Collaborative Approach to Life Science Financing
Q3 2020 Shareholder Presentation
November 16, 2020
1
Forward-looking and Cautionary Statements
Statements in this presentation that are not strictly historical, and any statements regarding events or developments that we believe or anticipate will or may occur in the future are "forward- looking" statements within the meaning of the federal securities laws. There are a number of important factors that could cause actual results, developments and business decisions to differ materially from those suggested or indicated by such forward-looking statements and you should not place undue reliance on any such forward-looking statements. Additional information regarding the factors that may cause actual results to differ materially from these forward-looking statements is available in our SEC filings, including our Annual Report on Form 10-K for the year ended December 31, 2019 and our Quarterly Reports on Form 10-Q for subsequent periods. The Company does not assume any obligation to update or revise any forward-looking statement, whether as a result of new information, future events and developments or otherwise.
Our specialty finance and asset management businesses are conducted through separate subsidiaries and the Company conducts its operations in a manner that is excluded from the definition of an investment company and exempt from registration and regulation under the Investment Company Act of 1940.
This presentation is neither an offer to sell nor a solicitation of any offer to buy any securities, investment product or investment advisory services, including such services offered by SWK Advisors LLC. This presentation does not contain all of the information necessary to make an investment decision, including, but not limited to, the risks, fees and investment strategies of investing in life science investments. Any offering is made only pursuant to the relevant information memorandum, a relevant subscription agreement or investment management agreement, and SWK Advisors LLC's Form ADV, all of which must be read in their entirety. All investors must be "accredited investors" and/or "qualified purchasers" as defined in the securities laws before they can invest with SWK Advisors LLC.
Life science securities may rely on milestone payments and/or a royalty stream from an underlying drug, device, or product which may or may not have received approval of the Food and Drug Administration ("FDA"). If the underlying drug, device, or product does not receive FDA approval, it could negatively impact the securities, including the payments of principal and/or interest. In addition, the introduction of new drugs, devices, or products onto the market could negatively impact the securities, since that may decrease sales and/or prices of the underlying drug, device, or product. Changes to Medicare reimbursement or third-party payor pricing could negatively impact the securities, since they could negatively impact the prices and/or sales of the underlying drug, device, or product. There is also risk that the licensing agreement that governs the payment of royalties may terminate, which could negatively impact the securities. There is also the risk that litigation involving the underlying drug, device, or product could negatively impact the securities, including payments of principal and/or interest on any securities.
CONFIDENTIAL | 2 |
SWK Holdings - Overview
Custom financing solutions for commercial-stage healthcare companies and royalty owners
Underserved, High-
Need Market
Demonstrated
Success, Attractive
Returns
- SWK targets $5mm to $20mm financings, a market niche that is largely ignored by larger market participants and generates attractive full-cycle returns
- Business focus is secured financings and royalty monetizations, but will selectively consider equity-like opportunities and M&A
- Experienced and aligned management and Board with extensive life science network
- As of November 13, 2020 completed financings with 38 parties deploying $550mm of capital
- Targets unlevered, mid-teens gross return on capital with a portfolio effective yield* of 13.4% for 3Q20
- 18 exits from inception through November 13, 2020 generating a 20% IRR and 1.2x MOIC
- Specialty finance segment generated an 11.9% LTM adjusted return on finance segment tangible book value**
- Compounded book value per share at a 10% CAGR from 4Q12 to 3Q20's $18.44
- Demonstrated shareholder value creation: Enteris acquisition, share repurchases, and NASDAQ uplisting
- Shareholder value creation strategy:
Focus on Shareholder
Returns
- Increase book value per share at a 10%+ CAGR
- Serve as partner of choice for life sciences companies and inventors seeking $20mm or less
- Selective organic and inorganic investment in Enteris or other equity-like opportunities
- Generate current income to utilize SWK's substantial NOL asset, $360mm as of December 31, 2019
- Effective yield is the rate at which income is expected to be recognized pursuant to the Company's revenue recognition policies, if all payments are received pursuant to the terms of the finance receivable; excludes warrants
- Numerator is specialty finance division's adjusted non-GAAP net income; Denominator is shareholders equity less the deferred tax asset and Enteris PP&E and net intangibles and goodwill, which adds-back the contingent consideration payable
CONFIDENTIAL | 3 |
SWK Holdings - Segments
SWK operates through two segments: Life Science Specialty Finance and Enteris BioPharma
Centered on SWK's core focus on monetizing revenue streams and intellectual property
LIFE SCIENCE SPECIALTY FINANCE | ENTERIS BIOPHARMA |
• Senior secured term loans | • Peptelligence® dosing |
technology | |
• Royalties | |
• CDMO services | |
• Synthetic royalties | |
• 505b2 drug development | |
• Product acquisitions |
CONFIDENTIAL | 4 |
Life Science Finance Opportunity
Achieve high current yield from investment in non-correlated assets
Access to capital is challenging for small/midsized life science cos - Few participants exist for sub-$20mm life science financings
Life science products are highly portable
- Approved & marketed products and/or royalty streams are valuable collateral
Revenues are predictable and have low correlation to economic growth and macro factors
Mitigate FDA & clinical trial risk by focusing on commercial opportunities
CONFIDENTIAL | 5 |
Value Creation Strategy
Deploy balance sheet
capital into secured financing portfolio
- SWK has established reputation as a go-to capital provider for this underserved market
- Majority of financings structured with warrants or other equity-like upside features to enhance return profile
Selectively consider non- structured finance capital deployment opportunities
- Organic and inorganic capital deployment into Enteris
- Leverage SWK contacts, infrastructure, and lessons learned from Holmdel success
Optimize capital structure
to boost ROE
- SWK targets a 10%+ ROE
- SWK carries minimal leverage while similarly sized BDCs often carry 50% to 75% debt/equity leverage
- Opportunistic share repurchases
SWK believes this strategy can continue to achieve a 10%+ book value per share CAGR
CONFIDENTIAL | 6 |
Book Value Components
Tangible Finance Book Value / Share = $15.52
- Excludes value of deferred tax asset, net Enteris intangibles and goodwill*, and Enteris PP&E
- SWK's targets 10%+ CAGR of tangible finance book value / share
Plus: Enteris Biopharma
- In August 2019, SWK paid $21.5 million upfront to acquire Enteris
- The seller will also receive a portion of future proceeds from the Cara Therapeutics licensing agreement and if out-licensed, proceeds from certain 505 (b)(2) assets (refer to slide 22 for more details)
- At 9/30/20 Enteris book value net of contingent liabilities totaled $11.3 million ($0.88 / share)
Plus: Deferred Tax Asset /
Share = $2.03
- At 12/30/19 SWK had federal net operating losses of $360.4 million
- The NOLs will expire by 2037 with the majority expiring by 2021
9/30/20 Total Book Value per Share of $18.44
* Intangible assets, net plus goodwill less contingent consideration payable
CONFIDENTIAL | 7 |
Corporate Milestones
2016 | |||||
2015 | ✓ | Team rebuilt | |||
and | |||||
investment | |||||
2014 | ✓ | Winston | process | ||
Black named | improved | ||||
✓ | $113mm raised | CEO | |||
✓ | Ended year | ||||
through private | |||||
✓ | 1/10 effective | with $126mm | |||
placement and | |||||
reverse stock | yielding | ||||
rights offering | |||||
split | assets | ||||
✓ | Ended year with | ✓ | Ended year | ||
$93mm yielding | with $99mm |
assets | yielding |
assets |
2017
- Holmdel sold - 3.5x CoC return
- Ended year with $152mm yielding assets
2018
- Secured $20mm credit facility with State Bank
- Announced share repurchase program in 4Q18
- Ended year with $167mm yielding assets
2019 | 2020 | ||
✓ | Uplisted to | ||
✓ | 17th partner exit | Nasdaq and | |
added to | |||
realized, | |||
Russell 2000 | |||
bringing the | |||
Index | |||
weighted avg. | |||
IRR on all exits | ✓ | Dr. Rajiv Khosla | |
to 20% | hired as Enteris | ||
✓ | Acquired Enteris | CEO | |
BioPharma | ✓ | At 3Q20 had | |
✓ | Ended year with | $183mm | |
yielding assets | |||
$173mm | |||
yielding assets
CONFIDENTIAL | 8 |
Finance Segment Portfolio Overview: 3Q20
Financing | • | Yielding Assets:* $183.5mm |
Segment | ||
• | Total Investment Assets:** $187.0mm | |
Portfolio Value | ||
- Actively Financed Entities: 24
- Avg. GAAP Balance per Entity: $7.6mm
Metrics • Finance Receivables Non-Accrual
Balance: $15.8mm
- Total Unfunded Commitments: $8mm
- Finance receivables plus long-term marketable investments; does not include new or repaid finance receivables closed post-quarter
- Short term marketable investments and warrants; Private warrants carried at zero value / not valued on balance sheet
Portfolio Composition
1%
13%
86%
First Lien | Royalty | Warrants |
CONFIDENTIAL | 9 |
Financial Snapshot
Total Yielding Assets*
($ in millions; at end of period)
$200
$183.5
$173.3
$175 | $167.1 |
$152.0
$150
$126.4
$125
$100
2016 | 2017 | 2018 | 2019 | 3Q 2020 |
SWK Stockholders' Equity | ||||
($ in millions, except per share data) | ||||
$250 | $236.5 | $20.00 | ||
$235.7 | ||||
$225 | $213.1 | $17.50 | ||
$208.0 | ||||
$204.3 | ||||
$200 | $15.00 | |||
$175 | $12.50 | |||
$150 | $10.00 | |||
2016 | 2017 | 2018 | 2019 | 3Q 2020 |
SWK Holdings Corporation Stockholders' Equity | Book Value per Share |
Total Revenue | Non-GAAP Adjusted Net Income (Loss) ** | |||||||||||||||
($ in millions) | ($ in millions) | |||||||||||||||
$40 | $25.0 | |||||||||||||||
$37.5 | ||||||||||||||||
$38 | $21.4 | |||||||||||||||
$35.2 | $19.9 | $18.3 | ||||||||||||||
$36 | $20.0 | |||||||||||||||
$34 | $15.0 | |||||||||||||||
$30.7 | ||||||||||||||||
$32 | ||||||||||||||||
$30 | $10.0 | |||||||||||||||
$28 | $6.7 | $6.8 | ||||||||||||||
$26.0 | ||||||||||||||||
$26 | $5.0 | |||||||||||||||
$23.5 | ||||||||||||||||
$24 | $22.4 | |||||||||||||||
$(1.4) | ||||||||||||||||
$22 | $- | |||||||||||||||
$20 | 2015 | 2016 | 2017 | 2018 | 2019 | LTM 3Q20 | ||||||||||
2015 | 2016 | 2017 | 2018 | 2019 | LTM 3Q20 | $(5.0) | ||||||||||
- Defined as finance receivables plus long term marketable investments
- Eliminates provision for income taxes, Enteris intangibles amortization, and non-cashmark-to-market changes on warrant assets and equity securities; see reconciliation on page 28; 2019 Non-GAAP Adjusted Net Income was reduced by $1.2mm of Enteris transaction expenses
CONFIDENTIAL | 10 |
Financing Strategy
SWK Targets Low-to-Mid Teens Effective Yields 3Q20 Finance Segment Effective Yield was 13.4%
Yielding Portfolio and Weighted Effective Yield | |
($ in millions; at end of period) | |
$190.0 | |
17.5% | |
$180.0 | |
15.0% | |
$170.0 | |
12.5% | |
$160.0 | |
$150.0 | 10.0% |
Yielding Portfolio (mm)* | Effective Yield** |
- Finance receivables plus long-term marketable investment; Includes non-accruals
- Effective yield is the rate at which income is expected to be recognized pursuant to the Company's revenue recognition policies, if all payments are received pursuant to the terms of the finance receivable; excludes warrants
CONFIDENTIAL | 11 |
Current Structured Credit Portfolio
Eton Pharmaceuticals
11.14.19
$15 million - Structured
Credit
Misonix
9.27.19
$30 million - Structured
Credit
CONFIDENTIAL | 12 |
Current Royalty Portfolio
CONFIDENTIAL | 13 |
Portfolio Realizations
- As of November 13, 2020 SWK has exited 18 financings for a total 1.2x CoC return and 20% weighted average IRR
- 15 resulted in positive realizations with a cumulative 1.4x CoC and weighted average 32% IRR
- SynCardia position was sold to distressed private equity firm with SWK recouping 58% of principal
- Response Genetics exited via Chapter 11 and sold to a strategic buyer for cash and CGIX stock with SWK recouping 47% of principal
- Hooper and Hooper II loans cumulatively resulted in an aggregate $0.4mm loss/0.98x CoC return
$ in 000s | |||||||||||
Investments | Origination | Payoff | Cost* | Proceeds | CoC | IRR | Notes | ||||
Nautilus | 12/05/12 | 12/17/13 | $ | 22,500 | $ | 28,606 | 1.3x | 28% | Key asset was Cambia | ||
Parnell | 01/23/14 | 06/27/14 | 25,000 | 27,110 | 1.1x | 21% | |||||
PDI | 10/31/14 | 12/22/15 | 20,000 | 25,028 | 1.3x | 23% | |||||
Tribute | 08/08/13 | 02/05/16 | 14,000 | 18,349 | 1.3x | 18% | |||||
Galil | 10/31/14 | 06/15/16 | 12,500 | 16,601 | 1.3x | 21% | |||||
Nanosphere | 05/14/15 | 06/30/16 | 10,000 | 14,362 | 1.4x | 48% | |||||
Syncardia First | 12/13/13 | 06/24/16 | 12,688 | 8,524 | 0.7x | -30% | |||||
Syncardia Second | 12/13/13 | 06/24/16 | 5,850 | 3,255 | 0.6x | -39% | |||||
Syncardia Preferred | 09/15/14 | 06/24/16 | 1,500 | - | 0.0x | -100% | |||||
Response Genetics | 07/30/14 | 10/07/15 | 12,257 | 5,780 | 0.5x | -47% | |||||
Holmdel | 12/20/12 | 02/23/17 | 6,000 | 21,084 | 3.5x | 63% | |||||
Hooper | 04/17/15 | 05/12/17 | 5,000 | 6,754 | 1.4x | 20% | |||||
Narcan | 12/12/16 | 02/28/18 | 17,500 | 34,423 | 2.0x | 80% | Continue to own 10% of the royalty | ||||
OraMetrix | 12/15/16 | 05/01/18 | 8,500 | 10,603 | 1.25x | 19% | |||||
Parnell | 11/22/16 | 07/30/18 | 13,500 | 19,327 | 1.4x | 26% | |||||
Hooper II | 05/12/17 | 10/10/18 | 21,340 | 19,162 | 0.9x | -16% | |||||
EyePoint | 03/28/18 | 02/13/19 | 20,000 | 25,168 | 1.3x | 34% | Continue to own warrants | ||||
Thermedx | 05/05/16 | 05/22/19 | 3,500 | 5,303 | 1.5x | 18% | Includes par value of $343 retained sub note | ||||
Cheetah Medical | 01/15/19 | 09/30/19 | 10,000 | 12,487 | 1.2x | 32% | Potential for additional $211k of earnouts | ||||
Aimmune Therapeutics | 02/12/19 | 10/20/20 | 3,686 | 4,430 | 1.2x | 20% | |||||
Total Realized / Wtd. Avg | $ | 245,320 | $ | 306,357 | 1.2x | 20% | |||||
*Cost measured as principal advanced at deal close and additional add-ons, including time-weighted restructuring fundings | |||||||||||
CONFIDENTIAL | 14 | ||||||||||
Portfolio Realizations to Strategic Buyers
- Ten realizations to strategic buyers demonstrated a median 28% LTV of SWK's original loan value
- Seven of the ten businesses were not profitable at time of sale, validating SWK's revenue and IP-based underwriting
methodology
$ in mm | ||||||||||||
Transaction | SWK Loan at | SWK Loan / | EV / LTM | Target | ||||||||
Target | Buyer | Closing Date | LTM Sales | Profitable | Notes | |||||||
EV | Cost* | Transaction | Sales | |||||||||
Sale? | ||||||||||||
Nautilus | Depomed | 12/17/13 | $ | 48.7 | $ | 22.5 | 46% | $ | 15.4 | 3.2x | N | |
Response Genetics | Cancer Genetics | 10/07/15 | 5.8 | 12.3 | 213% | 16.7 | 0.3x | N | ||||
PDI | Publicis | 12/22/15 | 33.0 | 20.0 | 61% | 129.3 | 0.3x | Y | CSO Division Only; Transaction EV assumes 50% near-termearn-outs achieved | |||
Tribute | Aralez | 2/1/16 | 147.6 | 14.0 | 9% | 26.5 | 5.6x | N | ||||
Galil | BTG plc | 5/16/16 | 84.4 | 12.5 | 15% | 22.7 | 3.7x | N | Transaction EV excludes $26mm of milestones | |||
Nanosphere | Luminex | 6/30/16 | 77.0 | 25.0 | 32% | 23.1 | 3.3x | N | ||||
InnoPran XL** | ANI Pharma | 2/23/17 | 30.5 | 6.0 | 28% | 11.1 | 2.7x | Y | ||||
Orametrix | Dentsply Sirona | 5/1/18 | 90.0 | 8.5 | 9% | 20.0 | 4.5x | Y | Transaction EV excludes up to $60mm in earn-outs | |||
Hooper II | Quest | 10/10/18 | 27.8 | 26.6 | 96% | 61.3 | 0.5x | N | Loan value includes non-SWK revolver ($8mm); Workout fees totaled $4mm | |||
Cheetah Medical | Baxter | 10/24/19 | 190.0 | 20.0 | 11% | 22.2 | 8.6x | N | Transaction EV excludes up to $40mm in earn-outs | |||
Aimmune Therapeutics*** Nestle | 10/14/20 | 2,139.0 | 131.5 | 6% | - | NA | N | SWK partnered with KKR on the transaction | ||||
Median | 28% | 3.3x |
- Cost measured as greatest of principal advanced at deal close and additional add-ons, including restructuring fundings
- InnoPran XL was the primary asset of Holmdel Pharmaceuticals, LP
- SWK owned 4.5% of the Aimmune loan.
CONFIDENTIAL | 15 |
Sourcing
- SWK has a well-developed and diversified sourcing network
- SWK balances proprietary opportunities with deal flow from trusted, boutique investment banks and brokers
- SWK typically faces limited competition due to proprietary sourcing network and focus on sub-$20mm financings
- From 2017-2019 SWK submitted terms on 78 transactions and closed 18% of these opportunities
- Deals completed from 2016 through 2019 were sourced from a variety of relationships
Internally sourced
18%
Boutique HC Ibanks
27%
Refinance
5%
In-bound due to SWK
being public
5%
Private equity | ||
Board relationship | relationship | |
4% | ||
4% | ||
Co-lender relationship | Prior financing | |
23% | discussion | |
14% | ||
CONFIDENTIAL | ||
16 | ||
Financing Structures
Structured Debt
Royalties
Synthetic Royalty
Hybrid Financing
Product Acquisition
- Primarily first lien senior secured loans, though will selectively evaluate second lien opportunities
- Typically include covenants, prepayment penalties, origination and exit fees, and warrant coverage
- Provide working capital to support product commercialization and M&A
- Companies: fund pipeline development & leverage a lower cost of capital for higher ROI projects
- Institutions: capital planning for operating budgets, funding R&D initiatives, & financial asset diversification
- Inventors: financial asset diversification, fund start-up company
- Marketer creates a 'royalty' by selling an interest in a future revenue stream earned with a single product or basket of products in exchange for an upfront payment and potential future payments
- Ability to structure tiered revenues, reverse tiers, minimum payments, caps, step-downs and buy- out options, similar to a license agreement between innovator and marketer
- Combination of royalty and revenue-based financings
- Can take on many forms, including structured debt and equity investments
- Target legacy products with established revenue trends, minimal marketing and infrastructure requirements
CONFIDENTIAL | 17 |
Value Proposition to Partners
Asset base and nimble structure position SWK to serve the sub-$20mm financing market
- Smaller companies often don't have financial profile to qualify for traditional financing sources
- Companies in this niche often have few options outside of a dilutive equity raise
- The IPO market is largely closed to companies of this size requiring expensive and difficult private equity sourcing
- Many alternative financing sources have grown too large to care about smaller companies
- Some historical financing sources have been acquired by regulated financial institutions that due to regulatory constraints cannot lend to unprofitable companies and prohibit SWK-style transactions
- Venture lenders often require principal payback over a shorter period than SWK's structures, often stressing borrowers by sapping valuable working capital from their businesses during periods of high growth, when they need the capital the most
Structures financings to preserve liquidity and match a growing company's revenue profile
Provides its borrowers with access to its network of capital markets resources and operators
Through RIA arm and industry relationships, SWK can access additional capital to finance larger opportunities
CONFIDENTIAL | 18 |
Historical Financing: Narcan Royalty
Narcan is the only FDA approved, intranasal Naloxone product for the treatment of opioid overdose
Narcan is appropriately priced with revenue growth from expanded distribution, not price hikes
OPPORTUNITY
- Opiant is a publicly traded drug development company that receives a royalty on Narcan for developing the drug's unique formulation
- Novel formulation has a faster time to onset and more convenient and safer administration
- Opiant needed capital to pursue development programs
- At time of monetization, Opiant was a thinly traded OTC stock and management believed the share price did not reflect underlying asset value, thus a share offering was not an attractive option
SOLUTION
- SWK structured a capped royalty that was smaller than competing proposals, and allowed Opiant to retain tail economics
- In December 2016, SWK funded $13.8mm in exchange for a royalty that was capped at a 1.5x CoC return
- On August 8, 2017 upon achieving $25mm in cumulative sales during two consecutive quarters, SWK funded additional $3.8mm with a 1.5x CoC return cap
- Narcan sales exceeded forecasts; CoC return cap achieved in February 2018
- SWK retains a residual royalty ranging from 5% to 10% through expiry of Narcan IP
CONFIDENTIAL | 19 |
Historical Financing: Galil Medical
Galil is a privately-held medical device company that delivers innovative cryotherapy solutions
for tumor ablation
OPPORTUNITY
- In 2014, Galil was on the cusp of accelerating revenue growth, but was not yet cash-flow positive and could not tap traditional financing channels
- Galil needed additional capital to run clinical trials and expand its sales force
SOLUTION
- In December 2014, SWK provided a $12.5mm senior secured term loan structured to delay principal repayment until growth initiatives matured
- In late 2015, SWK committed to provide additional financing to support Galil's proposed acquisition of a competitor
- The transaction was not consummated, but SWK's support permitted opportunistic bid
- By early 2016, the growth initiatives were bearing fruit, and in June 2016, Galil was acquired by BTG plc for $84mm plus up to $26mm in earn-outs
- The SWK facility gave Galil capital to grow the business and garner a higher acquisition price while allowing the equity owners to capture maximum upside
- SWK facility represented 15% LTV of the take-out price
- SWK generated a 1.3x cash-on-cash return and 20% IRR
CONFIDENTIAL | 20 |
Enteris BioPharma Acquisition - A Transformational Opportunity
Synergistic & Value
Enhancing
Highly Favorable Deal
Economics
"Game-Changing"
Platform Technology
Strong Company;
Positioned for Success
- Natural extension to SWK's existing royalty monetization business, which generates income via royalties on life science products in a mix of structures
- Enteris offers opportunity to create wholly-owned portfolio of milestones and royalties on IP-protected biotherapeutics with substantial upside optionality
- Attractive valuation with SWK buying undervalued portfolio of "call options" of current & future licenses, owned drug candidate assets, and CDMO operations
- Risk-adjustedeconomics from existing/expected licenses anticipated to exceed purchase price
- Peptelligence enables injectable-to-oral conversion of peptides and difficult to formulate small molecules
- Targets substantial market and serves as cornerstone for "asset-light" licensing revenue model
- Franchise-likemodel ("multiple shots on goal") leverages partners' significant R&D and marketing/commercialization spend
- Existing 505(b)(2) pharmaceutical development candidates plus ability to internally expand owned-product portfolio creates engine for additional future licenses
- Enteris possesses proven technology, clinical experience and in-house manufacturing which is unique compared with peers, some of which sport multi-hundred million dollar market values
- Potential to expand Peptelligence platform via acquisition of dosing technologies and CDMO assets
- Experienced management team buttressed by 2020 hiring of CMO and CEO
CONFIDENTIAL | 21 |
Enteris Corporate Overview
Proven Technology, Late-Stage Commercial Partnerships, and Internal Pipeline
Drug Delivery Technology | Commercial Platform | |
- Peptelligence technology allows for oral delivery of drugs that are typically injected, including peptides and BCS class II, III, and IV small molecules
- Extensive intellectual property estate with protection through 2036
- Peptelligence licenses, including Cara Therapeutics, and development work with several large pharmaceutical partners
- Generates revenue three ways:
- Formulation and development work
- Clinical trial tablet manufacturing
- Technology licenses consisting of milestones and royalties
- During 2020 SWK is investing to build-out manufacturing and business development capabilities
Internal 505(b)(2) Pipeline | Company Highlights | |
- Ovarest® (oral leuprolide tablet)
- Indications: Rare disease and female health
- Tobrate™ (oral tobramycin tablet)
- Indication: Uncomplicated Urinary Tract Infection
- Dr. Gary Shangold hired in January 2020 to optimize 505(b)(2) strategy
- Privately held company based in Boonton, New Jersey
- To operate as a wholly-owned subsidiary, run by experienced management
- Rajiv Khosla, Ph.D. appointed as Chief Executive Officer in May 2020
- Expected to be profitable including anticipated license-related revenue
- Over time SWK anticipates Enteris will develop multiple "shots on goal" value proposition
CONFIDENTIAL | 22 |
Enteris: Cara Therapeutics and Oral KORSUVA™
Oral KORSUVA
Licensing
Agreement
- Formulated with Enteris' Peptelligence technology
- Currently the subject of three separate late-stage clinical trials for pruritus; Cara recent announcement to expand investigation into a fourth undisclosed indication 'near-term'
- Phase 2 trial targeting pruritus in patients with CKD produced positive top-line results; Cara expects to initiate safety portion of Phase 3 trial in Q4 2020
- Licensing agreement between Enteris and Cara announced in August 2019
- Non-exclusive,royalty-bearing license for Peptelligence to develop, manufacture and commercialize Oral KORSUVA worldwide, excluding Japan and South Korea
- Enteris eligible to receive milestone payments and low single-digit royalties
• In October 2020, Enteris received a milestone payment of $2.5 million from Cara with SWK | |
Milestone Payment | entitled to receive $1.5 million of this payment per Enteris acquisition agreement |
• SWK eligible to receive additional potential milestone payments over the next several quarters | |
(subject to the achievement of certain development milestones) |
Successful completion of Cara milestones will validate both the Peptelligence platform and
the breadth and depth of Enteris' comprehensive pharmaceutical capabilities
CONFIDENTIAL | 23 |
Leadership Team
Winston Black | Charles Jacobsen | ||
Chief Executive Officer | Chief Financial Officer | ||
• | Appointed CEO in | • | Appointed CFO in |
2016 | 2012 | ||
• | Co-founded PBS | • | Currently serves as |
Capital Management | Partner of Strategic | ||
• | Prior leadership | Growth for CFGI | |
positions at Highland | • Has served in CEO | ||
Capital Management, | and CFO roles at | ||
Mallette Capital | multiple financing and | ||
Management and ATX | investment firms | ||
Communications |
Jody Staggs
Managing Director
- Joined in 2015
- Previously VP of Investments at Annandale Capital
- Co-foundedPBS Capital Management
- Prior to PBS, served as Senior Portfolio Analyst at Highland Capital Management
CONFIDENTIAL
Yvette Heinrichson
Chief Accounting Officer
- Joined in 2016
- Proficient in technical GAAP accounting, SEC financial reporting, SOX implementation
- Served as financial statement auditor and tax professional with Deloitte for multiple years
Dr. Rajiv Kholsa
Enteris subsidiary CEO
- Joined in 2020
- Consulted with variety of biopharma and drug delivery companies on strategy, product development, and licensing transactions
- Held senior roles in large and small biopharma companies including VP of Business Development at Biovail
- Ph.D. in Pharmaceutical Drug Delivery
24
SWK - Rapidly-Growing Life Science Focused Specialty Finance Company
Custom financing solutions for commercial-stage healthcare companies and royalty owners
Targeting $5mm to $20mm financings, a niche that is largely ignored by larger market participants
Focus is secured financings and royalty monetizations, but will selectively consider equity-like opportunities and M&A (Enteris BioPharma)
Since 2012, SWK has completed financings with 38 different parties deploying $550mm of capital, including partner co-investments
CONFIDENTIAL | 25 |
Balance Sheet
$ in 000s | Sep-20 | Dec-19 | Dec-18 | Dec-17 | Dec-16 | |||||
ASSETS | ||||||||||
Cash and cash equivalents | $ | 9,314 | $ | 11,158 | $ | 20,227 | $ | 30,557 | $ | 32,182 |
Interest and accounts receivable, net | 4,608 | 2,554 | 2,195 | 1,637 | 1,054 | |||||
Marketable investments | 1,136 | 1,802 | - | 1,856 | 2,621 | |||||
Other current assets | 1,911 | 1,087 | 138 | 126 | 240 | |||||
Total current assets | $ | 16,969 | $ | 16,601 | $ | 22,560 | $ | 34,176 | $ | 36,097 |
Finance receivables | $ | 183,242 | $ | 172,825 | $ | 166,610 | $ | 151,995 | $ | 126,366 |
Investment in unconsolidated entities | - | - | - | - | 6,985 | |||||
Marketable investments | 254 | 466 | 532 | - | - | |||||
Deferred tax asset | 25,986 | 25,780 | 22,684 | 22,725 | 38,471 | |||||
Warrant assets | 2,407 | 3,555 | 2,777 | 987 | 1,013 | |||||
Intangible assets, net | 15,983 | 25,113 | - | - | - | |||||
Goodwill | 8,404 | 8,404 | - | - | - | |||||
Fixed assets, net | 3,368 | 1,292 | 25 | - | - | |||||
Other assets | 190 | 336 | 474 | - | - | |||||
Total assets | $ | 256,803 | $ | 254,372 | $ | 215,662 | $ | 209,883 | $ | 208,932 |
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||||
Accounts payable and accrued liabilities | $ | 3,625 | $ | 3,061 | $ | 2,581 | $ | 1,840 | $ | 682 |
Revolving Credit Facility | - | - | - | - | - | |||||
Total current liabilities | $ | 3,625 | $ | 3,061 | $ | 2,581 | $ | 1,840 | $ | 682 |
Contingent consideration payable | $ | 16,464 | $ | 14,500 | - | - | - | |||
Warrant liability | - | 76 | 13 | 91 | 189 | |||||
Other non-current liabilities | 1,013 | 203 | 11 | |||||||
Total liabilities | 21,102 | 17,840 | 2,605 | 1,931 | 871 | |||||
Stockholders' equity: | ||||||||||
Common stock | 13 | 13 | 13 | 13 | 13 | |||||
Additional paid-in-capital | 4,430,757 | 4,432,146 | 4,432,499 | 4,433,589 | 4,433,289 | |||||
Accumulated deficit | (4,195,069) | (4,195,627) | (4,219,455) | (4,225,863) | (4,228,910) | |||||
Accumulated other comprehensive income | - | - | - | 213 | (87) | |||||
Total SWK Holdings Corp stockholders' equity | 235,701 | 236,532 | 213,057 | 207,952 | 204,305 | |||||
Non-controlling interests in consolidated entities | (0) | - | - | 3,756 | ||||||
Total stockholders' equity | 235,701 | 236,532 | 213,057 | 207,952 | 208,061 | |||||
Total liabilities and stockholders' equity | $ | 256,803 | $ | 254,372 | $ | 215,662 | $ | 209,883 | $ | 208,932 |
In 2019 and 2018 certain asset and liabilities were classified as "current"; Thus prior periods may not be directly comparable.
CONFIDENTIAL | 26 |
Income Statement
$ in 000s, except per share amounts | LTM 3Q20 | Dec-19 | Dec-18 | Dec-17 | Dec-16 | ||||||||
Revenues | |||||||||||||
Finance receivable interest income, including fees | $ | 31,612 | $ | 30,117 | $ | 25,978 | $ | 26,877 | $ | 15,747 | |||
Pharmaceutical development | 3,548 | 621 | - | - | - | ||||||||
Marketable investments interest income | - | - | - | - | 92 | ||||||||
Income related to investments in unconsolidated entities | - | - | - | 10,530 | 6,219 | ||||||||
Other | 43 | 9 | 12 | 79 | 322 | ||||||||
Total Revenues | 35,203 | 30,747 | 25,990 | 37,486 | 22,380 | ||||||||
Costs and expenses: | |||||||||||||
Provision for loan credit losses | 1,600 | 2,209 | 6,179 | - | 1,659 | ||||||||
Impairment expense | 163 | - | 7,875 | 8,509 | 8,077 | ||||||||
General and administrative | 10,657 | 7,430 | 4,866 | 4,101 | 2,829 | ||||||||
Change in fair value of acquisition-related contingent consideration | 1,964 | - | - | - | - | ||||||||
Depreciation and amortization | 14,225 | 4,954 | 17 | - | - | ||||||||
Pharmaceutical manufacturing, research and development expense | 4,230 | 1,176 | - | - | - | ||||||||
Interest expense | 444 | 338 | 160 | - | - | ||||||||
Total costs and expenses | 33,283 | 16,107 | 19,097 | 12,610 | 12,565 | ||||||||
Other income (expense), net: | |||||||||||||
Unrealized net (loss) gain on derivatives | (643) | 362 | 484 | (1,115) | 588 | ||||||||
Unrealized net gain (loss) equity securities | (810) | 1,643 | (1,035) | - | - | ||||||||
Gain (loss) on sale of investments | 197 | 197 | (105) | 243 | - | ||||||||
Income (loss) before income taxes | 665 | 16,842 | 6,237 | 24,004 | 10,403 | ||||||||
Income tax (benefit) expense | (8,970) | (6,986) | 42 | 15,753 | (21,638) | ||||||||
Consolidated net income (loss) | 9,635 | 23,828 | 6,195 | 8,251 | 32,041 | ||||||||
Net income attributable to non-controlling interests | - | - | - | 5,204 | 3,153 | ||||||||
Net income (loss) attributable to SWK Holdings Corp Stockholders | $ | 9,635 | $ | 23,828 | $ | 6,195 | $ | 3,047 | $ | 28,888 | |||
Net income (loss) per share attributable to SWK Holdings Corp Stockholders | |||||||||||||
Basic | $ | 0.75 | $ | 1.85 | $ | 0.47 | $ | 0.23 | $ | 2.22 | |||
Diluted | $ | 0.75 | $ | 1.85 | $ | 0.47 | $ | 0.23 | $ | 2.22 | |||
Weighted Average Shares | |||||||||||||
Basic | 12,909 | 12,906 | 13,051 | 13,036 | 13,015 | ||||||||
Diluted | 12,917 | 12,911 | 13,054 | 13,040 | 13,018 | ||||||||
CONFIDENTIAL | |||||||||||||
27 | |||||||||||||
Cash Flow Statement
$ in 000s,*
Cash flows from operating activities: Consolidated net income
Adjustments to reconcile net income to net cash provided by operating activities:
Income from investments in unconsolidated entity Provision for loan credit losses
Amortization of debt issuance costs Impairment expense
Deferred income tax
Change in fair value of warrants Change in fair value of equity securities
Change in fair value of acquisition-related contingent consideration Gain on sale of investments
Loan discount amortization and fee accretion Interest paid-in-kind
Stock-based compensation
Interest income in excess of cash collected Gain (loss) on sale (write off) of investments D&A expense
Changes in operating assets and liabilities:
Interest and accounts receivable
Other assets
Accounts payable and other liabilities
Net cash provided by operating activities
Cash flows from investing activities:
Acquisition of business, net of cash acquired Proceeds from sale of investments Investment in equity securities
Cash distributions from investments in unconsolidated entity Cash received for settlement of warrants
Investment in finance receviables Repayment of finance receivables Corporate debt security principal payment Purchases of property and equipment Other
Net cash provided by investing activities
Cash flows from financing activities:
Distribution to non-controlling interests
Net proceeds from credit facility
Repurchases of common stock, including fees & expenses
Debt Issuance Costs
Net cash used in financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
LTM 3Q20 | Dec-19 | Dec-18 | Dec-17 | Dec-16 | |||||
$9,634 | $23,828 | $6,195 | $8,251 | $32,041 | |||||
- | - | - | (10,530) | (6,219) | |||||
1,600 | 2,209 | 6,179 | - | 1,659 | |||||
189 | 188 | - | - | - | |||||
163 | - | 7,875 | 8,509 | 8,077 | |||||
(9,091) | (7,100) | 31 | 15,745 | (21,638) | |||||
643 | (362) | (484) | 1,115 | (588) | |||||
810 | (1,643) | 1,035 | - | - | |||||
1,964 | - | - | - | - | |||||
(197) | (197) | 105 | (243) | - | |||||
(2,069) | (349) | 487 | (1,926) | (3,109) | |||||
(2,781) | (1,287) | (191) | (1,779) | (398) | |||||
742 | 530 | 267 | 300 | 363 | |||||
- | (82) | (249) | (534) | - | |||||
- | - | - | - | - | |||||
14,215 | 4,954 | 28 | 17 | 16 | |||||
(2,011) | (214) | (558) | (583) | (59) | |||||
(1,038) | (205) | 202 | (42) | (396) | |||||
(892) | (1,734) | (1,296) | 1,158 | (106) | |||||
$11,881 | $18,536 | $ | 19,626 | $ | 19,458 | $ | 9,643 | ||
2,552 | (19,719) | - | - | - | |||||
197 | 197 | 221 | 345 | - | |||||
- | (159) | - | - | - | |||||
- | - | - | 17,515 | 7,222 | |||||
- | - | - | - | 1,405 | |||||
(22,458) | (51,039) | (90,110) | (37,432) | (75,009) | |||||
17,278 | 43,980 | 61,706 | 7,368 | 45,292 | |||||
65 | 66 | 69 | 93 | 41 | |||||
(2,354) | - | - | - | - | |||||
(261) | (48) | (16) | (12) | (3) | |||||
$ | (4,981) | $ | (26,722) | $ | (28,130) | $ | (12,123) | $ | (21,052) |
- | - | - | (8,960) | (3,696) | |||||
- | - | - | - | - | |||||
(2,072) | (883) | (1,357) | - | - | |||||
- | - | (469) | - | - | |||||
$ | (2,072) | $ | (883) | $ | (1,826) | $ | (8,960) | $ | (3,696) |
4,828 | (9,069) | (10,330) | (1,625) | (15,105) | |||||
11,158 | 20,227 | 30,557 | 32,182 | 47,287 | |||||
$ | 15,986 | $ | 11,158 | $ | 20,227 | $ | 30,557 | $ | 32,182 |
CONFIDENTIAL | 28 |
Reconciliation of Non-GAAP Adjusted Net Income
- The following tables provide a reconciliation of SWK's reported (GAAP) consolidated net income to SWK's adjusted consolidated net income (Non-GAAP) for the periods denoted in the table. The table eliminates provisions for income taxes, non-cashmark-to-market changes on warrant assets and SWK's warrant, and Enteris amortization :
$ in 000s, except per share amounts | LTM 3Q20 | Dec-19 | Dec-18 | Dec-17 | Dec-16 | |||||
Consolidated net income (loss) | $ | 9,343 | $ | 23,828 | $ | 6,195 | $ | 8,251 | $ | 32,041 |
Add: income tax expense (benefit) | (8,356) | (6,986) | 42 | 15,753 | (21,638) | |||||
Add: Enteris intangibles amortization | 13,846 | 4,816 | - | - | - | |||||
Add : loss on remeasurement of contingent consideration | 1,964 | - | - | - | - | |||||
Plus: loss (gain) on fair market value of equity securities | 810 | 144 | 1,035 | - | - | |||||
Add: loss (gain) on fair market value of warrants | 643 | (362) | (484) | 1,115 | (588) | |||||
Adjusted income before provision for income tax | $ | 18,250 | $ | 21,440 | $ | 6,788 | $ | 25,119 | $ | 9,815 |
Plus: Adjusted provision for income tax | - | - | - | - | - | |||||
Non-GAAP consolidated net income | $ | 18,250 | $ | 21,440 | $ | 6,788 | $ | 25,119 | $ | 9,815 |
Less: Non-GAAP adjusted net income attributable to non-controlling interest | - | - | - | (5,204) | (3,153) | |||||
Non-GAAP adjusted net income attributable to SWK Holdings Corporation stockholders | $ | 18,250 | $ | 21,440 | $ | 6,788 | $ | 19,915 | $ | 6,662 |
CONFIDENTIAL | 29 |
Reconciliation of Non-GAAP Specialty Finance Net Income
- The following tables provide a reconciliation of SWK's consolidated adjusted income before provision for income taxes, listed in the table above, to the non-GAAP adjusted net income for the specialty finance business for the periods denoted below. The table eliminates expenses associated with the acquisition of Enteris, and Enteris operating losses.
$ in 000s, except per share amounts | LTM 3Q20 | Dec-19 | Dec-18 | Dec-17 | Dec-16 | ||||||||
Adjusted income before provision for income tax | $ | 18,250 | $ | 21,440 | $ | 6,788 | $ | 19,915 | $ | 6,662 | |||
Plus: Enteris acquisition expense | 103 | 1,151 | - | - | - | ||||||||
Plus: Enteris operating loss, excluding amortization | 4,760 | 1,880 | - | - | - | ||||||||
Adjusted specialty finance income before provision for income taxes | $ | 23,113 | $ | 24,471 | $ | 6,788 | $ | 19,915 | $ | 6,662 | |||
Adjusted provision for income taxes | - | - | - | - | - | ||||||||
Non-GAAP specialty finance net income | $ | 23,113 | $ | 24,471 | $ | 6,788 | $ | 19,915 | $ | 6,662 |
- The following tables provide a reconciliation of SWK's book value per share to the non-GAAP adjusted book value per share for the specialty finance business. The table eliminates the net deferred tax asset, and Enteris-related net intangibles, goodwill, and net property, plant and equipment. Diluted shares outstanding are as of period end.
$ in 000s, except per share amounts | Sep-20 | Sep-20 | |||||
SWK Specialty Finance Book Value, net | Enteris Book Value, net* | ||||||
Stockholders' Equity (Book Value) | $ | 235,701 | Intangible assets, net | $ | 15,983 | ||
Less: Deferred tax asset, net | 25,986 | Goodwill | 8,404 | ||||
Tangible book value | $ | 209,715 | Property and equipment, net | 3,361 | |||
Less Enteris book value, net | 11,284 | Total Enteris-related assets | $ | 27,748 | |||
Specialty Finance tangible book value | $ | 198,431 | Less: Contingent consideration payable | 16,464 | |||
Book value per share | $ | 18.44 | Enteris book value, net | $ | 11,284 | ||
Tangible book Value per share | $ | 16.41 | |||||
Specialty Finance tangible book value per share | $ | 15.52 | Enteris book value, net per share | $ | 0.88 | ||
Diluted Shares outstanding | 12,782 | ||||||
CONFIDENTIAL | |||||||
30 | |||||||
Contact Information
SWK Senior Management | Investor & Media Relations: Tiberend Strategic Advisor | |||||
• | Winston Black: | • | Jason Rando (Media): | |||
̶ | Phone: 972.687.7251 | ̶ | Phone: 212.375.2665 | |||
̶ | Email: wblack@swkhold.com | ̶ | Email: jrando@tiberend.com | |||
• | Jody Staggs: | • | Maureen McEnroe (Investors): | |||
̶ | Phone: 972.687.7252 | ̶ | Phone: 212.375.2664 | |||
̶ | Email: jstaggs@swkhold.com | ̶ | Email: mmcenroe@tiberend.com |
- Office address:
- 14755 Preston Road, Ste 105 Dallas, TX 75254
- Website: www.swkhold.com
CONFIDENTIAL | 31 |
Collaborative Approach to Life Science Financing
32
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Disclaimer
SWK Holdings Corp. published this content on 16 November 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 17 November 2020 23:02:01 UTC