Good day, and welcome to the SWK Holdings First Quarter 2020 Financial Results Conference Call. Please note, this event is being recorded. I would now like to turn the conference over to Jason Rando, Tiberend Strategic Adviser. Please go ahead.

Thank you, and good morning, everyone, and welcome to SWK's First Quarter 2020 Financial and Corporate Results Call. Yesterday evening, SWK Holdings issued a press release detailing its financial results for the 3 months ended March 31, 2020. The press release can be found in the Investor Relations section of swkhold.com, under news releases. Before beginning today's call, I would like to make the following statement regarding forward-looking statements. Today we will be making forward-looking statements about future expectations, plans, events and circumstances, including statements about our strategy, future operations and the development of our consumer and drug product candidates, plans for future potential product candidates and studies and our expectations regarding our capital allocation and cash resources. These statements are based on our current expectations, and you should not place undue reliance on these statements. Actual results may differ materially due to our risks and uncertainties including those detailed in the Risk Factors section of SWK Holdings Forms 10-K and 10-Q filed with the SEC and other filings we make with the SEC from time to time. SWK Holdings disclaims any obligation to update information contained in these forward-looking statements, whether as a result of new information, future events or otherwise. Joining me on today's call is Winston Black, Chairman and CEO of SWK Holdings, who will provide an update on SWK's first quarter 2020 corporate and financial results. Winston, go ahead.

Thank you, Jason, and everyone for joining our conference call. The first quarter of 2020 continued what has been a period of significant progress for SWK highlighted by the uplisting of our common stock to the NASDAQ capital market in January. We initiated our strategic growth plan in 2019. We view the potential uplisting of SWK stock to the NASDAQ counter-market as central to the planned success. Reaching this goal is a testament to the fortitude of the SWK team and the value potential we offer as an investment, highlighting the benefit of being on NASDAQ, we are pleased to see our daily trading volume increase when compared to the period prior to when we announced the listing. I would like to see greater trading volume levels generally, we have seen a greater than 300% daily trading volume increase. Additionally, we have seen both a substantial reduction in the number of days when the stock doesn't trade and a substantial increase in higher volume days. We've also seen new shareholders invest in the company. While we have more work to do on our investor and potential shareholder outreach, we are actively working with our Investor Relations firm Tiberend Strategic Advisors to build the best practices of investor communications program to share the SWK story. Before I discuss our first quarter achievements, I'd like to provide a brief update on the COVID-19 situation, and I'm sure it is on everyone's mind. As we communicated previously, SWK as a business has been minimally impacted by the situation thus far. We are continuing to observe a company-wide work-from-home policy. Some have resumed working out of the office on occasion, and we've halted work-related travel. Though these restrictions can be at times convenient, our small business structure makes it very manageable. We continue to be in regular contact with the individual management teams of our portfolio companies, and we are pleased to report that our portfolio as a whole is continuing to hold firm against the challenges impacting the healthcare industry. We believe this is due to SWK's focus on investing in small and midsized life science companies with strong intellectual property, protecting commercial products that build demand within the healthcare system, including those like DxTerity diagnostics and BIOLASE, which are actively contributing to our nation's fight against COVID-19 through innovative products and diagnostics. Also benefiting SWK, we remain well capitalized with approximately $30 million of cash and revolver availability to next year, our recently reauthorized stock repurchase program and the ability to capitalize on new potential investment opportunities while also being in a position to support our existing portfolio companies as needed. Unlike BDCs and some investment funds SWK's balance sheet is not heavily leveraged, and we are in a net positive cash position. Looking forward, as the healthcare system nationwide begins to progress towards normalization and as central and elective procedures are reintroduced - something already underway at hospitals and medical centers in certain areas in the country - there will likely be a spending rebound in the industry as companies resume growth-oriented investment activities, which should encourage even more companies to seek capital. This is ideally suited to our business model, given our liquidity and industry focus, and we believe that SWK is well positioned to address forthcoming opportunities with our differentiated structured capital product offerings. Regarding our subsidiary Enteris Biopharma, the majority of the company continues to abide by work from home directives as dictated by the state of New Jersey. However, the laboratory and manufacturing facilities are open and operational, with employee hours being staggered and workspaces arranged to ensure proper social distancing. We've also instituted a COVID-19 specific safety policy and procedures and training and increased our facility cleaning procedures to ensure employee safety. While there has been an expected reduction in productivity and business development efforts as well as delays in receiving some supplies due to the COVID-19 situation, we continue to expect Enteris to generate positive cash flow above the expenses from proceeds received under its license agreements and customer relationships this year. Speaking of the progress of Peptelligence, we're pleased to see that in its first quarter 2020 update, Cara Therapeutics was previously entered into a license agreement with Enteris, reaffirmed key milestones for 3 oral KORSUVA programs. Notably, Cara remains on track to conduct an End of Phase II meeting with the FDA to enable the initiation of Phase III program in the second half of 2020 for oral KORSUVA as a treatment for pruritus in patients with moderate to severe chronic kidney disease. Additionally, Cara expects to report top line results in 2020 from its 2 Phase II clinical trials of oral KORSUVA in atopic dermatitis, and pruritus in patients with hepatic impairment due to primary biliary cholangitis. In closing, while the current update continues to have an influence on various aspects of life in business for the foreseeable future, we believe that SWK's structure and focus with a diversified income-producing life sciences portfolio will allow us to withstand the challenges we're all facing in this current COVID-19 environment and potentially position us for growth in the near term and certainly once the situation improves. Now under highlights of the portfolio and a review of our financial results. As of March 31, 2020, SWK's total portfolio of royalties and structured credit backed by royalties totaled approximately $180.9 million across 23 partners, including $179.2 million of income-producing assets. That compares favorably to $178.6 million as of December 31, 2019, particularly given the $2.8 million decline in our equity-related assets since year-end due to the market sell-off and $158 million as of March 31, 2019. During the first quarter of 2020, the company deployed $5.5 million in term loan financing, consisting of over $2.5 million advanced to existing borrower Aimmune Therapeutics and $3 million to existing borrower 4Web, Inc. Also subsequent to quarter end, the company advanced $0.6 million to existing borrower Harrow Health. At the end of the first quarter of 2020, the weighted average projected effective yield of the finance receivables portfolio was 13.2% versus 14.2% at the end of the first quarter of the previous year. Note that our effective yield includes all nonaccrual positions. At the end of the quarter, SWK reported a book value per share of $17.96, which includes a $0.26 per share impact from the amortization of Enteris intangibles and a $0.21 per share impact from mark-to-market changes on our equity portfolio noted moments ago. This compares to $18.31 per share as of December 31, 2019, and $16.98 per share as of March 31, 2019. The tangible financing book value per share totaled $14.75, which excludes the deferred tax exit intangible assets, goodwill and net PP&E and contingent consideration payable. Management views the tangible financing book value per share as a relevant metric to evaluate the company's core specialty finance business and its performance. This increased modestly during the quarter from year-end. For the first quarter of 2020, SWK reported total revenue of $7.3 million compared to $9.4 million for the first quarter of 2019. Revenue primarily consisted of interest and fees earned on our finance receivables as well as pharmaceutical development revenue generated from Enteris. The decrease in revenue was primarily due to a $3.4 million interest and fees earned on a finance receivable loan that was repaid in the first quarter of 2019. This was partially offset by approximately $1.2 million increase in interest and fees earned on the portfolio. The loss before taxes for the first quarter of 2020 totaled $3.4 million compared to $7.7 million for the same period the previous year. The decline is driven by the $3.4 million amortization expense during the quarter for Enteris intangibles, a $2.8 million expense related to the fair market value declines in our equity portfolio and a $2 million operating loss for Enteris. The GAAP net loss for the first quarter totaled $4.7 million or $0.36 per share. This compares to an income of $9.4 million or $0.31 per diluted share for the first quarter of 2019. For the first quarter of 2020, adjusted net income was $2.8 million or $0.21 per diluted share compared to $7.4 million or $0.57 per diluted share for the first quarter of 2019. The non-GAAP net income generated by our specialty finance business for the first quarter of 2020 totaled $4.8 million or $0.37 per diluted share as compared to $7.4 million or $0.57 per diluted share for the prior year period. And as noted before, the prior year period included the $3.4 million or $0.26 per diluted share gain related to the exit and prepayment fees received from the loan payoff last year. On an apples-to-apples basis for the investment portfolio, excluding this one-time gain, SWK Specialty Finance division reported an increase in earnings. As evidenced by these results, our Specialty Finance business continues to perform well, and we're working hard to target new transactions that leverage our areas of expertise and the growing need among small to midsize life science companies to access capital. As we said before, we believe that the COVID-19 outbreak has delayed, not destroyed demand in the life science industry. The medical needs addressed by our portfolio partners are important and patient demand will ultimately need to be met. As this dynamic begins to unfold, we are well capitalized to meet the increasing demand for our financial products. At Enteris, we have added personnel to the company, including 2 high-level executives and we're continuing to expand the manufacturing facilities. As noted earlier, the operating expenses are expected to increase, driven by our bolstering the management team, retooling business development efforts and upgrading our manufacturing facility, all important investments to enable long-term growth and further monetization of Peptelligence. As stated, we continue to expect to be potentially cash flow positive during 2020. The clinical milestones and associated milestone payments due under our license agreements are expected to be achieved in the second half of the year. Until then, similar to the first quarter of 2020, Enteris will be in a cash spend situation prior to the anticipated receipt of these milestone payments. Also, as we discussed during our year-end 2019 earnings call, it’s important to highlight that the aggregate amount of milestone payments we expect to receive this and next year is driving Enteris intangibles-related amortization expense. Please refer to our 2019 Form 10-K or this quarter's Form 10-Q for more details on the purchase price allocation and related intangibles amortization. In this regard, our overall growth strategy for Enteris continues to progress, and we're very pleased to report the recent hiring of Dr. Rajiv Khosla as Enteris' new Chief Executive Officer. The team has brought to our attention this following a comprehensive search process. And after several rounds of interviews, we firmly believe he is the ideal person to lead Enteris as the company targets multiple growth opportunities built around Peptelligence. Rajiv brings a wealth of experience and expertise from a distinguished career as an industry executive and more recently as a consultant advising biopharmaceutical companies, specifically regarding optimizing monetization of the intellectual property. His business development experience and a proven track record, not to mention a deep knowledge of drug delivery systems, including oral delivery technologies, will be critical to Enteris as the company seeks to capture more value-creating opportunities and maximize the potential of Peptelligence. In addition, in February, Enteris announced the hiring of Dr. Gary Shangold as Chief Medical Officer, with nearly 30 years of biopharmaceutical experience Gary brings to Enteris an unmatched blend of executive experience in drug development, regulatory and commercialization expertise, including numerous INDs, NDAs, and FDA approvals. With the hiring of Dr. Khosla and Shangold Enteris now possesses an executive team of substantial experience and ingenuity, and we look forward to being an active supportive partner as Enteris seeks to advance its external and internal programs as well as to develop new licensing partnership opportunities that leverage the Peptelligence platform. We remain excited about our investment in Enteris due to Peptelligence's ability for peptides and small molecules oral delivery, which has the potential to significantly redefine the market for these drugs. They can help ensure that patients remain compliant with their drug regimens and also help drug makers breathe new life into aging franchises or expand the life potential for newly discovered molecules. We remain confident that the opportunities in Enteris remain attractive and that the economics of the Enteris acquisition will exceed the $21.5 million purchase price paid by SWK. In conclusion, the first quarter continued what has been a sustained period of growth for SWK, also made possible by diligent efforts of our SWK Holdings and Enteris teams. I would once again like to thank our employees for their dedication and loyalty and our stakeholders for their continued support as we evolve our model to grow SWK. With that, I will now open the call to your questions.

Our first question is coming from Kyle Bauser of Dougherty & Company.

So on the specialty finance side of the business, I appreciate the comments on a couple of new term loan financings, and of course, the continued monitoring of your portfolio companies as it relates to COVID-19. It sounds like the portfolio is well positioned. I'm just kind of curious if you've been exploring any sort of accommodations for your companies, if there have been any amendments or deferrals or anything like that?

Sure. Thanks, Kyle. Great question. And you're right, we are speaking with the companies quite frequently. At this point, we've had to make a few accommodations. But really, the financial results in the first quarter didn't include the full brunt of COVID-19. And so I think probably the second quarter is when we will see more of that. But that said, the portfolio companies seem to be doing everything that we would want them to do in terms of us being in cash, positioning the businesses to kind of weather the storm and be prepared to resume operations as things open back up. So we're, of course, monitoring it, and we'll help companies as needed at this point. It hasn't been that many adjustments.

That makes sense. Great to hear. And regarding your cash on hand, what level of activity has there been in sourcing new deals? Has it moderated quite a bit with COVID-19? I'm just sort of wondering how you're thinking about opportunistic investments out there right now?

Sure. Great question. We think about it every day. It's kind of interesting, kind of as we were approaching the end of March as things began to really shut down. We did see quite a flurry of activity in terms of new transactions. And then as some of the PPP and EIDL facilities became available, everything kind of paused as everyone waited to see kind of what was happening. I think as we started to exit the month of April and as we've kind of been in the last 2 weeks, with people starting to see live in, so to speak, there has been an increase in a lot of activity. We're seeing all sorts of different types of transactions, everything from the traditional royalty monetizations to attritional term loan financing as well as legacy product acquisitions. So we're evaluating all of them and trying to make sure that the ones that are most actionable are the ones that we try to get done.

Sure. Got it. And then just one more, if I may, on the Enteris side. So thanks for the updates on the new management additions. So Dr. Khosla, being appointed CEO of Enteris last week. I know it's very early, but given his extensive background, I'm curious if there are any updated plans to drive that business forward here? In other words, is there an initial focus on anything for Dr. Khosla, whether it's pipeline assets or operations or new partnerships, etc.?

So he's been in his seat for a little over a week now. So I'm sure he's enjoying drinking from the firehose and getting up to speed. But we are really tasking him with driving our business development outreach; that's really been a key focus of ours, and is an area that probably has the most potential for the company. It has a high-return activity in terms of monetizing IP. So that certainly will be a focus of his. And then, of course, as he gets to know the company better and the technology we'll make sure we add more to his plate, but I think that's probably going to be the core initial focus.

Right. Got it. Well, some great updates here, and I appreciate you taking my questions.

Absolutely. I appreciate your interest, Kyle.

Our next question will be from Brooks O'Neil of Lake Street.

My buddy, Kyle Bauser, asked some excellent questions. I want to commend him and all of you for the answers and the progress being made. I would like to pose a couple of broad questions. First, could you discuss whether the company is more enthusiastic about operating businesses like Enteris or if you are more focused on building the financing portfolio? Do you believe you can effectively manage both of these areas moving forward?

That is a great question, Brooks. I appreciate it very much. I would say that I'm really excited about both aspects. Going back to our call when we announced the transaction with Enteris, we discussed the synergies and why it made sense to combine them. We continue to hold that perspective. From the finance company standpoint, we've been able to deepen our integration into the general life science sector because of Enteris. Conversely, our broader reach within the industry has also benefited Enteris. Looking ahead, the main driver of the company's earnings will likely come from license agreements, particularly in terms of milestones and royalties, which aligns with what the specialty finance business focuses on. Over the long term, it will involve building a portfolio across the board, whether through our wholly-owned assets from Enteris or through the specialty finance activities we manage. I believe these will all yield high returns. Additionally, one of the reasons we aimed to expand the Enteris management team is that while I may have a basic understanding of SWK, we are not experts in operating businesses. We sought to position the company effectively by ensuring they had the right expertise. Bringing in Rajiv and Gary will be very advantageous in that regard.

Absolutely. I completely understand. To expand on what Kyle asked, I view the current financing and operating environment as a mix of companies seeking additional capital, sometimes as a precaution and other times as a proactive strategy. At the same time, the effects of COVID-19 are clearly influencing many businesses. Given your unique position in the market, do you see this more as an opportunity for SWK, or are you more concerned about the heightened risks in the healthcare sector due to the COVID-19 crisis?

Sure. I'll start with the elevated risk question. We're very aware of the general healthcare shutdowns outside of emergencies. If you had asked me a year ago how I would feel about the current situation, I would have been quite anxious. These times are challenging. However, after living with this situation for the last 6 to 8 weeks and observing how our portfolio companies have adapted, there's actually been more economic activity than we anticipated by the end of March. From this perspective, we feel fairly positive. Healthcare is a necessity, and our companies play crucial roles in the medical community. Even though revenues are down and expenses are shifting, we remain confident because these products need to exist, and patients' conditions must be addressed. So, from a risk standpoint, we believe we will manage through it. Regarding opportunities, we do see them emerging. However, as we consider deploying our capital, we want to ensure we are making wise investments in the current environment and that we have enough funds to support our portfolio as needed. We also want to execute on our buyback plans. We're being cautious with our capital since we have around $30 million, which is a significant amount but not as large as $50 million or $100 million. Therefore, we need to carefully select the right deals.

Awesome. Makes sense to be balanced in today's world, and I think you guys are doing a great job. Thanks for taking my questions.

I appreciate it very much, Brooks.

Our next question will come from Matt Stewart of HS Capital.

Yes, I have a few questions. Some of them are technical in nature. I looked over the amortization details in the 8-K that described how Enteris was included on the balance sheet. I was wondering if this was simply a recommendation from the accountants, or if there was some discretion involved where you decided it would be beneficial to include it this way. I noticed that the intangibles were recorded differently by your team compared to how Enteris did it on their own, where they categorized many assets as patent assets, while your intangibles mostly consist of the licensing agreement. Was this solely an accounting choice, or was there a different rationale behind it?

Sure. Yes. There wasn't much discretion from that perspective. I think when purchase price allocation, we did retain a third-party firm to allocate that. And I think when they look at the kind of what the assets are and tried to allocate what we paid for, they'd been allocated based on accounting rules that are dictated. And so that's why, for us, it looks different than what Enteris was like when it was on its own.

I was just curious about the capital spending for the year. I was expecting to see a bit more this quarter. Is that spending anticipated to be greater in the second half or perhaps in the second quarter? What will the pace be like?

You mean...

For Enteris, its capability.

Sure. I'm considering the timing of certain expenses. Regarding capital expenditures, there will be slightly more in the later part of the year. This is partly due to some equipment that has been ordered, where only a small portion of the upfront costs have been paid. So, we will see more of that as the year progresses. From a selling, general, and administrative perspective, it won't be as variable as capital expenditures. The staff has ramped up, and I believe we are adequately staffed at this time. Therefore, I do not expect a significant increase in operating expenses from that angle.

Okay. Great. Right now, what's interesting is with Enteris and a complete royalty portfolio. You have two options going forward: internal reinvestment opportunities and looking externally for new opportunities. I'm curious about how you plan to balance these options. Some of your portfolio companies have promising technology, like 4Web, which showed exceptional growth before halting. How do you evaluate the opportunities within your portfolio compared to pursuing new ventures?

Sure. I would say there's probably not an exact science when evaluating this because it ultimately depends on our assessment of the risk associated with each investment. As we review the portfolio, we are focused on making the best risk-adjusted investments. When new opportunities arise, they might present a significant potential return, like a royalty stream from an independent company. However, if an opportunity appears attractive but carries substantial risk, we may opt for a lower return term loan instead. This approach applies to some of the Enteris projects as well, where our goal is for Enteris to generate cash over time. As mentioned in our earnings announcement call, we're not aiming to conduct extensive R&D at Enteris; that's not our focus. Instead, we are exploring ways to advance and evolve Enteris technology from a 505(b)(2) product perspective and seeking creative financing options off the balance sheet to help promote these advancements, ultimately aiming to build a portfolio of royalties. We are considering all of these factors.

That makes perfect sense. I mean what I think is interesting or I'm glad you said that is because clearly, the way with the rapid amortization or kind of pulled forward amortization on Enteris, it really has to be valued in a separate manner. And so if it does need some more spending, it will be great to find a way to do that using the kind of valuation in Enteris. After some more things come in and hopefully the Cara things pan out in the second half. If you do need more capital for stuff, it seems like raising it at that level, perhaps that would make a lot of sense given it's not really a book value type company unlike the finance business.

We are definitely thinking about that thing. Yes, I appreciate it, we are definitely thinking about those things. I appreciate it.

Well, I like the progress. It's been great. I like seeing it, and I'll look forward to following along. Thanks.

Thanks, Matt.

At this time, we have no further questions. I would now like to turn the conference back over to Winston Black for any closing remarks.

I appreciate that, operator. Thanks, everyone, for your time and attention and look forward to future updates as we continue to advance SWK. I'd also like to extend my sincere wishes, good health to all. Thank you.

Conference has now concluded. Thank you for attending today's presentation. You may now disconnect.