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EGLT: Impressive Prescription Growth; Revenues Should Follow

11/22/2017
By John Vandermosten, CFA

NASDAQ:EGLT

Third Quarter Operational and Financial Results

Egalet Corporation (NASDAQ:EGLT) released third quarter results on November 8, 2017, posting revenues of $6.7 million and a net loss of ($0.46) per share.  Revenues increased 41% on prescription growth of 124%.  Third quarter results compare with our estimates for revenues of $7.8 million and net loss of ($0.52).  The quarter was distinguished by continued progress developing partner relationships, a corporate restructuring focusing on commercialized products and an equity financing that raised $30 million.

Third quarter revenue growth of 41% was driven by prescription growth of 124%.  Total revenues of $6.7 million were comprised of Sprix sales of $5.1 million, Oxaydo sales of $1.4 million and Arymo sales of $0.2 million.  Sprix experienced prescription growth of 101% due to successes at Ascent Therapeutics and Oxaydo posted a 71% increase in prescription growth with 337 new prescribers added.  As Egalet enters into new agreements with payors, they are required to negotiate the entire portfolio to gain access.  In the near term, this has resulted in large gross to net discounts resulting in a discrepancy between revenue and prescription growth, which we anticipate will resolve over time as volumes increase.

Total expenses of $22.5 million, which include restructuring charges, were below our estimates of $24.5 million due to lower than expected expenses across the board, especially research and development.  General and administrative expenses of $6.8 million declined from $8.0 million in the prior year due to prior year efforts to develop Arymo ER and preparation costs for the FDA’s advisory committee meeting which were not repeated in 3Q:17.  Sales and marketing expenses rose by 26% to $8.8 million on commercialization efforts for Arymo ER.  Research and development expense fell compared to the prior year to $2.1 million, an 83% decline due to lower development costs for Egalet-002, Arymo and Oxaydo.  Charges of $3.0 million were recognized in the third quarter following the restructuring announcement made in conjunction with the 2Q:17 report.  

Egalet’s cash balance stood at $102 million as of September 30, 2017.  The sequential increase over 2Q:17 levels was attributable to the $30 million equity raise that was closed on July 11, 2017.  Long term debt listed on the balance sheet stands at $127 million.  

Cash burn for the third quarter 2017 was ($23.1) million which was greater than our estimates and compares to cash burn of ($23.9) million in 3Q:16 and ($20.5) million in 2Q:17.  For the nine months ending September 30, 2017, cash burn was ($64.2) million compared to ($66.2) in the same prior year period.  Accrued expenses, stock based compensation expense and noncash interest and amortization on bank debt explain the majority of the difference between net loss and operating loss.  

We reduce expenses for 4Q:17 based on faster than anticipated reduction of cost related to the restructuring and lower our estimates for G&A and R&D spend.  Based on management commentary, we do not anticipate any additional restructuring costs in 4Q:17.  Our revenue and cost structure does not change for 2018 and we maintain our target price of $6.00 per share.  

Medicare Part D

On November 6, Egalet announced the addition of Arymo ER to an unidentified large Medicare Part D payor’s formulary.  The availability of Arymo ER will cover approximately 1.4 million lives, and will take effect immediately.  

Product Updates

Egalet plans to optimize the formulation and increase the attractiveness of Sprix for patients.  The company did not release and details on their approach, but does expect to complete this new formulation work by the first half of 2018.  Additional studies will be required to obtain approval for this new formulation.  As a reminder, the current patent for Sprix will expire in December 2018 and Egalet settled with Apotex, allowing them to provide an authorized generic in March 2018.  However, at this time Apotex has not indicated whether or not they will pursue the authorized generic.  

Oxaydo has two additional opportunities to expand its value proposition.  The first opportunity is to obtain approval for the higher volume 10 mg and 15 mg doses of this abuse discouraging oxycodone product.  Egalet received a CRL from the FDA earlier this year where the agency requested additional information regarding related to the impact of food on drug action and the intranasal abuse-deterrent properties of the drug.  The company is now evaluating the best path forward for these additional strengths.  The second opportunity is to obtain a labeling supplement for syringability and intra-nasal abuse routes.  When Oxaydo was approved the FDA had not yet released its guidelines for ADF requirements despite having characteristics that are potentially approvable.  While neither of these possibilities will occur in the short term, we do believe they merit the effort to pursue them. 

Following the end of the quarter, Egalet announced positive top-line results for its Phase III safety study for Egalet-002.  Egalet-002 is an abuse deterrent, extended-release oxycodone pill that employs the Guardian technology.  The trial showed that Egalet-002 was generally well tolerated with adverse events consistent with approved extended-release oxycodone formulations.  The study enrolled 281 patients at 39 clinical sites to patients with chronic non-cancer pain.  The company is also conducting another Phase III trial for Egalet-002 with a safety and efficacy endpoint in patients with moderate to severe chronic pain that is expected to be complete by year end.

On November 20, Egalet issued a press release highlighting a grant award from InnoBooster that is intended to develop an oral delivery system for the Guardian technology in therapeutic areas outside of pain.  InnoBooster is part of the Danish Growth Fund, which is a state sponsored investment fund that seeks to support growth in Danish companies.  Egalet maintains its R&D operations in Denmark.

Summary

Egalet is growing rapidly off of a small base with its trio of pain solutions and has seen steady success adding partners and payors that can penetrate the relevant markets.  Prescription growth has been impressive and we are optimistic that revenues will follow as price catches up with volumes.  Many of the benefits of ADFs are externalities, such as limiting diversion and at current are not directly recognized by payors.  We see continued relationship building and education of payors and legislators as important efforts the company can take to improve the environment for the portfolio of pain medications.  Coordinated efforts by regulators and state and federal legislators are other important efforts that are needed to reduce the barriers for using ADFs.  We see education and government action to emphasize ADFs as positive overall and supportive of continued sales growth.  

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