Flexion Therapeutics, Inc.
Q1 2016 Earnings Call Transcript

Published: 13 May 2016

[Operator:]

Good afternoon, ladies and gentlemen, and welcome to the Flexion Q1 2016 Financial Results Conference Call. My name is Kieran and I’ll be your coordinator for today. At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of today’s call. [Operator Instructions] I’ll now turn the call over to the company. Please proceed.

[Fred Driscoll:]

Good afternoon everyone. This is Fred Driscoll, Chief Financial Officer, and I thank you for joining us on today's conference call. Both the earnings release from this afternoon and an archive of this conference call can be found on the Company's website at flexiontherapeutics.com. Joining me on today's call is Flexion's Senior Vice President of Commercial Operations, Dan Deardorf; and President and CEO, Dr. Michael Clayman. Before we begin our prepared remarks, 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 and other financial and business matters, including expectations regarding operating expenses, cash usage and clinical and regulatory 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 numerous assumptions, risks and uncertainties, which change overtime. Further information on the factors and risks that could affect Flexion's business, financial conditions and results of operations are contained in Flexion's filings with the SEC, which are available at www.sec.gov. These forward-looking statements speak only as of the date of this call and Flexion assumes no duty to update such statements. With that, I’ll now turn the call over to Flexion's CEO, Mike Clayman.

[Mike Clayman:]

Thanks, Fred. Good afternoon everyone and thank you for joining us on our Q1 financial and operating results conference call. The agenda for today will be to discuss our most recent accomplishments and then turn the call over to Fred to summarize the Q1 financial results and after that we will take your questions. The development of our lead drug candidate, Zilretta, continues to progress on track. As you know, Zilretta is an investigational non-opioid sustained release intra-articular steroid for the treatment of osteoarthritis or OA. Since the beginning of the year, there have been three significant advancements in the Zilretta program. First, in February, we’ve reported positive top-line Phase III clinical trial data for Zilretta whereby it met its primary endpoint at week 12 demonstrating highly significant P less than 0.0001 durable and clinically meaningful pain relief against placebo in patients with moderate to severe OA knee pain. In addition, Zilretta achieved statistically significant and clinically meaningful analgesia against placebo at each week, beginning at week 1 and continuing through week 16. Importantly, patients treated with Zilretta experienced on average a 50% reduction in pain from baseline over weeks 1 through 12, which we believe is amongst the largest analgesic effects reported in OA clinical trials. In pre-specified secondary measures compared to immediate release, or IR, triamcinolone acetonide, or TCA, the most commonly injected intra-articular corticosteroid for knee OA, Zilretta achieved statistical significance at each time point through 12 weeks in OA specific measures including WOMAC A pain, WOMAC B stiffness, and WOMAC C function and also in the knee injury and osteoarthritis outcome score, KOOS, quality of life subscale. From a safety perspective, the frequency of treatment related side effects was comparable across all treatment arms in the trial. No drug related serious adverse events were observed and no patients treated with Zilretta were discontinued from this study due to a treatment related side effect. Overall, we as well as key opinion leaders are highly encouraged by the strength of the data from both this study and the pivotal Phase IIb study. And while it is impossible to predict exactly how the FDA will respond, we believe the data positioned us well as we look forward to our upcoming meeting with the FDA to establish the filability of an NDA for Zilretta. Assuming that we receive an endorsement from the FDA to file the NDA, we expect to do so in the second half of this year. Our confidence in a positive outcome from that meeting is bolstered by feedback we have received from experienced regulatory consultants, who have reviewed the data under confidentiality. The second key accomplishment was a podium presentation by Professor Philip Conaghan, Chair of Musculoskeletal Medicine at the University of Leeds in the UK on data from the pivotal Phase IIb and Phase III clinical trials for Zilretta at the Osteoarthritis Research Society International 2016 World Congress. In his presentation, he focused on the rapid, powerful and durable pain relief observed in both trials with the 40 milligram dose of Zilretta. The Zilretta efficacy curves from both studies he mentioned are almost super imposable with magnitude of average pain relief from base line of approximately 50% over 12-weeks. This speaks to the robustness of the Zilretta analgesic effect and directly supports Professor Conaghan’s statement that, “consistent results across two clinical trials suggest that at last we have a long lasting intra-articular therapy, which is highly effective and has the potential to change the treatment paradigm for osteoarthritis”. The third key accomplishment was the initiation of a Phase II trial of Zilretta in type 2 diabetes patients with knee OA. In this trial, we plan to enroll 36 adults in a randomized double-blind parallel comparison and we will use continuous glucose monitoring to impair the effects on blood sugar levels of a single intra-articular administration of 40 milligrams of Zilretta with the effects of an injection of 40 milligrams of IR TCA. The objective of this study is to determine if Zilretta can avoid the hyperglycemia that is commonly observed after IR TCA injection in this patient population. We believe this expectation is reasonable based on the fact that in clinical trials following a Zilretta injection, peak plasma concentrations of TCA are more than in an order of magnitude less than observed following IR TCA injection. If the data support this expectation, Zilretta could confer an important safety advantage for the 750,000 patients in the U.S. with knee OA who have diabetes and received corticosteroid injections annually. We expect to report on the results of this trial later this year. Separately, I also want to make you aware that despite intensive efforts, it has proven to be infeasible to enroll adequate patient numbers in the Department of Defense posttraumatic OA study comparing Zilretta to IR TCA and as a result we have discontinued it. Recall that this study was focused on military personnel, who sustained battlefield injuries with the reduction of U.S. involvement in active war zones, the number of returning soldiers withdrawing injuries dramatically decreased. While this is of course good for our service members, it proved the critical limitation to the study rendering timely enrollment impossible. As a reminder, the results from this trial would not have had any barring on the filing of the NDA. Finally, I would like to provide a brief update on FX007, our TrkA small molecule receptor antagonist that we were developing for the persistent relief of post-operative pain. Over the past year, we have been conducting a variety of pre-clinical local pharmacology and toxicology experiments. Unfortunately data from those experiments do not support the continued development of FX007 for postoperative pain and as a result we have de-prioritized this asset. Consequently, resources that would have otherwise gone to FX007 will now be redeployed to Zilretta to facilitate its most robust advancement to market. Before I turn the call over to Fred, I also want to mention that we are aggressively moving to add outstanding professionals to Flexion in order to support the commercial launch of Zilretta. We currently have 59 employees onboard and if everything goes to plan, we estimate that we will end the year with just under 100 employees. This growth is being driven primarily in our commercial, medical affairs, CMC and quality assurance departments and we are fortunate to be able to continue to attract individuals with deep expertise and great enthusiasm for the goal of making a real difference for the many patients who suffer the debilitating effects of knee OA. With that I will turn the call over to Fred to review our Q1 2016 financial results.

[Fred Driscoll:]

Thanks Mike. For the first quarter of 2016, we reported a net loss of $16.8 million as compared to a net loss of $9.2 million for this same period in 2015. Research and development expenses increased to $12 million in the first quarter of 2016 compared to $6.3 million for the same period in 2015, due primarily to an increase in Zilretta program expenses related to the pivotal Phase IIb and Phase III clinical trials. In addition, we incurred a one-time non-recurring cost of $3 million associated with the manufacturing technology transfer from Evonik to Patheon. General and administrative expenses increased to $4.7 million in the first quarter of 2016, as compared to $2.8 million for the same period in 2015, due primarily to increases in salary and related costs associated with increased headcount including stock-based compensation. At March 31, 2016, we had cash, cash equivalents, marketable securities and long-term investments totaling $101 million compared to $119 million at December 31, 2015. As a matter of corporate practice, we do not provide financial guidance due to being a pre-revenue stage company. However, from a liquidity and cash perspective, we continue to guide that our existing cash resources will provide a runway into the mid-2017. That concludes our prepared remarks. Operator, we’ll now open the call for questions.

[Operator:]

Thank you. [Operator Instructions] And our first question comes from David Maris with Wells Fargo. Your line is open.

[David Maris:]

Good afternoon, Mike and Fred. And so if you could just walk us through again the timeline of your meet with the FDA, you will be waiting for the minutes from that meeting or will you be putting out a press release following the meeting or both. Can you just walk us through how the logistics of that will work?

[Mike Clayman:]

Yes, so, thanks, David. We will meet with the FDA and we will issue a press release once we’re in possession of the final meeting minutes. And I think we've previously guided to that be taking about in the range of 2 to 4 weeks following the meeting. So, I think, expecting communication from us in the June July timeframe would be entirely appropriate.

[David Maris:]

Okay. And then also it wouldn’t be a quarterly call, if I didn’t ask about partnering and those discussions. Now that you have the Phase III in hand. Have you had discussions with overseas partners? Is that a priority? Is it going to – are you going to wait until you get the nod from the FDA and that's really the focus right now. Maybe you could just tell us a little bit about that process?

[Mike Clayman:]

Yes. Well, we have had discussions since the Phase III data came out. It is a priority. And I just say this, there are interested parties and I won't go beyond that because until we have a deal done, we won't be communicating anything. But it’s very much on our radar screen is something we're working towards.

[David Maris:]

Great, thank you very much.

[Mike Clayman:]

Thank you.

[Fred Driscoll:]

Thank you, David.

[Operator:]

Thank you. And our next question comes from Randall Stanicky with RBC Capital Markets. Your line is open.

[Randall Stanicky:]

Great, thanks guys, just two questions. First, where are you in generating of the pharmacogenomic data to support your thinking around pricing? And then as you think about all of the negative opioid headline that that seems to be pretty consistent here, how does that play into how you're thinking about pricing? And then I have a follow up.

[Mike Clayman:]

Yes. Let me take the – I'm going to take a stab at the latter question, Randall, and I’ll look to Dan Deardorf to speak to the health econ. But we are obviously very much aware particularly in the State of Massachusetts it turns out sadly of the tragedy of the opioid epidemic and better alternatives to opioids clearly are necessary. And we believe strongly this will resonate our – Zilretta as a product, will resonate as an alternative to opioids in fact hit by historical comparisons. The pain relief we achieved with Zilretta clearly is greater than that achieved with chronic opioid administration in OA patients. And I’ll just say this without promising anything, I mean it’s an area of such interest for us that I think – we would be remised if we didn’t at least consider the possibility of doing some clinical work that would potentially illuminate the possibility that Zilretta might actually have real advantages in terms of being opioid sparing. Not promising that we’re going to do that study, but we live in the real world and we appreciate how powerful those data could be.

[Dan Deardorf:]

Yes, Randall, this is Dan on the health economic front. We have engaged a learned partner in this area, who’s frankly been doing health economics, since health economics started to be done. And we’re in the process now of doing some foundational work or I think like literature review in the OA space looking at longitudinal databases, tracking of patients and how they track through time, the costs and utilization of resources that they have. And ultimately those foundational pieces of work will ultimately live and come to be in economic models for pairs, which can show cost offsets and the like. So that work is ongoing in earnest, a lot of foundational works that will ultimately culminatein the types of models that I think you’re thinking about.

[Randall Stanicky:]

Great, that’s helpful. And then the follow-up question, we’ve been doing a fair number of doc checks of recent and there’s clear unmet need and interest in having a product till a need in the space. I mean have you guys – now that you have both of these studies done had – you had any different discussions with doctors or received any different feedback around the thinking of the opportunity? Thanks.

[Dan Deardorf:]

Yes, I think, we’ve reported before that we had, I think, at the last call that we have had – we had talked about 16 KOLs and had great feedback from all of them and these of course are learned folks that are reviewers, editors, journals who are used to looking at things with a fine tooth comb and that feedback had all been positive. I would say in the interim, we’ve had more discussions with folks that are more community-based if you will kind of – a little different end of the spectrum from the key opinion leaders and they’re in those conversations continue to see the same level of enthusiasm and then recognizing what this product could mean in their treatment algorithm for their OA patients.

[Randall Stanicky:]

Great, thanks guys.

[Mike Clayman:]

Thanks, Randall.

[Dan Deardorf:]

Thanks, Randall.

[Operator:]

Thank you. And our next question comes from Chiara Russo with Cantor. Your line is open.

[Chiara Russo:]

Hey, guys. Thanks for taking the questions. Just kind of some sort of explanatory questions here. I was looking through your filing this afternoon and I had some questions regarding the manufacturing transfer from Evonik to Patheon. I was wondering if you could step us through sort of what has involved with that, what is that process sort of look like in terms of timing and then getting everything batched up and registered. And then second piece there, I know that initially you were looking to have redundancies in your suppliers and from this filing I understand that Evonik is no longer in the picture, I was kind of curious if there was a good reason why and if you’re going to look for another potential manufacturer to create that redundancy?

[Mike Clayman:]

Yes, so just – I’ll take Chiara I’ll remember your questions, Chiara, the good questions. First the process and then the second the appearance of lack of redundancy. So, process, the actual process of manufacturing, these microspheres is how should I say this, I was going to straight forward, it’s involved, but we’ve done it enough now that we have great confidence that we can produce reliable product. And thus far at Patheon that tech transfer is going quite well. We will need to produce the way this works, produce three so called GMP batches that will become part of our filing that will have a certain amount of stability data associated with them. And that will go into the NDA leading to – we have a reason to believe leading to the approval of Patheon as our commercial manufacturing site. The reason we moved – we moved all of the commercial manufacturing to Patheon from Evonik, reflected our growing appreciation regarding the technical capabilities, the breadth and depth of technical capabilities at Patheon and our ability to control production in a way that simply wasn’t possible at a more standard CMO, more standard Contract Manufacturing Organization. Taking nothing away from Evonik, the way it works at a standard CMO as you schedule, your run at a site that’s doing lots of runs for lots of people, a manufacturing run setups. Whereas at Patheon, we have what’s called a suit model whereby we actually purchase equipment own the suit that is used to house the equipment, the infrastructure, utilities, quality, et cetera organization are all Patheon, but we have complete control over the use of site with operators that are sourced from Patheon. That gives us tremendous latitude to run the process as often as we deem necessary. And the other beauty of the Patheon as – if you will saw manufactures that add that site, there is the ability to duplicate that suit and double capacity. With a single suit of capacity, we believe that we can meet our projected commercial needs, but if in fact the ramp is substantial enough that it would be prudent to expand, we can do that in place and quite rapidly. So you put it all together and we thought it was actually more efficient and effective to do it all at Patheon.

[Fred Driscoll:]

Yes, Chiara, this Fred and I’ll just add to that comment from Mike…

[Chiara Russo:]

Hey, Fred.

[Fred Driscoll:]

We also as part of this tremendous economic benefit to the company are focusing our attentions to Patheon. So that’s also an important facet of this.

[Chiara Russo:]

So just again Mike, so does that mean that – I mean there is though only one supplier currently, even though you can double….

[Mike Clayman:]

Yes that’s right. There is literally one supplier, but you can accomplish functional redundancy in a variety of different ways. And we saw that we have latitude to do that through Patheon.

[Chiara Russo:]

So then what is the max production from one of these suites?

[Mike Clayman:]

I don’t think that we’ve guided specifically to that Chiara, but I think that you should take comfort in the view that even with the most aggressive sales projections, we are well covered by manufacturing capacity at Patheon.

[Chiara Russo:]

All right, I figure that I would try on that one. Thanks guys.

[Mike Clayman:]

Thanks, Chiara.

[Fred Driscoll:]

Thanks, Chiara.

[Chiara Russo:]

I appreciate that.

[Operator:]

Thank you. And our next question comes from Jim Molloy from Laidlaw. Your line is open.

[Jim Molloy:]

Hey, guys, thanks for taking my questions. On the $3 million one-time cost, I assume that – is that a one-timer out of SG&A, where does that come out of?

[Fred Driscoll:]

Yes, Jim, it sits in R&D, its part our CMC cost which are classified under R&D. And you are quite correct this was a one-time non-recurring cost that we incurred as part of the tech transfer to Patheon. So that's where it is.

[Jim Molloy:]

Okay. So more – extra $3 million that's a more reasonable go-forward run rate on the R&D line?

[Fred Driscoll:]

Yes.

[Jim Molloy:]

Okay, great. And then you can talk a little about and I know that – knowing what the FDA is going to say the challenge would they come out, is it possible they could come out of a definitive of statement as yes, you can file this with what you have here or is it going to be more of look at the TVs and try to figure out what they're going to – what they're saying, will they come out with go back and run another Phase 3?

[Mike Clayman:]

No. I don't, I think to the extent humanly possible, Jim we've crafted the questions in the briefing document to avoid a tea-leaf reading scenario, I mean you can never preclude it, but we asked the question quite clearly, whether the current data in aggregate support a filing of the NDA. And it's almost a fool's errand to try to predict exactly how they respond to that, but it's clear the whole point of a pre-NDA meeting is provide clear guidance to a company about the fileability of an application based on available data. It’s a huge waste of time for the agency, for us, for any company to file an application with the agency not supportive of that filing. So I'm reasonably confident we'll have clarity on the question coming out. And we will communicate exactly what we hear from the FDA as soon as we have the final minutes. So I think it's likely that we will have clarity. And I'll leave it at that.

[Jim Molloy:]

Understood, thank you. Then last couple of questions, one for Dan about on boarding the sales force, clearly if you’re waiting to see what the FDA says can you talk a little bit about the process and how that quickly that can happen should the FDA come back and say all right go ahead and file. And then for Mike, on the pipeline, the pipeline was getting a little thinner, but for a good reason, but is there opportunity to rebuild the pipeline here and some things that may make sense to go in there?

[Dan Deardorf:]

Yes, sure, so on the sales side, we’ve already are ramping up our preparations to recruit for a sales leader. And coming out of the pre-NDA meeting, we’re optimistic that will be ramping those up shortly thereafter. And then we’ll feather in kind of in the next layers of management call it an area director perspective, probably later in this year and then regional sales directors and reps into next year. So I don’t want to be any more specific, probably than that, but other than for certain we’ll be bring on a Head of Sales here shortly post – pre-NDA meeting.

[Mike Clayman:]

And as it relates to the pipeline Jim, you’re absolutely right it is thinner as a result of us de-prioritizing FX007. I’d say this though we’re committed to creating a robust pipeline and we have an ongoing effort to look at potential in licensing candidates and we have some lines of sight on some organically developed products that would be added to the pipeline. It’s early days, premature for me to go into additional detail, but I do want to leave you and everyone else with the clear impression that we do have a commitment to having robust pipeline, because we have a commitment to building a great company and to do so requires that.

[Jim Molloy:]

All right, thanks for taking my questions.

[Mike Clayman:]

Thanks Jim.

[Operator:]

Thank you. And our next question comes from Ken Trbovich with Janney. Your line is open.

[Ken Trbovich:]

Thanks for taking the question. Just literally, quickly to follow-up on the Patheon switch, if you could give us a little bit of background on sort of feedback the FDA has provided about requirements to demonstrate that the product coming out of Patheon is comparable to the product coming out of Evonik?

[Mike Clayman:]

Yes, it’s a very good question Ken. I can tell you that we had direct interaction with the FDA on this point, we had a dedicated CMC meeting with them a number of months back, where we reviewed, what we’ll call comparability protocol, which in essence proposes that we would demonstrate the product produced at Patheon is essentially identical to product produce that Evonik. Based on a series of specifications and meeting those specifications in the agency was supportive of that. So we feel confident that that comparability protocol will suffice to demonstrate what the agency needs to see and that we will not need to do anything like a bridging study or any kind of clinical work.

[Ken Trbovich:]

Okay, terrific. And then just literally quickly on the commentary about building that a second suite, I know you don’t want to comment on capacity, but I’m just looking back at the financials. It looks like, you probably spent about $8 million in property and equipment in the last five quarters, could you give us a sense as to whether or not that build out of the suites in that $5 million to $10 million range or if it’s some other number?

[Mike Clayman:]

I’ll turn to Fred for his thought.

[Fred Driscoll:]

I think, there was a lot of…

[Ken Trbovich:]

I mean, again, assuming you had to do a second one, I’m not assuming that that’s baked in I’m just trying to get a sense or relative color.

[Fred Driscoll:]

Right, right. Yes, I would say actually Ken, it’ll be little bit less than that, because a lot of that was startup cost. As Mike said, one of the benefits of a Patheon is suite model that we had is that they basically fit out the facility to your specifications. So there was a lot of work done with infrastructure, clean room construction, air handlers and the like. The other kind of like one-time I view it. The actual cost of building another production skid would be substantially less than that. So certainly the $8 million embraced all of that and adding another skid would be significantly less than that.

[Ken Trbovich:]

Okay. Thank you.

[Fred Driscoll:]

Thank you, Ken.

[Operator:]

[Operator Instructions] And our next question comes from Serge Belanger with Needham & Company. Your line is open.

[Serge Belanger:]

Hi, good afternoon. Just one…

[Fred Driscoll:]

Hi, Serge.

[Serge Belanger:]

You talked a little bit about how you’ll proceed around the FDA meeting in a minutes and how you intend to announce, make the announcement. I guess my question is once you get the FDA nod, which I think is schedules for the May meeting, what are the next steps to, in a case that you get a positive nod to proceed with the NDA filing. The pivotal studies have been completed, are there any safety studies or stability studies that need to mature before you’re ready to complete the filing.

[Mike Clayman:]

No, no, there’s no other clinical work that’s required for the filing. Look something has to be on the critical path, right to filing. Given our transition of manufacturing from Evonik to Patheon, it will be manufacturing this on the critical path. But that – those efforts are still well consistent with the filing in the second half of this year.

[Serge Belanger:]

Okay, that was it.

[Mike Clayman:]

Thanks, Serge.

[Operator:]

I am showing no further questions. I would now like to turn the call back to Mike Clayman for any closing remarks.

[Mike Clayman:]

I just want to say, thank you to everyone for your participation in today’s call. And we certainly look forward to updating you on our progress throughout the coming year. Have a great rest of your day.

[Operator:]

Ladies and Gentlemen, thank you for participating in today’s conference. This concludes today’s program. You may all disconnect. Everyone have a great day.