disconnect your lines at this time. Thank you for your participation and have a wonderful day.