Flexion Therapeutics, Inc.
Q2 2016 Earnings Call Transcript

Published: 4 Aug 2016

[Operator:]

Good afternoon, ladies and gentlemen and welcome to the Flexion Q2 2016 Financial Results Conference Call. My name is Chelsi 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. 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 our 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, regulatory and commercial projections. Statements related to future financial and business performance, conditions and 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 over time. 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. Thank you for joining us on our Q2 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 Q2 financial results and after that we will take your questions. This past quarter highlighted some key milestones in the development of our lead drug candidate Zilretta, which I will review with you. As you know, Zilretta is an investigational non-opioid sustained release intra-articular steroid for the treatment of osteoarthritis or OA. In February, we reported positive top line Phase 3 clinical trial data for Zilretta in patients with moderate to severe OA knee pain. Which demonstrated statistically significant and clinically meaningful analgesia against placebo at each week, beginning at week 1 and continuing through week 16 including the primary endpoint at week 12, with the P-value of less than 0.0001. 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. In a podium presentation the data from the Phase 2b and Phase 3 clinical trials for Zilretta were presented in April by Prof. Philip Conaghan, Chair of Musculoskeletal Medicine at the University of Leeds in the UK, at the Osteoarthritis Research Society International 2016 World Congress. Prof. Conaghan’s review of the data speaks to the robustness and durability of the apparent analgesia demonstrated by Zilretta. In these trials and supports his statement that and I quote 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. At the conference, our medical team interacted with many of the luminaries in the field of OA. And their enthusiastic feedback regarding these data was gratifying and provides us with further confidence that Zilretta has the potential to be a major new therapy in a field that has had no meaningful innovation in two decades. On the heels of the release of the Phase 3 top line data, we received positive written guidance from the FDA on the submission of an NDA. The FDA clearly indicated that the safety and efficacy data from the registration program are and “acceptable to support filing of an NDA submission”. This represents a seminal moment for our company and in the development of Zilretta. And it’s consistent with our plan to submit an NDA in Q4 of this year. A key component to the submission of the NDA is the manufacturing technology transfer from Evonik to our commercial supplier Patheon. And I'm pleased to report that during the quarter we have continued to make excellent progress with our colleagues at Patheon which also supports the timing of the NDA submission. All of this requires the capital resources to execute on our plan. And in June we concluded a public offering of our common stock, whereby we raised $83 million in gross proceeds. We were gratified to see that many of our existing shareholders participated in the offering, as well as several new blue chip institutional investors. Fred will speak more about this in a moment. But from a financial perspective we now have a strong balance sheet with $163 million of cash on hand, which we anticipate will take us past the planned launch of Zilretta into 2018. More recently, we also drew down the remaining $15 million of non-dilutive secured senior notes for MidCap and Silicon Valley Bank, which was part of the $30 million transaction we announced last August. From a human resources perspective, we continue to expand the organization and ended Q2 with 61 employees. A key component in that growth is our commercial organization and we recently announced the additions of Mark Fraga, Dr. Scott Kelley and Dan Thornton who take on Vice President positions in key Marketing, Medical Affairs and Market Access roles. Each of them comes deflection with deep expertise in their respective functions. And track records of strong accomplishment and major pharmaceutical companies. We also will continue to add to our commercial roster this year, by recruiting the leader for the sales organization. So in summary, let me leave you with these key takeaway points. First, we believe that based on the strength of our pivotal data and the recent positive guidance from FDA in support of NDA submission. That the Zilretta program has been substantially de-risked. Second, we have and will continue to recruit outstanding professionals for our commercial organization, all of whom have deep domain expertise and many with specific experience commercializing intra-articular medicines for Osteoarthritis. We also have organized under Dan Deardorf leadership, a full fledged commercial launch team which includes members from all functional departments that are eagle-eye focused on preparing for the best possible product launch for Zilretta in 2017. And lastly, we are committed to building a great company that has a pipeline of products and are actively assessing both internal and external candidates. We’ll have more to share with you on that in the future. With that, I'll turn the call over to Fred to review our Q2 2016, financial results.

[Fred Driscoll:]

Thanks Mike. For the second quarter of 2016, we reported a net loss of $14.2 million as compared to a net loss of $12.4 million for the same period in 2015. Research and development expenses decreased to $8.9 million in the second quarter of 2016 compared to $9.6 million for the same period in 2015, due to a decrease in Zilretta program expenses related to the completion of the pivotal Phase 2b and Phase 3 clinical trials. General and administrative expenses increased to $5.2 million in the second quarter of 2016, as compared to $2.9 million for the same period in 2015, due primarily to increases in salary and related costs associated with increased headcount including stock-based compensation expense. The net loss per share in Q2 2016 was $0.63 as compared to $0.58 for the same period in 2015, due primarily to the year-over-year increase in the basic and diluted weighted average number of common shares outstanding as well as the increase in the net loss. At June 30, 2016, we had cash, cash equivalents, marketable securities and long-term investments totaling $163 million compared to $119 million at December 31, 2015. As a matter of corporate practice, we do not generally provide financial guidance due to being a pre-revenue stage company. However, we do expect expenses to increase over the next several years due to late stage Zilretta trials, scale up the activities in manufacturing and pre and post launch commercial activities for Zilretta. That concludes our prepared remarks. And operator, we’ll now open the call for questions.

[Operator:]

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

[Pat Trucchio:]

Hey guys, this is actually Pat Trucchio on for David. I have a few questions. Understand that the transfer of manufacturing the Patheon is on track. Can you tell us what the timeline is for FDA approval of the manufacturing process and the facility. And secondly, as a follow-up. Can you give us an update on partnerships outside the U.S.? Thanks.

[Mike Clayman:]

Thanks, Patrick. The timeline approval facility is consistent with the timeline of approval of the product. So you submit the NDA, you have relevant manufacturing data in there. There’s a pre-approval inspection that takes place during the review time and that’s the basis for approving the facility. So that’s a very standard way that the agency approaches manufacturing sites. And let me just say this we – we are continuing to explore the potential for partnerships outside the U.S. And as I’ve said many times often actually to your boss David, that as soon as we have something solid to report, we will let the world know.

[Pat Trucchio:]

Great, thank you.

[Mike Clayman:]

Thanks.

[Operator:]

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

[Ashley Ryu:]

Great. Thanks. This is Ashley Ryu on for Randall. And I just want to talk about the diabetes trial, it look like enrollment has begun. As the trial on track for year-end – we don’t and if we see promising results how was the differentiation kind of being included in the marketing efforts. And I just want to confirm that, it's not expected to part of the label.

[Mike Clayman:]

You want to – sorry, actually the last thing you asked was…

[Ashley Ryu:]

I just want to confirm that the diabetes trial it’s not expected to be part of the label.

[Mike Clayman:]

Well, I'll tell you. Let me just say this about the diabetes, it’s very much in progress. We are tracking to a timeline that will have us discussing the data before the end of the year and it’s simply premature to speculate on whether the data from that trial will or will not end up in the label.

[Ashley Ryu:]

Got it, that makes sense. Thanks.

[Mike Clayman:]

Thanks Ashley.

[Dan Deardorf:]

This is Dan, if I could just add to the extent that does, what end up in the label or in a publication. We have every intention of utilizing that data, wherever we can to differentiate the product. We believe it is a strong differentiator for all relevant audiences be a payers, physicians or for patients. So I will see that as a key story for us and a key differentiator.

[Ashley Ryu:]

Got it. Thank you.

[Operator:]

Thank you. And our next question comes from the line of Gary Nachman with BMO Capital Markets. Your line is now open.

[Gary Nachman:]

Hi, good afternoon guys.

[Mike Clayman:]

Hi, Gary.

[Gary Nachman:]

How much of the Zilretta NDA have you completed already, so that once you have the manufacturing data in hand. I’m assuming you should be able to file it pretty quickly. And then you mentioned you recently hired a few new marketing folks what have you started to do to lay the groundwork for a commercial launch?

[Mike Clayman:]

So I will let Dan take the second part of that question. I’ll simply say without giving you a percent. We are ahead of what is already an aggressive plan for preparing the NDA, many of the sections are already written completed to publishing and ready to be compiled in electronic format. And that the timeline for the NDA will be limited purely by the manufacturing data and once we have that as you point out, we will slot that in as quickly as we can. But I’ll conclude by saying we are very much on track for a following by the end of the year.

[Dan Deardorf:]

And with respect to the team hires Gary, its clearly fair to say and accurate to say that we’ve actually been executing against a broad based commercialization plan for over a year now. And we’ve been doing a lot of the foundational work, the addition of these two highly experienced folks will only just add fuel to that fire bring in their additional expertise and continue to roll us further even faster. So it’s only augmented the efforts that are already in place and accelerated them even further.

[Gary Nachman:]

And Dan, at what point next year would you be able to start hiring sales reps and I know you talked about numbers in the past and maybe you’re waiting for the sales manager to actually come in. But any update on the ideal number to launch properly?

[Dan Deardorf:]

No. At this point, I would still stick with the range of 60 to 100 which is similar to the HA products that are already in this space calling in on the same target physician group. So that’s the best proxy that work is in front of us. But it’s certainly my intention to get a VP of Sales on board involved in that process as they will certainly have a lot to add to that and ultimately own the field sales force that we go out with.

[Gary Nachman:]

Okay. And then Mike, my last question. When we be able to talk more about some other pipeline opportunities I know you said in the past you have a line of sight on those is that something that you are developing internally or is it something that could potentially come from the outside? Thank you.

[Mike Clayman:]

Yes. Well, I will tell you Gary that we are looking at organically grown internal possibilities. Just like Zilretta is an example of that. And we’re aggressively looking outside the company to for opportunities that fit our strategy of local therapy that confers advantage to address large unmet medical needs. And I can’t really give you a timeline because here is the challenge when you’re excited about an external opportunity you go through the process of due diligence and until you get to the point of general, internal alignment and agreement if that opportunity is worth embracing and then negotiating the deal. It’s just premature to be talking about that. But I will simply say this again, that we are absolutely committed to creating a robust pipeline. We’re very excited about building a great company fuel and to begin with on the back of the revenues from Zilretta. But we also appreciate that a great company needs a great pipeline. So as soon as we have locked and loaded on our next pipeline asset. You can be comfortable that will be letting the world know.

[Gary Nachman:]

Okay. Thanks.

[Mike Clayman:]

Yes.

[Operator:]

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

[Chiara Russo:]

Yes. Hey, guys thanks for taking my questions. Just a couple of quick ones, I was wondering if you could give us an update on the repeat dose study and if you guys are still on the timeline for that, if you could give us some guidance on R&D and G&A expenses through the year and where we think that a share account is going to be going forward obviously but that’d be great. Thank you.

[Mike Clayman:]

Well, I’ll take the repeat dose question and I’ll look to Fred to answer your other questions, Chiara. Repeat dose is much on track for initiating in the – some time before the end of the year, protocols getting locked down and all the feasibility work is in process. So we are proceeding with confidence that we’ll be enrolling that study before the end of the year. And that’s consistent with the timeline that we’ve guided to before. As it relates to share account and raise, I’ll look to Fred for that.

[Fred Driscoll:]

Yes. So – what I would say on the run rates on R&D and G&A we’ve said this in the past is and there is really no change it is that we do expect a continued ramp up in those expenses. I would say R&D and G&A, especially the G&A line which includes the commercial expenses at this point. We’ll continue to see grow over the next few quarters and it certainly into 2017 will expand. As I said in my formal remarks the cash we have on hand will certainly take us past launch into 2018, we’ve not given specific guidance at this time as to exactly what quarter. But I would say some – certainly some number of months past the launch into 2018. So therefore, if you look at where our cash balance is you can certainly estimate that the ramp in expenses is going to be pretty significant over that period of time. After share account we ended the quarter with $27.5 million total shares outstanding. And that’s stepped after the raise and as Mike said we also raised an additional $15 million non-dilutively through the senior debt with Silicon Valley Bank.

[Chiara Russo:]

All Right, perfect. And maybe just a quick follow-up just in terms of the market. I’ve been noticing the additional hires on to the commercial team I was curious if we can get a little bit perspective, obviously the margin is a bit different than [indiscernible] was launched versus what we’re looking at for Zilretta and I was wondering if you could sort of touch upon those market differences. Thank you.

[Mike Clayman:]

Sure. I think one of the benefits here is the VP of Marketing that we just hired actually, he’s just rolling off of this in this franchise or some other areas. So he’s got a direct and recent relevant experience to how the market has changed. That said the other key hire that we’ve made and some others that we will make. We’ll frankly be, we’re looking for people who have not operated in that space, so that we can have some fresh perspective from those folks. With respect to key changes in the marketplace, I think there’s continued to be some more probably payer management downward, pricing pressure which may be self-imposed by the manufacturers as they’ve continue to negotiate rebates for lead the first year physicians and with those payers. I would say that’s in the marketplace, that's probably the main dynamic that we’re seeing as we talk to clinicians we continue to hear them a clamoring for something new, especially given some of the restrictions on the hyaluronic acid marketplace. But that would be – that would be the main – main change or shift that I would say there's happened in the last couple years.

[Operator:]

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

[Unidentified Analyst:]

Hi, guys this is Brendan Long [ph] on for Ken. I know that you already answered some questions about the sales force I was hoping to maybe get a little bit more detail if possible, just a long – the trajectory of hiring and expenses and also the breakdown between how much you expect be tied to sales force and any other promotional expenses you’d expect to incur?

[Mike Clayman:]

So is that a financially based expense question or just the cadence for how we’ll hire.

[Unidentified Analyst:]

Both.

[Mike Clayman:]

Okay. All right.So as I indicated we are actively recruiting for VP of Sales right now, we would then bring on that person’s next line of managers, if there are two or three next line managers by the end of the year and then at some point in the next year we would hire our first line field sales managers and then we would hire our sales force very proximate to a PDUFA approval.

[Fred Driscoll:]

Yes. And on the expense side I mean obviously the costs are going to follow that I would say there is a lot of upfront work that we are doing now, utilizing consultants in a variety of different functions in the commercial side which is certainly consuming cash. And we would expect that continue as we move forward into the launch. We also will be making hires in net affairs and other specific department areas to support the commercial department.

[Unidentified Analyst:]

And you have any expectations for direct-to-consumer campaigns and that sort of expenses?

[Mike Clayman:]

Yes, we do. We’ve got – we’ve got a plan to bring all resources to there and all customer groups including patient audience to activate them and motivate them towards driving market growth.

[Unidentified Analyst:]

Okay, great. Thank you guys.

[Fred Driscoll:]

Thank you.

[Mike Clayman:]

Thanks.

[Operator:]

Thanks you. [Operator Instructions] And our next question comes from the line of Jim Molloy with Laidlaw. Your line is now open.

[Jim Molloy:]

Hey, guys. Thanks for taking my questions. I was wondering if you could talk a little bit about I know you look probably going to have ton of company, a ton of products to in license. Can you talk about some that make the most sense that or at least the product areas that might make the most sense and are you even….

[Mike Clayman:]

Yes.

[Jim Molloy:]

Finding non-disclosures in discovery rooms and stuff like that.

[Mike Clayman:]

Well, Jim. I will just provide a broad frame for this. We think Zilretta is a perfect example of this, we have religion about local therapy potentially solving important unmet medical needs and not incurring the risk of systemic therapies. If you start with the big circle of local therapies. And then you look at where Zilretta is, what Zilretta is a 505(b)(2) in pain and in musculoskeletal disease. So as we look outside to get in – to get into consideration you have to be a local therapy. And the more of those three intersecting circles you get, the more attractive you’re assuming that the unmet medical need is substantial enough. So that’s I say that because I think it’s important to indicate that we’re not just flailing out, they’re looking for anything that might be interesting. We have a very clear strategy for building the pipeline and we’re going to be disciplined in doing so. And when we find the right opportunities we expect they will have the potential at least to have kind of facilitated path forward that Zilretta has experienced.

[Jim Molloy:]

Thank you. Does your guidance of – into early 2018 of the cash you have, does that anticipate some in licensing or is that X in licensing?

[Mike Clayman:]

We can accommodate in licensing with that run. Obviously it depends on the very specifics of the in licensing. But we have the latitude to selectively in license even under that umbrella.

[Jim Molloy:]

Excellent. Thank you. And then you see the letter from the FDA saying don’t bother recommend from meeting. Have you had any additional communications with the FDA subsequent to that and is there any way to handicap I know the FDA is the FDA, but anything that handicaps the odds a little bit, or that would changed, how you look at it post getting that letter?

[Mike Clayman:]

No. There’s really been no additional material information related to the FDA. We think the FDA’s communication with us was a reflection of their level of comfort with the data supporting an NDA. But they’re very busy, this is the division that sees every opioid, every abuse-deterrent opioid and so they have a lot of the advisory panel, they have to tend to and if they can efficiently dispense with the work in front of them. They’ll do that. So I don’t think there’s really anything new, we and frankly the next most meaningful regulatory milestone will be the NDA submission. And then within about 60 days after that an indication of whether the agency will be granting us priority review or not.

[Jim Molloy:]

Okay, thank you. And then last question, and one question for Dan. Have you guys – as much as you could talk about it, is your interest in larger pharma and acquiring you guys.

[Dan Deardorf:]

So personally and I think I can speak for all of us. We’ve got no interest in that. We are confident that what we’ve got here. Is a true game changer and it’s going to be a true advance to this marketplace, I’ve been operating in this space for a long time. I've got great passion for OA and for how underserved it is. So I want to be every part of making this real to that marketplace and that would not include, and it would not happen under that scenario that you mentioned.

[Mike Clayman:]

Next to just building on Dan’s comment I mean we are. We do think that there is a tremendous opportunity to build a great company here and we are heads down implementing a plan that’s been very carefully thought out, that we think is going to get this product not only over the goal line of launch but to be very successful commercially. That’s obviously our intent and we’re doing everything humanly possible to do that. So the idea of getting bought is frankly I did a distraction and we adhere to the policy that great companies are bought not sold. So it’s just not on our radar screen.

[Jim Molloy:]

Excellent. Thank you. And then last question for Dan. Is sort of assuming approval launch, are you able to share with us, your internal modeling builds in for, when does this start, when does the rest are become profitable?

[Dan Deardorf:]

We haven’t gone that far and just I’m not prepared to do that, at this point in time. We’re a long ways out there’s a lot more to understand the marketplace its dynamics are changing. So it would be premature for us to comment on that.

[Jim Molloy:]

Okay. Thanks for taking the questions, guys.

[Mike Clayman:]

Thanks Jim.

[Dan Deardorf:]

Thanks Jim.

[Operator:]

Thank you. And I'm showing no further questions at this time. I would now like to turn the call back to Dr. Clayman for closing remarks.

[Mike Clayman:]

Just want to thank everybody for their time and attention. And we’ll look forward to speaking with you again in a few months.

[Operator:]

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program and you may all disconnect. Everyone have a great day.