Eagle Pharmaceuticals Inc. (EGRX) CEO Scott Tarriff On Q2 2018 Results Earnings Call Transcript

Eagle Pharmaceuticals Inc. (NASDAQ:EGRX) Q3 2018 Earnings Conference Call November 1, 2018 8:30 AM ET

Executives

Lisa Wilson - IR

Scott Tarriff - CEO

Pete Meyers - CFO

Analysts

Mickey Ingerman - Piper Jaffray

Tim Lugo - William Blair

Brandon Folkes - Cantor Fitzgerald

Operator

Good day, and welcome to today's program. My name is Leo, and I will be your conference operator. At this time, I'd like to welcome everyone to Eagle Pharmaceuticals' Third Quarter 2018 Earnings Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period. [Operator Instructions] As a reminder, this conference call is being recorded, November 1, 2018.

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, Leo. Welcome to Eagle Pharmaceuticals' third quarter 2018 earnings call. This is Lisa Wilson, Investor Relations for Eagle Pharmaceuticals. With me on today's call are Eagle's Chief Executive Officer, Scott Tarriff; and Chief Financial Officer, Pete Meyers. This morning, the company issued a press release detailing financial results for the three months ended September 30, 2018. 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 recent 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 will find the dial-in information in today's press release. The archived webcast will be available for one year on our website, eagleus.com. For the benefit of those who may be listening to the replay or archived webcast, this call was held and recorded on November 1, 2018. Since then, Eagle may have made announcements related to the topics discussed. So, please reference the company's most recent press releases and SEC filings.

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

Scott Tarriff

Thank you, Lisa, and good morning, everyone. I'd like to begin the call with an overview of the strategic actions we've recently taken, reflecting our belief from the long-term earnings potential of the business and in support of our business strategy. And now I would like to articulate the rationale behind the authorized buyback and entering into the $50 million ASR.

Clearly, we're disappointed with the results of the fulvestrant study. Having said that, we do believe in the strength of our current portfolio products, our pipeline and the ability to grow the company utilizing our cash and balance sheet, if needed. So let me give you some color on our franchise, why we are bullish on our future and why are we buying back our stock.

Let me focus on the products in the quarter first. Our bendamustine foundation remains strong and continues to grow. Big Bag, Eagle's 500ml liquid form of bendamustine solution that does not require reconstitution is performing as expected, filling a need in the market for a lower cost alternative to BENDEKA. Sales were consistent with the second quarter at approximately $8 million during Q3, but bear in mind, that we are beginning to see pull-through in addition to stocking, suggesting that our market shares should be on pace to reach 12% overtime. Remember, we recognize revenues upon sales to wholesalers, while market share reflect shipments from wholesalers to customers.

With the increased pull-through that you're seeing, we expect Big Bag market share to rise from 5% which was at the end of October to a meaningfully higher number by the end of Q4 even if revenue during the quarter doesn't increase in tandem. Royalties on sales of BENDEKA by Teva continue to drive top line growth during the quarter, delivering $34 million in revenue. With BENDEKA and Big Bag both available in the market, we believe we are maximizing the long-term value of our bendamustine assets. BENDEKA clearly continues to be the most important asset in our portfolio. Furthermore, when combined with what we believe to be the appropriate application of the orphan drug exclusivity regulations which would first allow generic TREANDA entrance no sooner than December 2022, we believe we can extend and protect the life cycle of our bendamustine products well beyond 2022.

Now turning to our Ryanodex; we continue to believe this asset has tremendous potential beyond it's current indication. While our EHS study at the Hajj did not yield the number of subjects we have hoped for, we believe our work has been sufficient to demonstrate efficacy. We look forward to engaging with the agency to review the data we have collected in support of the indication. Although we had fewer patients than we had hoped, we are focused on the treatment effect. And once again, to remind everyone, there is a six times greater likelihood that the patient will have full cognitive restoration when using Ryanodex versus standard-of-care alone. Although our P-value did not meet 0.05, it was at 0.08, and with the new data, it is likely to come down to around 0.07 if combined. As a reminder, EHS is a priority review orphan indication, there are no drugs in the market that treat the disease.

We have now conducted two well-controlled randomized studies, the two results are similar further removing randomness from the equation. We clearly recognize that we did not achieve the 0.05 target. However, it also supports our view that this is a very difficult disease state in which to run a well-controlled randomized study. This is not unlike many orphan drugs approved by FDA. We plan to engage with FDA shortly and discuss a path forward. Based on the positive treatment effect of Ryanodex, we are hopeful that future conversations will yield positive results.

In early October, we entered into an agreement with the United States Army Medical Research Institute of Chemical Defense to conduct a study to evaluate the neuroprotective effects of Ryanodex. The study is being conducted under a cooperative research and development agreement. If approved, Ryanodex would represent a first of its kind neuroprotective treatment to combat neurological damage due to nerve agents exposure which often results in death.

In our pilot study, over 50 rodents were exposed to high dose of nerve agents Soman. Those rodents were treated with a known antidote for acute poisoning and atropine. Data show that rodents treated with Ryanodex and AEDs had better performance in neural behavior testing compared to animals treated with AEDs only and substantially less brain damage. Given this encouraging data, we are excited to continue our work with the U.S. Military to valuate Ryanodex for nerve agent indication.

Once available for this indication with the U.S. government, we hope to be able to stock Ryanodex in that business. We are developing the next generation of Ryanodine receptive modulators to allow IM administration, which is not possible with the current Ryanodex product or with any other dantrolene product. The IM administration would make the product even more relevant for the treatment of life-threatening indications requiring fast administration.

With regard to our other pipeline programs, we continue to advance those that we believe offer the best return to shareholders including vasopressin 1ml injection and PEMFEXY which references Eli Lilly's Alimta, the litigation for which is scheduled to begin September 9, 2019. As announced two days ago, the primary end point for the fulvestrant study was not met. That said, our clinical data showed an overall improved safety profile over Faslodex. We have a large database of 600 new patients. We will continue to evaluate the data and if there is anything further to discuss, we will bring it to your attention at the appropriate time.

Before I turn the call over to Pete to review our financial results, I'd like to remind everyone that the company continues to generate quite a bit of cash. Even with the $50 million share repurchase, Eagle continues to build cash and we expect next year's cash position to grow even further. This provides us with flexibility in how we deploy our resources in the opportunities we pursue. As I indicated earlier, Eagle remains committed to expanding and protecting the value of our products and pipeline over the long term. We believe the market has not adequately priced the earnings potential of our business and repurchasing our shares at this time reflects the commitment of the board and management to enhance shareholder return.

With that, I'll turn the call over to Pete to provide the third quarter financial results. Pete?

Pete Meyers

Thank you, Scott. I'd like to reiterate Scott's comment on the companies' solution [ph]. Our basis is as strong, with additional potential on our pipeline and the business continues to generate cash. In fact we expect to finish 2018 with a substantial net cash position. On October 30, we repurchased $50 million in Eagle's common stock to an accelerated share repurchase agreement as part of an expanded $150 million share repurchase program in placing the $100 million program.

We previously purchased a total of $104 million Eagle stock, bringing our total share buyback to $154 million. Based on the currently marketed products and conservative [indiscernible] pipeline, we believe it's the good news of our cash on behalf of our shareholders and reflects our confidence in the earning capacity of the business. With that, I'd like to now review the financial results for the quarter.

In the third quarter 2018, total revenue is $51.3 million compared to $63 million in Q3 of 2017. Third quarter 2017 revenue included $12.5 million milestone payment. Big Bag product sales were $8 million in the quarter. For IMS data [ph], Big Bag's market share of wholesale of shipments to end users was 2% of the U.S. bendamustine market in the third quarter. Over the past three weeks, Big Bag's market share has grown to 5% so we're beginning to build momentum toward our aspirational 12% market share. As Scott mentioned earlier, Eagle recognizes Big Bag revenue on shipments by Eagle to wholesalers.

In the second and third quarters, we stocked various wholesalers for the launch period. While we are encouraged by the recent uptake in market share, fourth quarter 2018 shipments to wholesalers maybe below that of the third quarter even as our market share continues to grow.

Ryanodex product sales reached $3.5 million, up 9% on a year-over-year basis. Ryanodex's market share in the third quarter is 44% in normalized unit terms in 67% shared dollars. Third quarter Ryanodex sales were driven largely by new customer acquisitions. We had 338 customers engaging in new business.

Royalty revenue was $35.2 million, compared to $43.6 million in the prior year quarter. BENDEKA royalties were $33.8 million compared to $41.4 million in the third quarter of 2017. Gross margin was 75% during the third quarter of 2018 and it's compared to 81% in the third quarter of 2017.

On the expense front, R&D expenses were $6 million for the quarter compared to $9 million in the prior year quarter. In year-over-year decrease reflects the substantial reduction in fulvestrant and pemetrexed expenses in the third quarter of 2018, partially offset by the cost of EHS trial. Including stock-based compensation and other non-cash and non-recurring items, R&D expense during the quarter was $5 million.

We are reiterating our 2018 R&D expense guidance which we expect to be in the range of $46 million to $50 million. Excluding stock-based compensation and other non-cash and non-recurring items, R&D expense would be in the range of $40 million to $44 million. While we are developing additional opportunities with the fulvestrant study behind us, it is likely that R&D spend in 2019 will be lower than that in 2018.

SG&A expenses decreased to $13.9 million from the third quarter of 2018 compared to $16.7 million in the third quarter of 2017. The year-over-year decrease reflects lower external legal cause as well as a reduction to the EHS marketing expenses. Excluding stock-based compensation and other non-cash and non-recurring items, third quarter of 2018 SG&A expense was $9.7 million.

2018 SG&A expense is expected to be in the range of $61 million to $64 million, consistent with our prior guidance. Excluding stock-based compensation and other non-cash and non-recurring items, SG&A expense would be in the range of $44 million to $47 million.

Net income for the third quarter was $14 million or $0.94 per basic and $0.91 per diluted share compared to net income of $15.4 million or $1.03 per basic and $0.98 per diluted share in the prior year period due to the factor discussed above.

Adjusted non-GAAP net income for the third quarter 2018 was $18.3 million or $1.22 per basic and $1.18 per diluted share compared to adjusted non-GAAP net income of $19.2 million, or $1.27 per basic and $1.22 per diluted share in the prior year quarter. For our full reconciliation of non-GAAP net income to the most comparable GAAP financial measures, please see the tables at the end of our press release.

Our EBITDA for the third quarter of 2018 was $23.9 million, compared to $30.7 million in the prior year quarter. During the second quarter we completed $12 million in share repurchases as part of our $100 million expanded share repurchase program. In October the board of directors approved that the company's current $100 million share repurchase authorization be replaced by $150 million authorization.

On October 30, 2018, the company ended into an ASR agreement with J.P. Morgan. The initial ASR settlement is today, so today Eagle will pay $50 million to J.P. Morgan in exchange for 702,988 shares, representing approximately 80% of the notional amount of the ASR based on the closing price of $56.90 on October 29. Following the end of a six-week repurchase period, the number of shares repurchase will be trued up based on the average of the daily volume weighted average share prices of the company's common stock, less the discount during the term of that six-week period.

Since our IPO, we have repurchased $104 million of Eagle stock, plus $50 million of stock through the ASR for total of nearly $154 million which exceeds the $110 million of capital the company has raised in aggregates in the public equity markets. And I'll remind you that even with the $50 million ASR, we expect to end the year with a strong net cash position.

As of September 30, 2018, the company have $91.2 million in cash and cash equivalents an $78.5 million in net accounts receivable, $53.2 million of which was due [indiscernible]. The company had $45 million in outstanding debt.

With that I'd like to open the call for questions. Operator, please go ahead and open the line for questions.

Question-and-Answer Session

Operator

[Operator Instructions] We'll take a question from Randall Stanicky of RBC Capital Markets.

Unidentified Analyst

Hi, this is Dan [ph] for Randall. Few questions. Starting out for the big picture one. You talked about it a little bit, but could you speak about how your strategic priority is currently ranked in light of the recent clinical developments? Clearly share repurchase remain a focus, but in particular, has your appetite for business development changed specially in the context of potentially restocking your pipeline?

Scott Tarriff

Thank you and good morning. I think that's a really fantastic question. Obviously, we are bullish on the future or we wouldn't be buying back as much stock as we have. And what we've been saying over the last six months or so I think is very consistent that we believe that over the next four years, assuming that we're correct about our view of the orphan drug exclusivity, we will continue to generate quite a bit of cash over the next four years and have very nice earnings in this company as reflected upon the products that we already have in the market. Then you have to take a look at the pipeline and although we've had the set back to fulvestrant over the last couple of days, we still believe in the rest of the pipeline. We believe in our ability to have heat stroke approved, we believe in nerve agents and we have belief in the other products that we're working on.

The great thing about those products is that we don't need much more infrastructure in this company to bring those products to fruition and market them. So there will be a tremendous amount of leverage on the P&L and when we get those drugs to the market. But like all companies in this industry, it would be really wonderful to be able to do this all with internal development. The company has been around for 11 years and we've been able to grow the business to where we are today and generate all the cash we have and have a net positive cash and for 11 years in business through organic development in the pipeline.

If we have to buy products, if we have to go out and acquire companies, we can and we will. We have the cash and the balance sheet to do it. So I would say that one way or another, we will have significant growth in this company either through organic growth, or external growth, or a combination of the both. I don't think our priorities are really shifted, but obviously we're paying more attention that we may decide to go out and do something externally. But right now, let's see how things unfold. We have a lot of cards to turn over, a lot of clinical results over the next 90, 120 days.

Unidentified Analyst

Okay. That's helpful. And then just sticking on that growth trajectory. Clearly there are a lot of moving parts with the pipeline. Should we be thinking about pipeline contribution at this point as more of a 2020 plus story?

Scott Tarriff

I think it's hard to tell at this point. Let's see how conversations go with FDA regarding EHS. The nerve agent study, keep in mind that this is a confirmatory study. This is essentially the same study that we ran as a pilot previously this year and we think those results will be out at around the end of Q1. So it's really hard to see. Let's see how things go with these conversations and we'll be able to give you a better update on the timing of these launches as we progress.

Unidentified Analyst

Okay, great. And then just one last one on nerve agent. Have you -- any expense of what the market opportunity for that could be?

Scott Tarriff

It's harder to tell, but let's look at it this way, if that drug is approved, clearly working with the chemical, the defense team, in the U.S., there is an immediate need to protect our troops around the world. It's a little bit difficult to quantify how much purchases there will be from the government on that. And then it's not just the U.S., it's the other countries, specifically the NATO countries around the world that needs the drug to stockpile for the troops. The real question comes in, does Ryanodex with the nerve agent indication wind up being added to the strategic stockpile?

What we do know is atropine, which should be a companion drug for Ryanodex. Atropine is in the civilian stockpile and the best we can tell, those sales per year to the U.S. government are about $100 million a year, give or take. The opportunity for nerve agents if it winds up in the strategic stockpile, keep in mind, we would have the only product of its kind treat the neuro effects of nerve agent gas. Then that would be a very significant opportunity for the company and that $100 million is just in the U.S. and that doesn't reflect the need of the rest of the world.

And again, it's hard to quantify, but that should give us some level of range of what it could be and that's why we continue to believe that it's an overlooked, very significant asset for a clinical trial that is really confirmatory study that we've already ran once before and with the governments, with the militaries backing us at the FDA, hopefully we'll get through that process. We'll just have to wait and see and those results are not that far away.

Unidentified Analyst

Got it. Thank you.

Scott Tarriff

Thank you.

Operator

[Operator Instructions] We'll move next to David Amsellem of Piper Jaffray.

Mickey Ingerman

Hi. Good morning. This is Mickey Ingermanon for David. Just a question regarding your pipeline. I know you guys discussed it on the call this morning and it was also referenced in the press release. Can you elaborate a little bit more about when you'll go into more details of these opportunities? And do you have any other paragraph for filings by end of the near-term?

Scott Tarriff

We don't have any other P4s in the near term to discuss and the rest of the pipeline, I think that will just unfold in time, hopefully in the relative near term we'll have some more information. Right now we're focused on how we groom Ryanodex more within the pipeline, continue to engage in the courts on vasopressin and then PEMFEXY. As we just discussed the nerve agent results will be out early next year, hopefully end of Q1 and we can move forward with that and then as normal, we'll have news flow on the pipeline regularly as time progresses in the near term.

Mickey Ingerman

Got it. And then one quick follow up regarding capital deployment. If it comes to looking for other assets or companies to acquire, are you guys primarily looking at generic injectables or at brands and were you guys also considering accessing capital to execute on these acquisitions?

Scott Tarriff

Yes. We did not consider ourselves a generic drug company. We do have the vasopressin which was a unique opportunity that we entered into that we had I think unique capability in the company to take advantage of that and be first to file the large product. We're a brand company and we are meeting unmet medical needs. BENDEKA turned out to be really a fantastic drug for CLL and NHL patients. I think we found a solution to a problem that existed. In EHS, we could have the only drug on the market to treat this really terrible disease state. In nerve agents, we would have the first-in-class drug to treat the effects of nerve agents like soman [ph]. Those are the opportunities we will be looking for, is gaps in the market place where we can use our capability of reformulating drugs or finding drugs on the market that meet unmet needs and now that we have a commercial theme that's doing really well. You can see the 5% share of Big Bag, we're really excited about it and we believe we have the commercial capability to sell these drugs. If we look to the outside, the focus will be on specialty products in either oncology and/or critical care, mostly focused on the hospital.

Mickey Ingerman

Thanks for the color.

Scott Tarriff

Thank you.

Operator

Our next question is from Tim Lugo of William Blair.

Tim Lugo

Thanks for the question. Can you talk about the current status of ODE for BENDEKA and I know [indiscernible] formulations are set to come out in 2022. In your opinion though there are still possibilities for earlier entrance and what does the BENDEKA market look like if those vial formulations do come earlier?

Scott Tarriff

Thanks, Tim, and a really very pertinent question. As everybody probably remembers, we did have a positive decision on the ODE in litigation recently and that decision clearly provides seven years of exclusivity for BENDEKA. So I think it's pretty clear that there will not be any BENDEKA, any drug referencing BENDEKA on the market until the end of 2022. That case is on appeal, but we feel very strongly and I think everybody who has looked at it would agree with us that the likelihood of that being unreturned is pretty small. So let's assume that BENDEKA has exclusivity until the end of 2022.

To answer your last question next, we maintain our belief now that we're in the Big Bag market, I think we understand it even that much better and we are under the belief that we'll maintain 70% of that market for BENDEKA even when TREANDA generics comes to the market. I think that's a good number to use. I think most of us who have been discussing it have come to conclude that that 70% number is really the best number that we have, which makes us believe that BENDEKA will be a very important asset at least into 2023. And then remember we have these 16 patents protecting BENDEKA that run from 31 to 33 in our view, and a large part of our view of why we're buying back our stock at the rate that we are, is a fact that the bendamustine franchise will be a very important part of this company regardless of what happens to R&D or external acquisitions for a very long time to come.

And now to explain the TREANDA piece, the question that we have in front of us now is what is the scope of that exclusivity and does it cover TREANDA as well as BENDEKA? Last month, the FDA requested public comment regarding the scope of BENDEKA's exclusivity and whether generic versions of TREANDA should be allowed to come on to the market before December of 2022. Our view which is supported by both, the plain language of the statute and FDA precedent is that our exclusivity applies to all bendamustine products that treat the same indications. We did not find any of the submissions by the generics to be particularly compelling and we remain very confident that there will be no generic competition in the bendamustine market. We're just going to have to wait to see how it unfolds, but as you dig into it, as the other people that we discussed this with, I think there is a growing consensus that the likelihood of us maintaining this market at least through the end of 2022 is reasonably high.

Tim Lugo

Understood. Thanks for all that clarity. Could you talk about Ryanodex's potential to be out into the stockpile pending clinical success? Is that dependent at all in the formulation? I know you have the IM formulation development.

Scott Tarriff

Yes, that's a good question, Tim. I don't know if we have sufficient color on it yet. I think a lot of it depends on the global political environment in the time. It seems to us that the world is a little uneasy place right now. And very sadly, if we pay attention to the news and maybe we do a little bit more because we have a drug in development for it, nerve agents are being deployed around the globe far more frequently than any of us would like to see. We're proud of the work that we're doing with Ryanodex for nerve agents.

So as it comes to the stockpile, is there a chance that there would be a nerve agent attack on our soil? Who knows? But certainly the world and the country is more concerned about it today than ever. The government does stockpile atropine -- Pfizer's atropine now in the civilian stockpile. As I mentioned earlier, that's about $100 million a year in sales. There are 39 locations around the country in which these emergency medicines are stockpiled. Ryanodex if approved would be a companion drug to atropine and if the study results of the second trial winds up to be the same as the first trial and then it's clear that if you have a nerve agent attack, there isn't any reason why you wouldn't need to have Ryanodex along with atropine.

Based on that, I think there is a good chance that we wind up in that stockpile. Now clearly, when we get the IM and we'll speak more about that maybe before the year is over or early next year, we'll talk a little bit more about what we're doing there and the progress that we're making. When we get it to the IM, clearly it's going to make the drug easier to use in these emergency situations and will have a tremendous benefit, but at the same time, what we need to keep in mind, that although Ryanodex is IV today, it's only a 5ml dose or maybe a 10ml dose. It's not that lengthy of a time to deliver if you're going to wind up in an IV line in any way.

So what we would suspect because of the strength and the results that we're seeing if it holds is that the IV version would not be a problem with using it, but I think that the military and government would want to switch out to the IM as quickly as they could once it was approved. So maybe we will have to work out a program with them as soon as the IM is approved, we have some type of switch opportunity. But I can't believe that the IV would stop us from stockpiling it because we just need the drug in case there is an attack.

Tim Lugo

Understood. Thanks for that.

Scott Tarriff

Thank you, Tim.

Operator

[Operator Instructions] Our next question is from Brandon Folkes of Cantor Fitzgerald.

Brandon Folkes

Hi. Thanks for taking my questions. Firstly on Ryanodex, the I'm formulation, can you help us think through what this does to the Ryanodex franchise? How much does it help the franchise grow versus extending the durability of the current franchise? And then secondly just a modeling question, can you help us think through obviously with not giving guidance, the operating expenditure mixture where SG&A and R&D may be going? Thank you.

Scott Tarriff

Thanks, Brandon. Let me take the IM first and then Pete will take the guidance portion of it. The IM is just really important all the way around. Let's talk about the durability first. We haven't disclosed yet the details of the program. I think we're ready to do that relatively soon. But the product that we are developing is quite unique and should provide us -- I would hope and think -- another seven years of exclusivity for a number of reasons. It will be significantly patented. You'll see as the information unfolds what we've done and why we believe in it and how it helps the durability. But the product that we hope to develop, we'll be able to use for an IV and an IM with the same product.

So when you look at how the drug is used and what would happen in the hospital, it's very unlikely that a hospital would want to stock a product that could only be used for an IV for a whole host of reasons. It would be wasteful to have two different Ryanodexes in stock. There would be the issues of potentially using the old product the wrong way and the treatment effect is just going to be helpful to everything. So between the patents and the use of it, I think you'll see once we tell you more about it why we think it helps so dramatically with the durability. But when it comes to growth, there are a lot of emergency situations that you could see. We're having an IM drug that could expand the use of the drug. In emergency situations ultimately on the battlefield, on the football field, on the soccer field, people who have these disease state, its emergency situation, the drug has to be delivered as quickly as possible, I think it will just give people access and capability to use the drug that are not able to use the drug today. We're excited about it. Could be a really important transition from Ryanodex to this new product and we'll explain more I think over the next few months, I would hope.

And then with that, Pete, you want to take the financial questions?

Pete Meyers

Sure. Brandon, as you mentioned, we are not at the moment providing guidance on 2019 Opexes, other than to say that on the R&D line. We would potentially have a lower R&D non-GAAP on 2019 where we have in 2018. Obviously you've already seen a substantial demolition in the R&D line through 2018 largely because the fulvestrant trial cost from an accounting perspective were accrued in the first and second quarters. So we have non-GAAP R&D of 15 in the first quarter, 13 in the second quarter and then obviously very substantial reduction in the third quarter. So we're comfortable at this point seeing that the 2019 R&D non-GAAP margin spend will be less than that of 2018, but obviously there could be additional opportunities we would pursue which would change that perspective.

On the SG&A line, you'll recall that last year we took out $10 million in expenditures. That was the goal and we actually overshot it because the non-GAAP SG&A for 2017 you'll remember was 57. We just told you that we're adhering to our non-GAAP SG&A of 2018 of 44 and 47. We've actually overshot our expense reduction initiatives announced a year ago which was just good to us. I would just point out that in the phase sales and marketing payroll, that frankly has grown at 2018 because remember in 2017, we didn't have the expanded sales force on board for the whole 12 months. We're quite proud of that. At this point we're not in a position to provide guidance on SG&A for 2019, but we'll come back to you once we've been through our budgeting process.

Brandon Folkes

Okay, thank you very much.

Operator

[Operator Instructions] And we have a follow-up question from Tim Lugo of William Blair.

Tim Lugo

Thanks for the follow-up. There has been some discussion from both of the parties about ending AST plus 6%. Could you just talk to a bit how exposed you would think BENDEKA would be to any changes to AST plus 6% and what does that do to your thoughts around pipeline? Just further investment in your current product pipeline?

Pete Meyers

On oncology, the reverse was down AST plus 4.3%, so it's no longer 6%. Obviously we are focused on that issue. We think that there has been a lot of chatter over a number of years about changing the Medicare reimbursement, but we don't see that going any time soon. And bear in mind that that's a substantial proportion. You've heard Scott say that we expect, we anticipate retaining 70% of the market once TREANDA generasized [ph] and that is in fact JCO [ph] driven, because the 340 being institutions are not AST plus reimbursed.

Tim Lugo

Fair enough. Thank you.

Scott Tarriff

Thanks, Tim.

Operator

This concludes our question-and-answer session. I'd be happy to return the call to Mr. Scott Tarriff for any concluding remarks.

Scott Tarriff

Thank you, everybody. I appreciate the time you spent with us today and look forward to continuing these discussions with you over the weeks. Thank you again.

Operator

This does conclude today's Eagle Pharmaceuticals' third quarter 2018 earnings results conference call. You may now disconnect your lines and everyone, have a great day.

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