Flexion Therapeutics, Inc.
Q2 2017 Earnings Call Transcript

Published: 9 Aug 2017

[Operator:]

Good afternoon, ladies and gentlemen and welcome to the Flexion Q2 Financial Results Conference Call. My name is Brian and I’ll be your coordinator today. At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session at the end of today’s call. [Operator Instructions]. I’ll now turn the call over to the Company.

[Scott Young:]

Good afternoon. This is Scott Young, Senior Director for Corporate Communications and Investor Relations. Thank you for joining today’s conference call. Both the earnings release we issued this afternoon and an archive of this conference call can be found on the Company's website at flexiontherapeutics.com. Today’s call will be led by Flexion’s Chief Executive Officer Dr. Michael Clayman. He is joined by Senior Vice President of Commercial Operations, Dan Deardorf and Fred Driscoll, our Financial Advisor. Before we begin, I need to remind you that we will be making forward-looking statements during this teleconference that include financial, clinical, and regulatory projections. Statements relating to future financial or business performance, conditions or strategies or other business matters, including expectations regarding operating expenses, cash utilization, clinical and regulatory and commercial developments and anticipated milestones, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act. Flexion cautions that these forward-looking statements are subject to various assumptions, risks and uncertainties, which change over time. Further information on the factors and risks that could affect Flexion's business, financial conditions and the results of operations are contained in Flexion's annual report on Form 10-K and the quarterly Form 10-Q for the quarter ended June 30, 2017 and other filings with the SEC, which are available at www.sec.gov as well as Flexion’s website. These forward-looking statements speak only as of the date of this call and Flexion assumes no duty to update such statements. I will now turn the call over to Flexion's CEO, Mike Clayman.

[Mike Clayman:]

Thanks, Scott. Good afternoon. I’d like to thank you all for joining our second quarter conference call. Today we will provide an overview of our recent business highlights followed by a short summary of the Q2 financial results. After that we will open the line and take your questions. As we reported in our earnings release, the company continue to build on our strong momentum through the second quarter and we made outstanding progress across all areas of operations. With the PDUFA date [indiscernible] now fewer than 60 days away I think it is safe to say that the level of energy, excitement and anticipation across Flexion is truly unprecedented and as you would expect our commercial team is now operating at full throttle as they gear up for the potential launch of Zilretta. For those of you who maybe new to our story, Zilretta is an investigational product candidate under FDA review as a potential new therapy for the treatment of OA related knee pain. It utilizes our proprietary microsphere technology to deliver an extended release formulation of triamcinolone acetonidedirectly at the source of the patients' pain in the joint. Importantly Zilretta is a non-opioid and I stress this because the suicidal implications of the opioid prices are profound and the need for non-opioid treatment options to manage pain is urgent. They are daily headlines highlighting the tragic consequences of opioid abuse and the FDA Commissioner Dr. Scott Gottlieb, has made it clear that addressing this crisis is one of his highest priorities. Unfortunately, what is less talked about is that Opioids are commonly prescribed for OA patients with roughly 70% treated with opioids for their pain. We believe, Zilretta could be an important treatment for OA patients who are need of new alternatives and we are excited about potential opportunity ahead of us. Dan will provide more color on our commercial progress in a few minutes, but I just want to highlight the fact that he and his entire team have done truly impressive work to ensure we are fully on track to introduce Zilretta to the market by year-end if approved. Before we cover that, I'd like to review some of our recent clinical progress. Today, we reported that we have fully enrolled our open-label phase 3 study investigating the safety of repeat administration of Zilretta in patients with symptomatic OA of the knee. Patients in this study will be followed for 52 weeks, and as a result the final data readout is not expected until the second half of 2018. As we have previously discussed, we are particularly excited about the design of this trial because in addition to important safety information there are exploratory endpoints which may also provide us with insights about how Zilretta performs in a real-world environment. In regard to additional clinical indications for Zilretta at our recent investor and analyst day meeting we announced that we intend to initiate clinical trials of Zilretta in OA of the hip and shoulder by the end of 2017. In 2015 more than 600,000 patients received steroid injections for OA of the hip and 700,000 patients were treated with steroid injections for OA of the shoulder. We believe that Zilretta could potentially serve as an important treatment option for these patients and we look forward to starting trials in these large areas of unmet need. In June, we presented the full results from our Phase 2 studies in patients with knee Osteoarthritis and type 2 diabetes at the American Diabetes Association's 77th scientific sessions. 33 patients with Type 2 diabetes and Knee OA who are actively being treated with one or two oral diabetic medications were enrolled in this study and randomized one-to-one. The patients' blood glucose levels were monitored continuously for one week prior to and for two weeks following injection with either Zilretta or immediate release triamcinolone acetonide crystalline suspension or TACS. The primary endpoint was a change in average blood glucose concentration from the three-day pretreatment base line to three day's post-treatment in Zilretta treated patients versus TACS treated patients. The results showed that Zilretta avoided the significant rise in blood glucose seen with TACS with patients experiencing a significantly lower change in average blood glucose concentration following administration of Zilretta compared with TACS. In addition, the mean average blood glucose levels increased significantly from the pretreatment baseline period to the post-treatment period in patients receiving TACS whereas they did not change significantly in patients receiving Zilretta. Furthermore, the percent of time that average blood glucose levels where within the American Diabetes Association target range was greater for Zilretta compared with TACS, a clinically important indication of improved by glycemic control. Since about 20% of patients who received intra-articular steroid injections for OA of the knee also have type 2 diabetes, we believe this is an important set of information for patients, physicians and payers and could potentially position Zilretta as a frontline therapy in this patient population. In May we presented a health economics analysis of Zilretta at the International Society for pharmacoeconomic and outcomes research 20 second international meeting, the analysis with design to estimate the impact of Zilretta on overall quality of life in patients with knee OA and to evaluate its cost effectiveness compared with other therapeutic interventions. Specifically, diclofenac a prescription hyaluronic acid injections and conventional care which includes over the counter pain medicines, physical therapy and assistive devices. With respect to Zilretta, the study utilized previously collected WOMAC scores from 324 patients who were enrolled in three separate phase 2 and phase 3 randomized clinical trials of Zilretta for knee OA pain. By applying established health economic metrics, the study demonstrated that Zilretta provide a greater improvement from baseline in quality adjusted life years or qualities compared with the values for conventional care, diclofenac and hyaluronic acid injections. The study used in the assumed price of $500 for Zilretta and the cost for hyaluronic acid diclofenac and conventional care were obtained from the January 2017 proven Redbook drug pricing and a paper from Rosenethol [ph]. The study also showed that’s Zilretta yielded a better cost for quality adjusted life year of $3,201 compared with conventional care of $10,717 and an average treatment course of HA of $13,389 indicating that Zilretta has the potential to be a cost-effective therapy for OA of the knee. During our investor and analyst day, we introduced the new preclinical pipeline program called FX-101 and extended release formulation of Fluticasone which leverages our proprietary microsphere technology and aims to provide extended pain relief for patients coping with OA pain. Based on our preclinical in vivo pharmacokinetic studies, we believe FX-101 has the potential to provide patients with pain relief for up to six months. We intend to conduct GLP toxicology studies and pending successful results, we will file and IND to advance into clinical trials. With respect to our NDA for Zilretta we have been engaged in active discussions with the FDA and while we won’t get into all of the details of our conversations or activities with the agency our commercial drug manufacturer Patheon was recently inspected and no observations were noted. In addition, we have had routine dialogue with the agency regarding the dosing of Zilretta, each vial of Zilretta contains 43 milligrams of triamcinolone acetonide extended release injectable suspension. And due to the viscosity of the microsphere formulation approximately 10 milligrams of triamcinolone acetonide remains in the vial after the drug has been prepared and drawn. We provided this information in our NDA and the agency recently informed us that the label for Zilretta which we submitted for their review should reflect a 32-milligram delivered dose. This has no impact on the clinical efficacy data from our trials or any impact on the manufacturing process nor will it have any implications for the reimbursement of Zilretta. In practice, it simply means that if Zilretta is approved, the label and our informational material will refer to a 32-milligram dose. Overall, we have been encouraged by our productive discussions with the FDA and look forward to continuing that dialog as we approach our PDUFA date of October 6. Before I turn the call over to Dan, I would like to talk briefly about our people. Flexion, continues to be a magnet for top talent as its illustrated by the recent appointment of Mark Levine as General Counsel and Corporate Secretary. Mark is another industry veteran with more than 20 years of corporate legal experience and expertise in strategic corporate development, complex commercial transactions, securities law, mergers, acquisitions and divestitures, corporate governance and regulatory compliance. Prior to joining Flexion, Mark served as Senior Vice President, General Counsel and Secretary at Minverva Neurosciences. I am also pleased to announce that Anna Diaz Triola has been named Vice President of Marketing. Anna also brings deep experience to Flexion with nearly 20 years of biotech marketing experience and commercial expertise in new product launches, new product planning and patient advocacy. Prior to joining Flexion, Anna served as Senior Director Marketing at Chiasma, where she was responsible for creating the strategy and building the marketing team for a new product launch. Previously, she worked at Cubist Pharmaceuticals where she was instrumental in developing and executing the commercial strategy for their flagship product and served as the Alliance Manager for the company's first co-promotion. She also worked to Biogen where she was involved with several product launches in a variety of roles. It is a pleasure to have Anna and Mark on the team. At this point, I will turn the call over to Dan Deardorf for a recap of our recent commercial progress.

[Dan Deardorf:]

Thanks, Mike. As Mike mentioned earlier, we've made tremendous progress in our commercial preparations. I won't attempt to cover all the topics I discovered at the recent Investor Day, but there are few points that bear repeating. To start, there are several critical factors for a successful product launch. It takes a differentiated product, deep customer understanding, comprehensive customer support, outstanding people and financial resources, here at Flexion we have them all. We have the people, the plans and the resources in place to execute a world-class launch of Zilretta and our preparations began more than three years ago when I joined Flexion. We are now heading into the final stretch in our marketing, market access and commercial operations teams are executing flawlessly on their plans. Our sales leadership team is fully in place with our 11 regional sales directors actively recruiting roughly 100 sales representatives who will serve us in the field. In a very short period of time, we've received more than 2,100 applications for these roles and the quality of the candidates we are seeing is remarkable. As a result, we have the luxury of selecting some of the very best and most experienced reps in the industry. These individuals will be hired on a continued basis, conditional upon Zilretta's approval. Following that we will have our reps fully onboarded, deployed, and selling in the fourth quarter assuming an October approval. While we don’t provide guidance regarding our sales estimates. As I pointed out during our recent Investor Day it is important to be the launch of Zilretta through the right lengths and to apply the right metrics. Zilretta with the [indiscernible] product which is very different from a typical prescription drug, the practice is much more intricate with inherent complexities that render the traditional data sources and reporting mechanisms incomplete. That said we believe that once patients experience the clinical benefits of Zilretta, and physicians gain experience with the product and the reimbursement process, Zilretta has the opportunity to quickly take a prominent place in the treatment paradigm of OA of the knee. We look forward to sharing specific sales metrics with you post launch. And while our promotional activities prior to launch are of course very restricted, we are able to inform the market that Zilretta as a potential new therapy that is coming soon and we have already implemented a campaign to elevate physician awareness. These coming soon spots are currently appearing in various trade publications and online, these will run until the potential approval of Zilretta at which point we will take of a comprehensive campaign with much more to come after that. In summary, our teams are ready and eager to go and with that I will turn it back to Mike.

[Mike Clayman:]

Thanks Dan. I would now ask Fred Driscoll to provide a summary of our financial performance in the second quarter. But before I do, most of you will recall that earlier this year, we announced that Fred has officially retired from Flexion, however he graciously offered to stay on to provide us with his invaluable support while we conduct a national search for his successor. Well our search remains active and so does Fred.

[Fred Driscoll:]

Thanks Mike, the Company reported a net loss of $28.9 million for the second quarter of 2017, compared to a net loss of $14.2 million for the same period of 2016. Research and development costs increased to $11.8 million in the second quarter of 2017 as compared to $8.9 million in the second quarter of 2016, due primarily to an increase of $3 million in personnel and other employee related costs, for additional headcount and stock compensation expense. General administrative expenses increased to $15.1 million in the first quarter of 2017 as compared to $5.2 million for the same period in 2016, due primarily to costs associated with increased headcount and expenses related to the potential launch in commercialization of Zilretta. On May 2, 2017 Flexion completed an offering of convertible senior notes due in 2024 providing a capital infusion of approximately $201 million extending the company’s expected cash runway well into 2019. As of June 30, 2017, the company had approximately $360 million in cash, cash equivalents and marketable securities compared with $210 million as of December 31, 2016. As a matter of corporate practice we do not provide financial guidance, however we expect expenses to increase over the next several years due to the significant ramp in cost associated with pre and post launch commercial activities for Zilretta, line extension clinical trials for Zilretta in OA of the hip and shoulder, expenses associated with the development of FX-101 and capital additions surrounding scale up to activities in manufacturing and development activities associated with new additions to the pipeline. With that operator, please open the lines for questions.

[Operator:]

Thank you. That concludes our prepared remarks. We will now open the call to your questions. [Operator Instructions]. Our first question will comes from the line of David Maris with Wells Fargo. Please proceed.

[Patrick Trucchio:]

This is actually Pat Trucchio on for David. So, at the Investor Day, you mentioned researching prior product launches and approximately 8 or so came out as being similar to your expected launch. Can you give us some of what these analogs are and how they are different from what you expect? And then secondly, has the FDA said or done anything up to now that gives you any reason whatsoever to think you may not receive a timely approval with the expected label? And then last on the clinical trials for OA hip and shoulder, where do you expect these trials to enroll and when should we expect top-line data?

[Mike Clayman:]

Let me take the last two questions and I'll turn it over to Dan to address the first. So, there is nothing in our interaction with the FDA that displays us from the view that we are on track to see an approval consistent with our PDUFA data, I'll just say that. In hip and shoulder, we expect to enroll our first patients by the end of the year. And I think it's reasonable to expect that what we currently plan as the design of the trials will yield data that we'll be talking about in 2018.

[Dan Deardorf:]

And Patrick, this is Dan. With respect to the analyze, I think there are ultimately 13 that we narrowed down to do our assessment and find the five various themes that companies might run fowl [ph] of or underinvesting with respect to commercializing their launches. To be frank with you, I don't have that list in front of me and it's been a while since I've looked at it. We try to find things that were more specialty products, they were not all injectables. But again, for specialty products with different reimbursement scenarios et cetera, but again I can't recall that list up off the top of my head. None of them were great analogs for us each and every one of them had two or three several key elements to that product that were different from Zilretta despite the fact that we would have love to found a great analog, but did not find one. So, utilized those 13.

[Operator:]

Thank you. Our next question will comes from the line of Randall Stanicky with RBC Capital. Please proceed.

[Randall Stanicky:]

Great, thanks guys. Question for Dan and then one for Mike. Dan, you talked in these prepared comments about Zilretta versus the IR and HA markets. As you think about the commercial rollout and specifically going after those markets, how do you think about those penetration opportunities differently? And then I have a bigger picture question for Mike.

[Dan Deardorf:]

Yeah. I think in general I think first of all, as we've said for a long time, we are going to position this as a first line product, first line injectable. We've based on the clinical profile we've got compared with both immediate release steroids in HA, we believe we've got a market changing product. So, we will clearly position and promote the products as first line therapy. So, our intention there would be to displace first line steroids and the key opinion leaders we spoken to as well as the community based physicians say, this product based on the clinical data we have seen in its performance we should have access to first line. So, we will position it as such I think frankly by virtue of doing that since often steroids are injected prior to HA, I think what might naturally happen in the marketplace is that the use of HA will ultimately kind of be pushed out in the paradigm a little bit as there are very few options but we would see Zilretta being used first line and hopefully for some time until such time as they feel like they needed to move to the next therapeutic option.

[Randall Stanicky:]

That’s helpful and Mike bigger picture question for you. Just stepping back away from the launch, as you think about Flexion, you think about the platform longer term, you have got a pain product that hopefully in less than two months is going to be launched in to a very large market you have FX-101 behind it, again pain you have got a sales infrastructure that’s likely going to be having a lot of connectivity and so [indiscernible] rheumatologist market. How do you think as you talk to the board and you talk about the five-year plan, how do you think about Flexion longer term? Is it a pain company or could you evolve into a company that has strong connectivity in some of these other physician groups and pivots into some other therapeutic areas?

[Mike Clayman:]

It’s a great question. We spend a lot of time thinking about this. What we want to do is build initially for the foreseeable future for the next x number of years. A top of mind ensure Zilretta success. The build on that success ideally in the space and with the same prescribing physicians and FX-101 is I think a perfect example of that, and in that same time frame we continue to look for in licensing candidates that would be local therapies from musculoskeletal disease where the prescribing and physician population would over lapse substantially with Zilretta prescribing physicians. If you want to take it at quite a high level, I don’t know that we would necessarily be down forever to local therapies and musculoskeletal disease, but that’s a number of years down the line, our near mid and shall I say long-term future revolves around making Zilretta successful and building on that success. What we look like 10 years from now, I would say we are completely open to evolving an aggression that allows us to efficiently and effectively move drugs to market that address large unmet needs.

[Randall Stanicky:]

And as you think about we have talked a lot about the U.S. opportunity and I know that OUS [ph] a high priority right now but is the idea that you get more value going OUS [ph] after you validate the opportunity in the U.S. market?

[Mike Clayman:]

Yes, I think that’s partly the case, I also think that it will depend on the specifics of the product. If you look at FX-101 where you put taking [indiscernible] in the six-month product forward, it is a truly novel concept and we think that has the potential, let me just back up. If you did look at Zilretta the active ingredient is trying some acetonide which is injected today as an immediate release form. There is no such analog for [indiscernible] there is no six-month product that has the kind of pain relief that we hope to demonstrate with that, we think that has the potential to create greater degrees of pricing elasticity in Europe and potentially could be paradigm shifting elsewhere. So, I take your point though, I think it will be very important to have the clinical data that will be generating with Zilretta as a base to operate from.

[Operator:]

Thank you. Our next question will come from the line of Gary Nachman with BMO Capital Markets. Please proceed.

[Unidentified Analyst:]

Hi this Nicole on for Gary. Could you talk about any new updates on the manufacturing? And if there are any other inspections that need to happen before approval?

[Mike Clayman:]

Well, there is really nothing substantial update on manufacturing. I'll just say this that all of the inspections that have been done by the agency has gone well of our external manufacturing partners. And we see manufacturing overall because it includes not only inspections but it includes things like production of process validation batches that will become our first validation batches. At this point, everything is on track to be consistent with an approval and launch in the timeframes that we specified.

[Unidentified Analyst:]

Okay, great. And have you had discussions on label yet and how is that going?

[Mike Clayman:]

Well like we said at the Investor and Analyst Day, we're not going to get into that to guide to that, because that's going to be a very intense and specific set of discussions. And I certainly understand the interest but that will be dynamic and back and forth. And so just to be clear, we're not going to guide to when those discussions have started and we're certainly not going to guide to the content of those discussions.

[Unidentified Analyst:]

Okay, great. And just squeezing one more question, should we be expecting any more publications on any of the data that has been presented yet. And will they be published in time for the launch?

[Mike Clayman:]

Well to say this, you can expect publications data. The exact timing of that is very difficult to specify given the individual journals in their own timelines. But we are committed to publishing our data, all of our data in most credible and prestigious journals available. And I would simply say stay tuned, we should have more say on that before long.

[Operator:]

Thank you. [Operator Instructions]. Our next question will come from the line of Elliot Wilbur with Raymond James. Please proceed.

[Unidentified Analyst:]

Hi, this is David on for Elliot. Thanks for taking the question and congratulations on the progress. Recently there has been a little bit of publicity for another phase 2 chemical compound being developed by competitor going by the name [indiscernible]. Not sure if your familiarity with the asset but supposedly this is another injectable therapy for OA of the Knee. Have you at all been able to gauge the liability in potential competitive impact of such a product and just in general what the read through might be to Zilretta somewhere down the line. Thanks.

[Dan Deardorf:]

Thanks David, this is Dan. Certainly aware of the product and the technology as we closely track all products in development in this space. We understand that they've presented some interesting data -- some interesting phase 2 data. But that said I can say from personal experience I've been in this space for over a decade and half now. I've seen a lot of technology come I've seen a lot of technology go. It is difficult to be successful on this space. So, from our perspective until a product has generated compelling phase 3 safety and efficacy data, it's just too soon to say or frankly too soon for us to comment on what that product may do in the marketplace.

[Operator:]

Thank you and I'm not showing no further questions at this time. I will now turn the conference back over to Mr. Mike Clayman for some closing comments or remarks. Sir.

[Mike Clayman:]

Just thank everybody for your participation today and to point out that our next earnings call will occur after our PDUFA date, so we look forward to providing additional update as - by our news and business development. Stay tuned and we wish you a good night. Thanks.

[Operator:]

Ladies and gentlemen thank you for your participation on today’s conference, this does conclude the program and we may all disconnect. Everybody have a wonderful day.