Eagle Pharmaceuticals - Q2 2023

Executive Summary

• Q2 2023 revenue was $64.6M, GAAP EPS $0.39, and adjusted non-GAAP EPS $1.18; gross margin improved to 74% from 68% in Q2 2022 as mix shifted toward higher-margin oncology and PEMFEXY royalty buydown benefits.
• Oncology strength persisted: oncology gross profit rose to $41.9M (80% margin), with adjusted oncology gross profit at $43.8M (84% margin), driven by PEMFEXY share gains and resilient BENDEKA/BELRAPZO despite new competition.
• Hospital portfolio relaunch advanced: Barhemsys + Byfavo sales reached $1.2M, ~30% sequential growth for two consecutive quarters, with an estimated 19,000 patients dosed and 275 facilities purchasing; management expects the growth trajectory to continue.
• Guidance raised and reiterated: adjusted non-GAAP EBITDA to $78.0–$84.0M and adjusted non-GAAP EPS to $4.40–$4.70; share repurchases resumed in July 2023, framing capital return and confidence as stock reaction catalysts.
• Management emphasized fourth consecutive “beat versus consensus,” stronger ex-amortization margins, and a plan to leverage existing commercial infrastructure for accretive product additions via R&D or acquisition.

What Went Well and What Went Wrong

What Went Well

• Oncology margins expanded meaningfully: “Gross profit, excluding amortization expense in our oncology business was $43.8M…representing…84% [margin],” highlighting durable profitability even as mix evolves.
• PEMFEXY market share and profitability improved: share in non-340B pemetrexed rose to ~21% leaving Q2; PEMFEXY royalty buydown increased profitability and gross margin, a “great decision” in hindsight per CFO.
• Hospital relaunch momentum: Barhemsys/Byfavo sales up ~30% sequential for two quarters, with 19,000 patients dosed; CEO: “Our expectation is that this growth rate…is going to continue into the foreseeable future”.

What Went Wrong

• YoY revenue declined: total revenue fell to $64.6M vs $74.1M in Q2 2022; royalty revenue decreased to $21.7M vs $24.9M prior year, reflecting bendamustine royalty changes and Japan mix.
• Adjusted profitability compressed YoY: adjusted non-GAAP EPS declined to $1.18 from $1.56 and adjusted EBITDA to $20.7M from $25.9M, given increased SG&A to support expanded sales teams and hospital relaunch.
• BENDEKA/BELRAPZO market share moderated: combined share was ~84% in Q2 2023 vs ~88–90% historically, reflecting generic market formation albeit with continued strength.

Transcript

Operator (participant)

Good morning, everyone. My name is Shelby. I will be your conference operator. At this time, I'd like to welcome everyone to Eagle Pharmaceuticals second quarter 2023 financial results. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer period. At that time, if you have a question, please press Star and 1 on your telephone keypad. As a reminder, this conference call is being recorded today, August 8, 2023. It is now my pleasure to turn the floor over to Ms. Lisa Wilson, investor relations for Eagle Pharmaceuticals. Please go ahead.

Lisa Wilson (Investor Relations)

Thank you, Shelby. Welcome to Eagle Pharmaceuticals second quarter 2023 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 its financial results for the three months ended June 30, 2023. This press release and a webcast of this call can be accessed through the investor 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 statement. 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 30 days 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 August 8, 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 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. With that, I'll turn the call over to Eagle's President and CEO, Scott Tarriff.

Scott Tarriff (President and CEO)

Thank you, Lisa. Good morning, everyone. Thank you for joining our call today. We delivered a strong second quarter with impressive earnings and revenue, continuing the positive trajectory we've seen over the past 18 months. This morning, I will begin by discussing our financial and business highlights for the second quarter, as well as our expectations for the remainder of the year. Brian will provide a more detailed review of our second quarter financial performance and our updated guidance for 2023 before opening the call to Q&A. We entered 2023 with a great deal of momentum from our outstanding performance in 2022. We built on that with strong PEMFEXY numbers in the first half, market share retention for BENDEKA and BELRAPZO, and growing relaunch revenues for Barhemsys and Byfavo since our acquisition of these products from Acacia.

First, we are obviously very pleased with the performance of our currently marketed drugs, both in oncology and in our hospital business. Once again, we posted strong earnings and revenue, and in fact, this is now the fourth consecutive quarter in which we have beaten consensus estimates. Reflecting on these and other positive factors that I'll discuss this morning, we recently raised our full year guidance and in July, resumed repurchases under our existing share repurchase program. Based on the higher guidance, we anticipate ending the year with over $100 million in net working capital. Let me provide some context here. We believe this expected working capital position is meaningful, considering how much money we anticipate having invested by the end of 2023 across our products and pipeline.

For 2022 and 2023, we anticipate to have invested $38 million in direct R&D to fund our product candidates, EA-114 and CAL02. Additionally, we spent approximately $130 million, mostly cash, to acquire Acacia shares and debt, and $25 million to date for an equity position with an option to acquire Enalare. This totals approximately $193 million, and we still find ourselves in this positive working capital position as we continue to generate positive cash flow. Over the past 12 months, we have also expanded our commercial teams, both in the hospital and oncology segments, and we now have a significant commercial infrastructure of about 80 people, which is included in the earnings and cash flow just discussed and the revised upward guidance.

We view our two sales forces as strategic assets to the company, which we will discuss further shortly. What we believe this means for the future is that Eagle could bring in additional products through R&D and, or acquisition with minimal additional cost because of the commercial infrastructure we already have, and therefore, most of the revenue generated would fall to the bottom line. Let's put everything in perspective for a moment. For fiscal year 2022, we more than tripled non-GAAP earnings to just shy of $8 per share compared to 2021, which was driven by approximately $230 million of gross profit in 2022, excluding amortization expense. Adjusted non-GAAP EBITDA grew more than 350% to $132 million for the fiscal year 2022 compared to 2021.

For 2023, we expect nearly the same gross profit as we saw in 2022, excluding amortization expense. Although we increased our spending, our gross margin continues to be strong. In fact, our gross margin %, excluding amortization in the first half of this year, was 83%, compared to 74% in the first half of last year. When you remove vasopressin, which was discontinued, our gross profit actually increased for the second quarter of 2023 compared to the second quarter of 2022. We expect this trend to continue going forward. The year-over-year decline in earnings per share is mostly due to these continued investments in R&D and our commercial infrastructure, which we believe positions us well for the future upside and is not a function of gross profit decline.

We have been highly focused on our R&D initiatives and are working hard to ensure that each asset has the best chance of success. We are just a couple of weeks away from an important Type C meeting with FDA for EA-114, our estrogen receptor antagonist project, which I'll discuss in more detail shortly. The investments we have made in our commercial infrastructure clearly paid off. We have more than tripled our market share of the non-340B Pemetrexed market to approximately 21%, leaving Q2 up from 6% at the end of last year. It's important here to look at our balance sheet and receivables as well. The bulk of our receivables relate to PEMFEXY at the end of the second quarter. For this product, we received the majority of our orders near the end of a quarter.

Because contract pricing is mostly adjusted quarterly, large quantities of product are purchased near the end of the quarter, producing this result. This trend is likely to continue into the near future. Our quarter-over-quarter receivables balance is flat, indicating that we are in a normal cycle of payment and new revenue. Turning our attention to the Acacia acquisition, we are also very pleased with the relaunch efforts of Barhemsys and Byfavo within our hospital acute care segment. We characterize and treat both products as relaunches. As a reminder, our acquisition of Acacia was effective June 9, 2022, about a year ago. Our fully trained and fully staffed sales force was first in action in Q1 of this year as we relaunched, and Byfavo received its unique J-code in May. Please review the following slide.

We now have 2 full quarters of sales data, and growth has been about 30% quarter over consecutive quarter since the relaunch, and we anticipate a similar growth rate to continue for the foreseeable future. In the second quarter of this year alone, we estimate that approximately 19,000 patients were dosed with Barhemsys or Byfavo, a very impressive number, reflecting the fact that the drugs are being embraced by our customers. In terms of penetration, 2 quarters in, approximately 275 healthcare facilities are purchasing product out of a targeted 4,000 entities in the United States. We see significant upside expansion potential here. I mentioned 19,000 patients a moment ago. Let me repeat this number. 19,000 patients were administered Barhemsys or Byfavo in our second quarter of relaunch.

Imagine what happens if half these entities are using our drugs, or if we increase our market share in each of these. You can see how the 19,000 could grow quickly. We'll see how the next several quarters go, but I hope you can feel the excitement we have about these two launches. Let's discuss our oncology business. Gross profit, excluding amortization expense in our oncology business, was $43.8 million in the second quarter of 2023, up from $38.7 million in the second quarter of last year, representing an impressive gross margin of 84% and 72%, respectively. Across the entire portfolio, our gross margin percentage, excluding amortization, has gone from 70% in the second quarter of 2022 up to 83% in the second quarter of this year.

We anticipate that these trends will hold in the near to medium term. Hopefully, you can see that our gross profit and our gross profit margin continue to be very strong, as it has for the past year and a half. We are strategically investing in our business for our future growth. Today, we have the largest commercial team that we've ever had, which is primed now to be able to bring more products into the company with minimal incremental expense, thus accelerating the bottom line as products come into the portfolio. We have been investing heavily in R&D as well as a way to expand our portfolio. We believe we are poised for future earnings growth. based on the strength of our business and our R&D. The question remains then: how do we ensure growth going forward? The answer is simple.

We need to add products through acquisition and or through our R&D pipeline. Fortunately, as we've discussed this morning, we believe we can bring in products with minimal additional commercialization expense. One potential opportunity is EA-114, our estrogen receptor antagonist program, which we have invested in over the past several years. We believe we have compelling data from our recent study of EA-114, and we have a Type C meeting with FDA later this month. Once this meeting transpires, we will provide an update. Turning to our hospital segment. We believe the hospital business is a great space with strong growth potential. You've already heard about the relaunch for Barhemsys and Byfavo, and CAL02 and ENA-001 can also have significant potential. As people familiar with this space know, although hospital launches are slow, they are also generally rather sticky and profitable once well established.

Now let's discuss CAL02. As we recently announced, our phase 2 study is underway and our first patients have been randomized. The study is designed to assess the efficacy and safety of CAL02, which is a novel, first-in-class antitoxin drug candidate being developed to treat severe community-acquired bacterial pneumonia as an add-on to standard of care antibiotic therapy. CAL02 is a unique therapeutic agent that works differently from antibiotics, disarming the infectious pathogen's virulence factors to reduce damage and mitigate disease. It has been designed to neutralize a broad range of bacterial toxins to lessen the effect of virulence factors on disease progression and severity. We plan to enroll approximately 276 patients at more than 100 sites in over 20 countries worldwide.

Our expectation is that we will have approximately 100 sites up and running before the year is over, in readiness for the Northern Hemisphere's pneumonia season. In addition, we expect to have our interim results within the first half of 2024. In June, FDA granted CAL02 QIDP designation under the GAIN Act. QIDP stands for Qualified Infectious Disease Product. CAL02 also received Fast Track designation. Let me briefly walk you through what this all means. QIDP designation entitles Eagle to an additional 5 years of marketing exclusivity upon approval. Moreover, Eagle believes CAL02 qualifies as a New Chemical Entity, which would result in 5 years of marketing exclusivity upon approval, or 3 years without NCE designation. In total, CAL02 may be eligible for a total of 8-10 years of marketing exclusivity upon approval.

QIDP and Fast Track designations underscore the significant unmet medical need in treating severe community-acquired bacterial pneumonia. CAL02 also has patent protection through September of 2035, with filed patent applications that would extend to 2037 or later. May qualify for up to 5 additional years of patent term exclusivity as a New Chemical Entity up to 2040. CAL02 has the potential to be a significant opportunity for us and a true paradigm shift in how our healthcare providers combat this complex disease. We look forward to providing updates as the CAL02 clinical program advances. Before I turn it over to Brian, let me reiterate once more how pleased I am that we were able to raise our guidance for the year. Very excited about the health of the business. With that, I'll turn the call over to Brian Cahill to discuss our second quarter financials.

Brian?

Brian Cahill (CFO)

Thank you, Scott, and good morning. Let me share a few highlights from the financials we published in our press release this morning. In the second quarter of 2023, total revenue was $64.6 million, compared to $74.1 million in Q2 of 2022. Net product sales during the second quarter of 2023 totaled $43 million, compared to $49.2 million in Q2 of 2022. PEMFEXY net product sales were $19.4 million in the second quarter of 2023, compared to $16.5 million in the second quarter of 2022. The increase is driven by our continued growth in market share, as Scott discussed earlier. BELRAPZO net product sales decreased to $6.8 million in the second quarter of 2023, compared to $8.1 million in Q2 of 2022.

Second quarter, Ryanodex net product sales were $10 million, compared to $8.8 million in the prior-year quarter. Orders for Ryanodex are primarily driven by product expiry, with few customers requiring the dantrolene unless their stock is expiring. With this, our guidance considers Q3 to be lighter than the historical average. Second quarter Barhemsys and Byfavo sales totaled $1.2 million. Q2 2023, royalty revenue was $21.7 million, compared to $24.9 million in the prior-year quarter. Royalty revenues include royalties earned on the sales of Bendeka in the U.S. and TREAKISYM in Japan. Gross margin was 74% in Q2 2023, compared to 68% in the prior-year quarter. The increase was primarily driven by.

primarily, sorry, the result of increased PEMFEXY sales, the expiration of Bendamustine royalty stream, and the buy down of PEMFEXY royalties. This is partially offset by the inclusion of amortization expense of intangible assets related to newly acquired products, Barhemsys and Byfavo, and our PEMFEXY royalty buy down, both of which we expect to continue going forward. Gross margin, excluding amortization expense, was 83% in the second quarter of 2023, compared to 70% in the prior year quarter. On the expense front, R&D expenses were $9.8 million for the second quarter of 2023, compared to $11.4 million in Q2 of 2022.

This decrease is largely attributable to the timing of our EA-114 program spend in 2022, and is partially offset by continuing CMC and clinical trial spend on our CAL02 program, decreased internal costs, excluding stock-based compensation and other non-cash and non-recurring items. Second quarter 2023 non-GAAP R&D expense was $9.2 million. SG&A expenses in the second quarter of 2023 were $27.7 million, compared to $36.8 million in the second quarter of 2022. This decrease was primarily driven by $17.6 million in costs related to the acquisition of Acacia, which will not recur.

This is partially offset by incremental $2.9 million related to increased sales and marketing headcount, $2.4 million related to direct marketing support for Barhemsys, Byfavo, and PEMFEXY, and $2.9 million in other general administrative expenses, partially related to these commercial efforts. Excluding stock-based compensation and other non-cash and non-recurring items, second quarter of 2023 non-GAAP SG&A expense was $23.8 million. Net income for the second quarter of 2023 was $5.2 million or $0.39 per basic and diluted share, compared to a net loss of $9.5 million or $0.74 loss per basic and diluted share in the prior year quarter. Adjusted non-GAAP net income for the second quarter was $15.5 million or $1.18 per basic and diluted share.

Our adjusted non-GAAP EBITDA was $20.7 million for the second quarter. For a full reconciliation of non-GAAP measures to the most comparable GAAP measures, please see the table at the end of our press release. As of June 30, 2023, the company has $15.4 million in cash and cash equivalents, $115.1 million in net accounts receivable, and $71.3 million in outstanding debt. I'll ask the operator to open the call for questions. Operator, please go ahead.

Operator (participant)

Thank you. At this time, if you would like to ask a question, please press the star and one on your telephone keypad. You may remove yourself from the queue at any time by pressing star two. Once again, that is star and one to ask a question. We will pause for a moment to allow questions to queue. We'll take our first question from Tim Lugo with William Blair. Your line is open.

Tim Lugo (Partner and Group Head)

Thanks for taking my questions. I guess a few for Brian. You detailed some expectations around Q3. I think you mentioned some seasonality this quarter. Can you kind of expand on that? You know, we've also seen gross margins expanding. Can you also discuss some of the drivers there?

Brian Cahill (CFO)

Sure, Tim. Good morning. Thank you. First on the seasonality question, as you picked up, I'm highlighting Ryanodex, right? Ryanodex has a approximately 36-month shelf life. The cycle in which we sell the product in and the expiry cycle really dictates most of when those sales will occur. Second quarter was an ebb, and third quarter is expected to be a slight flow, right? It'll be a little bit lower, but that cycle kind of continues on a wave depending on when those lots are expiring.

Tim Lugo (Partner and Group Head)

That makes sense.

Brian Cahill (CFO)

I tried to highlight the Tim, also some of the drivers around the margin differentials that we're experiencing in our business. I'm trying to highlight for you, you know, X amortization, what our real profitability looks like. You know, you'll recall, I hope that we had a few factors going into our gross margin. We were previously weighted down with royalties that we used to pay on our Bendamustine franchise. Those have expired at the end of last year, so it actually increases our profitability in that area of our business. For PEMFEXY, we made the decision to buy down the majority of our royalty to another partner at the end of last year.

With that, we have better profitability, gross margin, and gross profit. That's a great decision.

Tim Lugo (Partner and Group Head)

Okay, thanks.

Brian Cahill (CFO)

as you look back on that, what we did as far as looking at our forecast to buy down that royalty, it was really, it was really favorable for us, I think.

Tim Lugo (Partner and Group Head)

Okay. Thank, thanks for that detail. I guess lastly, Barhemsys and Byfavo. You know, we see the growth. However, you know, they're obviously relatively still smaller compared to the total franchise. What are kind of the expectations for that franchise over, you know, a 1-year and maybe even 2-year period? Is it going to be kind of continued steady growth, or will there be any- anything else seeing that?

Scott Tarriff (President and CEO)

Yeah, thanks, Tim. Scott, look, we're just really very excited about it. I mean, as far as we're concerned, we've only been, you know, fully marketing these drugs for 2 quarters, and you can see the 30% growth. Our expectation is that this growth rate that we see is going to continue into the foreseeable future. You know, it's just gonna keep, it's just gonna keep growing. We're getting great feedback from our customers, great acceptance. If you think that there's 275 hospitals buying now, or, you know, facilities that could buy out of 4,000, and we have our most seasoned, and the highest number of people in our sales force, most number of territories, you can see what happens.

I don't know how you feel about, but the fact that 19,000 different patients used our drug in Q2 alone is very exciting. Our customers are obviously embracing it, they're reusing it, or you wouldn't be able to get to this 19,000 number, and we expect that it's just gonna keep keep growing. You know, if you just multiply it out, where this is gonna go, you know, in not that too far of a distant future, it's gonna be a very meaningful part of our business. I think we're gonna look back and be very pleased with the acquisition and combine that if we get good news on CAL02. We'll see what happens with Enalare, but, you know, in a few years, couple of years, we can be one of the leading hospital businesses in the marketplace.

We still think it's a great place to be. We're more than excited right now about how it's going.

Tim Lugo (Partner and Group Head)

Understood. Thank you for that. You know, you're, you're actively buying back shares, you know, but obviously in the public markets, the share price has been weak year-to-date, and you're not the only one, obviously. Can you just maybe discuss a bit about where you think that disconnect is?

Scott Tarriff (President and CEO)

Well, Tim, that's a very good question. You know, from our perspective, we've really had a remarkable year and a half, right? We'll wind up with a strong 2023. The fact that we rebased the business and we grew to $8 a share and this increase of 350% last year. Hopefully the takeaway today, when you go through our script and our release, is that gross profit year-over-year is about the same, right? Our margins are growing in key segments of our business. We're bringing in quite a bit of profit. We've decided to spend some of that profit selectively and opportunistically into the future of the company.

We're in a position to bring more products. For instance, when EA-114, if we're fortunate enough to bring that to the market, we don't need, you know, much more additional expense to add that product into the company. We're waiting for data on CAL02. We're waiting to come back from this FDA meeting. You know, I don't know where the disconnect is per se, from a stock standpoint. From a company standpoint, it's just been a great two years, and we're very excited about the future, and the future looks great. Either through R&D, we'll see how the R&D works out. You know, we're very hopeful that our balance sheet and our cash position, you know, just puts in a great position to bring another product or two into the company.

So, you know, we, we think the future looks incredibly bright. Great two years, and hopefully people figure it out and, you know, the stock will take care of itself, because the earnings certainly have, and the R&D looks like it is, and these things have a tendency to work through.

Tim Lugo (Partner and Group Head)

Understood. Thank you for that.

Scott Tarriff (President and CEO)

Thank you, Tim.

Operator (participant)

Once again, if you would like to ask a question, please press star and 1 on your telephone keypad. Again, that is star and 1 to ask a question. We will pause for another moment to allow questions to queue. It appears that we have no further questions at this time. I will now turn the program back over to Scott Tarriff for any additional or closing remarks.

Scott Tarriff (President and CEO)

Thank you again, everyone, for joining the call. I'm extremely proud of our performance this quarter, and as you have heard this morning, we have the foundation in place for another strong year in 2023. Looking ahead, we intend to build our sales momentum to leverage our commercial infrastructure and working capital position to add complementary products, either through R&D or acquisition, to advance the pipeline. As always, we appreciate your ongoing support, and thank you for being on the call. Stay well. We appreciate it.

Operator (participant)

That concludes today's teleconference. Thank you for your participation. You may now disconnect.