Good morning and welcome to SWK Holdings Corporation Second Quarter 2021 Financial Results. All participants will be in listen-only mode. Please note that this event is being recorded. I would now like to turn the conference over to Maureen McEnroe, EVP of IR at Tiberend Strategic Advisors. Please go ahead.

Thank you. Good morning, everyone. And thank you for joining SWK Holdings second quarter 2021 financial and corporate results call. Yesterday evening, SWK Holdings issued a press release detailing its financial results for the three months ended June 30, 2021. 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 statements regarding forward-looking statements. Today, we will be making certain forward-looking statements about future expectations, plans, events, 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’ 10-K 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 second quarter 2021 corporate and financial results. Winston, go ahead.

Thank you, Maureen. Thank you for joining our second quarter conference call. As we close the book on our second quarter on June 30, 2021, SWK Holdings had ended the first half of 2021 on solid footing. The developments during the same quarter in recent months as well as robust returns generated by our financial receivable segment and continued strong credit trends led to realized yield of 20.9% for the quarter ended June 30, 2021. The engine behind these returns remains our unique investment strategy focused on small and mid-sized life science companies with differentiated patent-protected commercial stage products. This business model remains highly effective for SWK given the continued innovation in healthcare and addressing unmet medical needs, and the need for capital to fund the development of these innovations and bring the resulting technologies to market. Added to that, life science companies continue to make a strong recovery from the COVID-19 pandemic's widespread effects. We remain well-positioned to benefit from a niche in the healthcare-focused specialty finance sector. We fund growth opportunities for small and mid-sized commercial stage life science companies through the creation of unique financing structures. These deals include structured debt, professional royalty monetization, debt royalty transactions and asset purchases typically ranging in size from $5 million to $20 million, a market segment often ignored by other structured finance companies. To illustrate our business strategy with financings made thus far in 2021, in March, we closed a $9 million loan with Sincerus Pharmaceuticals, a 503B compounding pharmacy focused on dermatology customers. More recently in April, we completed a $5 million synthetic royalty purchase with Ideal Implant, a medical device company focused on the aesthetic space, followed in July by a $9.5 million financing with Trio Healthcare to support the company's UK and international launch of its innovative stoma bag Genii. These transactions are in keeping with our investment strategy and we continue to seek, source, and assess numerous loan and royalty opportunities. As of now, we have $32 million of cash and revolver availability to support our partner companies and capitalize on potential investment opportunities. Unlike other business development companies and some investment firms, SWK's balance sheet is not heavily leveraged. The second quarter was also a period of solid progress at our subsidiary, Enteris BioPharma, highlighted by the completion of the expansion of its manufacturing facility and the launch of its new CDMO business segment. These enhanced capabilities allow Enteris CEO, Dr. Rajiv Khosla and his team to seek deeper development and manufacturing relationships with partners by providing custom solutions from bench to market, including the containment and processing of high potency API. When we first considered acquiring Enteris, we viewed expanding the company's manufacturing capabilities as an important component of our technology licensing strategy and believe the expanded capability of the facility will facilitate the business going forward. Exemplifying this opportunity is the ongoing success of Enteris’ relationship with Cara Therapeutics in the company's development of oral KORSUVA. In June, Enteris earned an additional $10 million milestone from Cara, marking the third milestone payment in the last 12 months. Oral KORSUVA is now subject to four separate clinical programs, including an anticipated Phase 3 trial for the treatment of pruritus in patients with stage 3 and 4 chronic kidney disease. We anticipate additional payments for the next several quarters, subject to achievement of development milestones. In May, SWK’s Board of Directors announced the formation of a Strategic Review Committee to identify, review, and explore strategic alternatives for the company with a view to maximizing stockholder value. While the Strategic Review Committee continues to work diligently on this initiative, at this time, it has not made any decision to enter any transaction, and there can be no assurance that the exploration of strategic alternatives will result in any transaction being announced or agreed upon. Now turning to our finances, as of June 30, 2021, SWK’s portfolio of royalties and structured credit backed by royalties totaled approximately $230 million across 25 partners. This compares favorably to $182.3 million in the same period last year, representing a 16.8% increase year-over-year. During the second quarter of 2021, as we previously discussed, SWK closed a $5 million synthetic royalty transaction with Ideal Implant, of which $3 million was funded at close. On June 30, 2021, the weighted average projected effective yield of the financed receivables portfolio was 13.9%, including our accrual positions, versus 13.2% as of the end of the second quarter in the previous year. Also, after the close of the quarter on June 30, SWK closed a $9.5 million financing with Trio Healthcare, of which $5.1 million was advanced to close. At the end of the quarter, SWK reported a book value per share of $20.18, which included a $0.06 per share negative impact from the amortization of intangibles and a $0.07 per share positive impact from mark-to-market changes on warrant and equity securities compared to $18.06 as of June 30, 2020. This is approximately a 12% year-over-year increase. Tangible financing book value per share, which includes the deferred tax asset, intangible assets, goodwill and contingent consideration payable, totaled $17.23 per share, which increased 14.5% from the same period last year of $15.05. Management views tangible financing book value per share as a relevant metric to value the company's core specialty finance business. For the second quarter of 2021, SWK reported total revenue of $22.3 million, compared to $7.9 million for the second quarter of 2020. The $14.4 million net increase in revenue was primarily due to a $4.1 million increase in interest and fees earned on our finance receivables and a $10.3 million increase in revenues at Enteris, primarily related to Enteris’ license agreement with Cara, which included a $6.1 million that was paid to the former Enteris owner. Income before taxes for the second quarter of 2021 totaled $17.5 million compared to a $125,000 loss for the same period of the previous year. The year-over-year, approximately $18 million increase was primarily driven by the $14.4 million increase in revenue, a $2.6 million decrease in amortization of intangible assets, and a $1.9 million decrease in the change in the fair value of the contingent consideration related to Enteris’ acquisition. This was partially offset by a $1.3 million increase in general and administrative and pharmaceutical manufacturing expense. The GAAP net income for the second quarter ended June 30, 2021 totaled $14 million or $1.09 per diluted share, compared to $876,000 or $0.07 per diluted share for the second quarter of 2020. For the second quarter of 2021, adjusted net income was $17.2 million compared to $4 million for the second quarter of 2020. The second quarter non-GAAP net income generated by the specialty finance business totaled $10.6 million as compared to $7.7 million for the prior year period. As evidenced by these results, our specialty finance business continues to perform well and we're working hard to identify new transactions that leverage our areas of expertise and the growing need among small to mid-life science companies for access to capital to fund future growth. By doing so, we yield benefits to the borrower and positive returns for SWK shareholders. Entry dynamics should, we believe, remain favorable to our business strategy. SWK remains well-positioned to harness our expertise to opportunistically deploy capital for compelling value-adding investment opportunities. As for Enteris, as we discussed, Rajiv and his team continue to execute the dual-arm growth strategy to maximize the potential of its new manufacturing and CDMO business and the company's Peptelligence and ProPerma technologies. In that regard, Enteris continues to work hard towards partnership agreements. In conclusion, the 2021 fiscal year has so far continued to be a period of substantial development for SWK. All this is made possible by the diligent efforts of our SWK Holdings team. I'd once again like to thank our employees for their dedication and loyalty, and our stakeholders for their continued support as we evolve our model and grow SWK Holdings. With that, I will now open the call to your questions.

We will now begin the question-and-answer session. Our first question today comes from Kyle Bauser with Colliers Securities.

Hey, Winston. Good morning. Thanks for all the updates today and congrats on a great quarter here.

Thank you.

Maybe just starting on the Enteris side of things, following the build-out of operations to support manufacturing of clinical trials and early commercialization of new assets, has this provided some momentum for new partnerships and collaborations now that you're kind of up and running?

Sure. And I definitely believe it has. As we noted in the press release, Enteris has recently signed three new feasibility studies, which I think is a direct result of all the momentum that they have. I think as we think about the feasibility and pipeline, Rajiv started last year in May, and you're right in the midst of COVID, which was a difficult time to go on board and begin to turn on that program. But here we are, roughly a year past that. And now we're starting to see the new feasibility agreements starting to ramp and facilities open. So I think we're starting to see that momentum come together a little bit.

Great. Appreciate that. And you mentioned it in your prepared remarks, you’ve got over $30 million of availability in cash and revolver, at a relatively low leverage ratio compared to your peers. Question I ask every quarter, but how are we thinking about the leverage ratio now and going forward? Any appetite to take out some more debt?

Sure. Great question. And yeah, I think the answer is definitely yes. We do have much more capacity to support larger credit facilities. I think we're being patient as the Strategic Review Committee goes through its process and want to make sure that what they recommend and what the Board determines to do in terms of next steps to create value for our shareholders. That credit facility question or the appropriate capital structure will come into play there. And so I think we'll have more updates on what that looks like as they do their work. But yeah, I definitely agree we have much more capacity to deploy the leverage and grow the book. And we'll see how it all comes together.

Got it. Make sense. And just staying on this specialty finance side of the business, you've obviously remained very active in investments post-Q2 as well. How has the environment been? I mean maybe compared to six months ago, are there as many opportunities, fewer, more, is it more competitive? Just kind of wondering what the landscape's like right now?

Sure. Good question, Kyle. The landscape definitely ebbs and flows. I think as we came out of COVID and the economy was kind of rolling back in the fourth quarter, there was definitely a lot more activity it felt like just generally speaking. But we, of course, had lots of opportunities and were able to deploy capital. In the first quarter, I think we saw very similar trends and that kind of continued into the second quarter. From a competition perspective, our segment of the market continues to be pretty unique and that sometimes we'll see things that are fairly competitive. Then at other times we’ll be the only folks that have looked at an opportunity that in some respects you have to scratch your head in terms of how come others aren't really paying attention. But I think we're pleased with the volume of pipeline activities that we have going on and expect to close additional things as we get toward year-end.

Great, great. And then just one more. Regarding the partnership with Cara, we saw another nice milestone. Remind me, I know you don't disclose the actual milestones, but how many are left? And I think you said in the press release, they could come over the next several quarters. And then lastly, are there other milestones we should be keeping an eye on with separate partnerships? Thank you.

Sure. I wish I could give you perfect clarity into the remaining Cara milestones. But as you know, the majority of that is, and the economics of those are redacted in the filed agreement. There are, I think, actually in that agreement, the titles of all the milestones are also redacted. So I think all I can say is there's definitely a handful of milestones that remain outstanding. And as you think about what those milestones would likely be, I think the ones that we have are similar to what others you'd see in the industry in terms of advancement of clinical programs. They have an FDA approval and sales milestones, those sort of things. Our agreement is generally not structured all that differently than what other agreements you see in biopharma. So I think that's probably all I can say about that. But in terms of new licenses, of course, that is the kind of whole point of the business development program at Enteris. When you think about the progression from meeting a potential partner through actually getting a license, I think as your future partners, you get to know the technology and kind of the first logical step is really the feasibility studies and naturally the team working with their potential partner to determine the right formulation using technology and then taking it forward, which, of course, depends on your partner's development timelines and so forth. So the process does take a while. But that said, we are in year two of rebuilding that licensing program. We're now getting our first sets of feasibility programs. I think we can say that there's progress that's ongoing. We'll want to see how those develop, and assuming those feasibility studies are successful, then how they progress towards a natural license. But it's good momentum starting to see that now.

That's great. Well, thanks for all the updates. I'll jump back in queue.

Thanks, Kyle. Appreciate it.

Our next question comes from Michael Diana with Maxim Group.

Okay, thank you. Hi, Winston.

Hey, how are you?

Good. First, on the finance side. You mentioned you have $6.4 million of unfunded commitments. Are those to existing borrowers or new ones?

Yeah. So those are two deals that we recently closed, the Ideal Implant and the Trio loan facility. So those are existing deals. Those are now, and we'll fund them to the extent that our partners want those drawings. Of course, they meet the performance milestones that are typically associated with those.

Okay, great. Thanks. And on the Enteris side, your CDMO business. Do you have any sort of pipeline there yet?

The pipeline is building. I think similar to the Peptelligence licensing pipeline, that's a process that will take a little bit of time to move through. As you think about any potential RFPs that they may be working on. It's hard to do a whole lot of work or for the potential customer to do a whole lot of work in the facility until it's really up and running, so they can really see the capabilities and they can adequately market those capabilities. So with the facility now being turned on, I think those conversations are beginning to build. There's definitely been interest in it. I think that the company has had a couple of adverse inquiries, actually from potential partners who are seeking capacity. So we'll see how that develops. And then also, of course, how that helps facilitate the licensing business as well.

Okay, thanks. And on your strategic review committee, I understand it's ongoing. Do you have any expected or completion date? Or any idea when the process might quote, and even though it probably goes on forever, but just this iteration of it?

Sure, that's a very fair question. Boards should always focus on maximizing value for shareholders, and ours certainly has been doing that. We're nearing the end of the third month of the committee's work, so I don’t have a specific timeline to share. However, I believe the committee and their advisors are making progress and have achieved some interesting outcomes for the business. We'll see how it all develops. I wish I had a substantial update or timeline to provide, but I can say that everyone is working diligently and is committed to ensuring that shareholders are rewarded for their trust in us.

Okay, great. Thank you very much.

Thank you.

Our next question comes from Nat Stewart with N.A.S. Capital.

Hi, Winston. Thanks for taking my questions.

Sure. Hey, Nat, how are you?

Good. Congratulations on a lot of tremendous progress this quarter and for the first half of the year. My first question is very closely related to Kyle's last question, but I figured I'd ask again in case there's some more details. Because I'm trying to understand better the process of the feasibility studies. Obviously, these licensing agreements, if you're able to hit some new ones that are good. They can be tremendously valuable. So I'd like to kind of better understand what the process is there. And like I said, you already touched on this, but also the timeline. And also if kind of in the meantime with those feasibility studies if there's much in the way of revenue opportunities there.

Sure. The general timeline begins with discussions on business development, which will lead to the signing of a confidentiality agreement to protect our technology, as well as our pharmaceutical partner's proprietary knowledge and their molecule aimed at developing an oral formulation. This initial process can be relatively quick, involving either one or multiple meetings. In larger pharmaceutical companies, it may take weeks, months, or even quarters, which would be unexpected. In contrast, a smaller biotech company might move more swiftly and aggressively, potentially completing this phase in just a couple of weeks. Once the parties begin collaborating, the feasibility studies typically involve preclinical types, such as dog studies. From a revenue standpoint, the opportunity can range from $100,000 to a few hundred thousand dollars, depending on the scope of work and the iterations required by the team, aligned with the goals of our pharmaceutical partners. As this process advances, it may lead to additional clinical work that could result in a licensing agreement. However, the pharmaceutical partner might prefer to see some clinical results before proceeding with a license. There are various factors to consider, as the further along a project is in clinical development, the more favorable the economic terms of a license tend to be, which aligns with industry standards. Conversely, projects earlier in development are typically less valuable in terms of potential economics. Transitioning from feasibility studies to an actual license could take anywhere from a couple of quarters to a couple of years, depending on the overall process. Along this journey, there will be opportunities to understand the economics related to formulation work and manufacturing to support our partner. The primary objective is to create a robust licensing pipeline by increasing the number of viable opportunities, ultimately aiming to build a strong portfolio of milestones and royalties from this technology over the next 12 to 24 months.

Okay, yeah, that's great. That's very helpful. In terms of the strategic review, and this is a little related to my findings, and certainly this will be more true as you sign more licensing agreements, but Enteris probably has a lot more value. I think even when you bought it with the developments you've already had in the milestone payments. Is a feasibility study, including any options that might be something like raising some money at the Enteris level, or anything like that? Or is there anything you can reveal? I don't know if that would be a worthwhile thing to do or not. But is that the kind of thing being considered or not?

Sure. Yeah. That's a great suggestion, Nat. In terms of what all the strategic review committee is considering, I think they're considering anything and everything. That's definitely a conversation that's been had in the past. Again, I would very much like to tell everyone exactly what all is being considered and so forth. But I think we can leave it that the Strategic Review Committee will definitely be apprised of your suggestion, and we'll see exactly how it's determined to move that forward.

Okay, great. Just one less kind of minor thing, but I was looking at the warrant and equity portfolio. You have a few things that have had a pretty decent return there. I was just curious how you're managing those? Are you kind of reviewing them quarter-to-quarter? Are you considering them long-term buy and hold positions? It looks like some can end up being home runs potentially, or are these things you just kind of assess quarter-to-quarter?

Sure. It's a little bit of both, Nat. I think one of the challenges with monetizing those positions is that in most cases, we remain lenders to our partner and we know that we actually have a warrant position. As a result of that, we're somewhat limited from a material non-public information perspective and being able to monetize those. Historically, you've probably noticed that we've typically been able to monetize those when there's a change of control of the partner company. When you think about a loan, where we get refinanced, and then kind of our cleansing period, so to speak, completes. At that point, we're able to determine whether we're going to monetize or wait. So, it's something we look at on a quarterly basis, but we're also limited in terms of what we can do with some of these positions until we're cleared from a non-public information perspective.

Okay. Well, that's great. Keep up the good work. Really enjoying seeing all the progress.

Appreciate Nat. Thank you for your support.

Our next question comes from Scott Jensen, a private investor.

Good morning, Winston. Another great quarter. Thank you. My question is a bit detailed. When I looked at the Narcan revenue provision for the quarter and the underlying sales of Narcan, could you clarify how you receive payment? Is there a delay, or is it like a quarter off? The Narcan sales were impressive, so how does that work?

Yeah, good. Great question. I think it's good to clarify for everyone to make sure that everyone understands how these work. We recognize revenue on our royalties in arrears, since we don't have very good information on actual sales of our product on which we get paid royalties. We really have to wait to see what we can do to be able to recognize that revenue. In the case of Narcan, the payment that we would have received during the second quarter is based off of sales from the first quarter. That's pretty typical for all royalties. Just generally speaking, royalty payments are due anywhere from 45 days to 60 days which are kind of industry norms for those royalties to be paid post-quarter. So, yeah, you're absolutely right. Emergent announced a blockbuster quarter, if you will, for it. Our royalty payment associated with that in the second quarter will be paid during the third quarter, and that's when we recognize that as revenue.

Great. Thanks for that. And I'll go back in queue.

At this time, I'm showing no further questions. So I'd like to turn the call back over to Winston Black for any closing remarks.

Thank you, operator. In closing, I appreciate your time and attention and look forward to future updates as we continue to advance SWK Holdings. I also like to extend my sincerest wishes of good health to all. Thank you.

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