Flexion Therapeutics, Inc.
Q3 2014 Earnings Call Transcript

Published: 14 Nov 2014

[Operator:]

Good day, good afternoon ladies and gentlemen, and welcome to the Flexion Q3 2014 Financial Results Conference Call. My name is Candice 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 conference. [Operator Instructions] I will now turn the call over to Fred Driscoll from the company. Please proceed with your call.

[Frederick Driscoll:]

Thanks Candice. Good afternoon everyone. This is Fred Driscoll, Chief Financial Officer and I thank you for joining us on today’s third quarter 2014 financial results conference call. Both the earnings release from this afternoon and an archive of this earnings call can be found on the company’s website at flexiontherapeutics.com. On today’s call here with me is Flexion’s 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 and clinical projections. Statements relating to future financial of business performance, conditions or strategies and other financial business matters including expectations regarding operating expenses, cash usage and clinical 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 including those mentioned in the forward-looking statements are contained in Flexion’s filings with the SEC, which are available at ww.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. Thanks for joining us this afternoon. Our agenda for today’s call is to discuss Flexion’s most recent accomplishments and to provide an update on the clinical hold on FX006. After that, I’ll turn the call over to Fred to summarize the third quarter finance results. Following Fred’s comments, we’ll take your questions. In the third quarter, we continue to progress on advancing our lead drug candidate FX006, which is a sustained release intra-articular steroid. The specific steroid is triamcinolone acetonide or TCA, this is for the treatment of Osteoarthritis or OA of the knee. We’ve made three significant recent advances in our FX006 program. First, in July, we announced that we had executed an exclusive worldwide licensing agreement with Southwest Research Institute or SWRI to utilize proprietary microsphere manufacturing technologies for production of our sustained release drug candidates including FX006. The SWRI technologies employ a uniquely controlled and continuous atomizing technology that we believe will facilitate the efficient manufacture of Phase 3 clinical trial material and commercial supply. We have successfully used this technology to produce clinical trial microsphere product for FX006, which has been tested in more than 200 patients. This agreement provides for an expanded field of use in a variety of muscular skeletal disorders which offers us flexibility to explore different diseases where sustained release technology could be useful for patients. In addition, the license for this patent manufacturing technology provides us another layer of intellectual property projection for FX006. The second key accomplishment in the quarter also relates to our intellectual property of state specifically the issuance by the U.S. Patent and Trademark Office of a composition of matter patent entitled Corticosteroids for the Treatment of Joint Pain, which provides coverage for FX006 into the year 2031. This patent underpins the formulation technologies surrounding FX006 and provides a critical foundation for its eventual commercialization. The issuance of this patent coupled with the exclusive license agreement with SWRI mark an important milestone for us as they directly protect FX006. The third key accomplishment occurred in September, when we provided an update on a meeting we had with the FDA to review the clinical development program for FX006. The agency communicated that it will consider our ongoing placebo-controlled Phase 2b inflammatory trial of FX006 as one of two pivotal efficacy trials required for registration of FX006 as a single dose administration. In addition, the FDA provided guidance that a second placebo-controlled pivotal trial would be sufficient to support the filing of an NDA. The FDA also communicated that the approval of FX006 for single-dose administration would not require data from a repeat-dose safety trial, which enabled us to make the most significant change from our prior clinical development plan. As a result, we have decided to accelerate the initiation of the Phase 3 trial of FX006 by year to remove the repeat-dose safety trial from its pre-approval plans, and to develop and file the repeat-dose safety data in a supplemental new drug application after approval and launch of FX006 for single-dose administration. The FDA was also supportive of our plans. They include an immediate release TCA arm in the placebo-controlled Phase 3 trial. This is intended to complement the data demonstrating superior pain relief of FX006 over immediate-release TCA observed in our initial Phase 2b dose ranging trial and to support a commercial advantage in the launch of the drug. Overall, we view these developments to be transformative reflection. It allows us to accelerate our commercial while reducing technical, regulatory and commercial risks. But, as everyone is aware, FX006 was placed on clinical hold by the FDA on September 16. And before I turn the call over to Fred, I want to provide you with an update on this. In both our global discussion with the FDA and their subsequent clinical hold letter, which we received two weeks later, the agency’s central concern relates to the sterility of administrated product. To address this, the FDA asked us to respond to the following three items

[Frederick Driscoll:]

Thanks Mike. The company reported a net loss of $7 million for the three months ended September 30, 2014, compared to a net loss of $5.1 million for the same period in 2013. The primary cause for the increased net loss was due to increase in research and development expenses to $4.7 million for the three months ended September 30, 2014 as compared to $2.6 million for the same period in 2013. Direct program expenses related to FX006 including clinical trials and see development increased by $2.3 million due to higher cost related to the current pivotal Phase 2b dose confirmatory trial. These costs were slightly offset by a decrease of $400,000 in the FX005 program expenses due to the completion of toxicology studies in 2013. General and administrative expenses decreased to $2.3 million for the three months ended September 30, 2014, as compared to $2.4 million for the same period in 2013, due primarily due to decreased professional service fees. For the nine months ended September 30, 2014, the company reported a net loss of $19.5 million, compared to a net loss of $14.5 million for the same period in 2013. The increased net loss was primarily attributable to research and development expenses, it increased to $12.4 million for the nine months ended September 30, 2014, as compared to $8.8 million for the same period in 2013. The primary cause of the increase was due to FX006 program expenses related to the initiation of the Phase 2b inflammatory trial and manufacturing expenses associated with clinical trial supplies. In addition, increases in salary and other employee related costs including stock compensation expense also contributed to the highest spending level. General and administrative expenses increased to $6.8 million for the nine months ended September 30, 2014, compared to $5.4 million for the same period in 2013 due to salary and related employee costs associated with additional headcount as well as higher stock compensation expense. In addition increases in legal and professional fees and insurance costs associated with being a public company contributed to the higher spending level. As of September 30, 2014, the company had $66.6 million in cash and cash equivalents and marketable securities compared to $16.4 million as of December 31, 2013. From a liquidity and cash resource perspective, the cash used in operations for the third quarter of 2014 was in line with our expectations and we continue to provide guidance that our existing cash resources will provide a runway into late 2015. That concludes our prepared remarks. And operator, we’ll now open for questions.

[Operator:]

Thank you. [Operator Instructions] And our first question comes from the line of David Maris of BMO Capital Markets. Your line is now open.

[Katie Brennan:]

Hi, this is Katie Brennan in for David Maris. Thank for taking our question. I know that you said you’re focused on gathering the information for the FDA and I’m curious is that information that you have to gather and put together all at once – in one submission to the FDA or if you can begin submitting when you have data you know they want to see and you’ll let them know when your final submission [Audio Dip] 30 days to get back to begin. Can you touch on that please?

[Mike Clayman:]

Yes, what you file, Katie, is – what’s call a complete response. So, there is no opportunity to make this kind of a rolling submission if you will. So you gather all the data that you expect will meet the FDA’s needs and you submit that all at once and when that gets logged in it starts the 30 day clock.

[Katie Brennan:]

Thank you.

[Operator:]

Thank you. And our next question comes from the line of Michael Faerm of Wells Fargo. Your line is now open.

[Michael Faerm:]

Hi, thanks for taking the question. I have a couple. The first one is what – could you give us any color on what remains to be done in the investigation and what timeframe that might take to complete that and submit the complete response?

[Mike Clayman:]

Mike, I’m not going to get into details about kind of what’s remaining in timelines. What I will say is what we’ve been saying all along and I’ll simply say the investigation date continues to support our confidence that this all to be listed in the near-term.

[Michael Faerm:]

Okay. Have any other patients besides the initial one patient surfaced with any issues during the course of the investigation?

[Mike Clayman:]

No.

[Michael Faerm:]

Okay. And last question is on the Phase 3 study. Are you still planning to start by the end of 2014 or is that dependent on the resolution of the investigation, the filing of the complete response and the earn back on that?

[Mike Clayman:]

I’d simply say Mike that we are continuing to aggressively prepare for the initiation of Phase 3. This will be a global study, which creates the potential for starting outside the U.S., even in advance of the clinical hold being listed. I think logistically the likelihood is this study where it gets started will not start until the first quarter of 2015.

[Michael Faerm:]

Great. Thank you.

[Operator:]

Thank you. And our next question comes from the line of Elliot Wilbur of Needham. Your line is now open.

[Elliot Wilbur:]

Thanks. Good afternoon. Mike, when we first discussed the clinical hold, I think you had talked about the possibility that infection was patient specific, and I’m just wondering if there is been any follow-up along those line that obviously will receive like – something you could have ascertained in a time period.

[Mike Clayman:]

Well, I mean, when you say patient specific, you’re meaning that it might have…

[Elliot Wilbur:]

For the existing condition you’re logical action, something that may have…

[Mike Clayman:]

Yes. Elliot, I’m not going to give you capped [ph] growth on this, but I can tell you that the investigation that we’ve made has been, I would say, extraordinary thorough and we’ve explored that in detail. We sent out a team to the site. We’ve talked with all the relevant individuals to view records et cetera. So I’ll simply say that we have a good line of sight in terms of that understanding without providing you any satisfying detail beyond that.

[Elliot Wilbur:]

Okay. And then with regard to the Phase 3 and previous commentary around potentially being able to begin outside the U.S. regardless of the whole status, has your thinking changed at all in terms of sort of the constitution of enrollment or the balance between U.S. and ex-U.S. patients as a result of what’s happened or is it just you’re still proceeding according to the original plan?

[Mike Clayman:]

The original plan always consider this to be a global study, we think that’s important. We think that’s important for enrollment and we think that’s important for registration not only in the U.S. but elsewhere. So that hasn’t changed. And we would just to kind of give you some color on the logistics here in a situation, which you’re under clinical hold obviously you would be completely transparent with any non-U.S. regulatory authority about the clinical hold and about any specific data that you could provide related to that hold. And so that – I just want to make sure we create the impression that we will be proceeding in a completely above board way with any other regulatory body. I think it’s a practical reality though is given the logistics of getting this off to ground and with the interruption of the clinical hold, the likelihood is that our first patient is not going to get enrolled into Phase 3 study until the first quarter.

[Elliot Wilbur:]

Okay. And then just one last line of question anything that you can say or provide us with an update on some of the other development programs?

[Mike Clayman:]

Well, what we said publicly about 007, 005 is a following. 007 is our TrkA antagonist intended for postop pain, we’re quite excited about that. We are proceeding with its preclinical development. We have encouraging preclinical data and we expect to be in the clinic in 2015 generating proof-of-concept data that will help us to understand the value proposition for that asset. So I’d say stay tuned for that. 005 is a bit of a different story because even though we would love to advance that our current resources are such that we’re simply not in a position to do so. And until we have sufficient resources to be able to advance it, it will continue in that state.

[Elliot Wilbur:]

All right, thank you.

[Operator:]

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

[Chiara Russo:]

Great, thanks guys for taking my question. I just have a couple. My first question is kind of again goes back to the hold and what the FDA is sort of asking for. And I was wondering if you could sort of maybe put some color on exactly what you guys – how rigorous you have to be in terms of looking at other reasons for the infection? For instance, obviously, you can look at the patient history; you can look at type protocols sort of how deep does the FDA expect you to go here?

[Mike Clayman:]

Well, I think that as we’ve said before and frankly said consistently top of mind for the agency is basically answering the following request as it convinced us that product was not contaminated and that is not the source of infection. That’s foreign away from our interactions with the agency, there are top of mind concern. Having said that they also expect us to make a thorough investigation and we won’t expect anything less of ourselves. We want to understand this in detail to make sure that whatever understands we can clean from this particular case can be used to the advantage of the program and tinged for other higher level of safety going forward. But I would also say that you have – I think people have to appreciate that it’s not uncommon in the setting of infection following an injection that the root cause is never identified. And that probably reflects the fact that despite for the sake of discussion, let’s take a situation in which product is sterile at the time of administration. Technique is flawless at the time of administration. That doesn’t preclude the possibility of actually introducing a microorganism through the skin at the time of injection because it is almost impossible to render this scan completely sterile. When you prep it with Betadine and then wipe it off the Betadine with alcohol swab, it is relatively sterile, but it is not completely sterile and you can culture micro organisms from the tip of the needle that passed through the skin and then withdrawn. So and that’s – it’s probably more detail – maybe more color than you wanted here, but the point is that in no way that we believe the agency is saying to us be clear on specifying the root cause, what they’re saying to us is be clear on demonstrating absence of contamination and coupled with that do a thorough investigations that you can understand what can be understood about this case.

[Chiara Russo:]

Got you, okay, another kind of quick follow-up on that. Is it part of protocol to save the used vial?

[Mike Clayman:]

It is…

[Chiara Russo:]

Okay…

[Mike Clayman:]

Our protocol specifies that used vials should be retained. There is a drug accountability provision in the protocol, so that vials used in the study are accounted for at the end of the study and the way you do that is by retaining them.

[Chiara Russo:]

Okay, awesome. And sort of lastly, how should we start of think about R&D spend going forward once the hold is listed? Are you sort of maybe planning on increasing enrollment or site sort of at a faster pace or is it going to be sort of steady state all the way through once the hold is lifted?

[Mike Clayman:]

I think it’s going to be much more of the ladder. We had established for ourselves a very aggressive plan that was fully funded in terms of advancing FX006 to the point of registration, completion of the clinical development program and registration and we will reinitiate exactly that plan going forward.

[Chiara Russo:]

Okay. Got it.

[Frederick Driscoll:]

Chiara, this is Fred. The other point I’d to add to what Mike just said is we are aggressively moving forward in the planning stages of the Phase 3 and spending money on that. And that’s why you’ve not seen us change our guidance on the cash runway that we’re still guiding towards cash less through late 2015 because we’re still moving forward aggressively in those areas. So I just to point that.

[Chiara Russo:]

Great. I appreciate you, guys. Thank you so much.

[Mike Clayman:]

Okay.

[Operator:]

Thank you. [Operator Instructions] And our next question comes from the line of Jim Molloy of Summer Street. Your line is now open.

[James F. Molloy:]

Hey, thanks taking my question. Can you talk a little bit about the data collection that’s still ongoing, the 12-week follow-up? Is that still happening with patients that have – how much patients have sort of completed that role, that part of the trial?

[Mike Clayman:]

I can’t tell you the exact – first of all, it is ongoing. All the patients that have been enrolled in the study at the time of the clinical hold are continuing in blinded fashion, so the patients are blinded and the evaluators at the clinical sites are blinded and the data from those patients being collected as per protocol. And so, the roughly 150 patients – worth of data can continue to contribute to the total of 300 patients we have in this trial. Sorry Jim. I don’t know exactly how many patients have completed their full time in the study. Remember this is a six-month follow-up. So it’s impossible for me to model that exactly, but I suspect that at least some have completed their enrollment over the past roughly two months since the hold was initiated.

[James F. Molloy:]

When you do restart the trial, I mean, it is a pretty quick startup of the warehousing patients here during the whole – so they’re ready to roll should the hold get lifted?

[Mike Clayman:]

Yes, I think that we will have a rapid rise. It will reflect the fact that all of these sites have been screening all along. And so they’ve identified patients who would be eligible for this study. And I think one of the beauties of continuing patients who have already been injected in the studies at these sites continue with their familiarity with this protocol and what needs to be done on an ongoing basis. So we’re hopeful that we will have if you will lift off following the clinical hold in rapid fashion.

[James F. Molloy:]

And then last question, when I think of a sterility test, I generally think you take the vials or whatever has been tested yet, culture of 30 days and then you tested and see what’s there. Certainly, 30 days gone past since 16th in the hold and obviously – and as the top priority for you guys to get on that and get this thing done. At what point should we expect an update on what’s going on regarding this test?

[Mike Clayman:]

Yes, let me just make few comments about that Jim today, it’s a fair question. We’ve just said as a statement of policy that we’re not going to get into the details of the investigation over the data. And in essence what we said is when we hear back from the FDA, we will communicate that in real time fashion because that will be material. Let me say this. If we’ve had serious bumps along the way in terms of this investigation, we as a management team would have almost certainly judge those to be material and would have shared that information externally. And I’ll let you to interpret that as you will, but we’re – as we said many times, we continue to proceed with confidence that this clinical hold will be listed in the near-term.

[James F. Molloy:]

Just a quick follow-up then if I kind of see correctly. So you wouldn’t tell the Street – that you have filed with the FDA, but you would tell us when 30 days later they get back to you with the communication…

[Mike Clayman:]

Absolutely, any communication that comes back from the FDA I mean what could that communication be it could be one of the three things. One is A, you’re off hold; B, we’re not satisfied that this response actually is a complete response; it doesn’t have all the data that we would want. Or three, there is a partial lifting of the hold then you have revise the protocol to accommodate X, Y or Z. Anyone of those scenarios would – we would certainly judge to be material and we’ll share that information externally in real – in close to real time.

[James F. Molloy:]

Okay relatively you could have already sent that to the FDA at this point, but we’re waiting to see what the FDA says, if we have a material change to your hold.

[Mike Clayman:]

That is correct.

[James F. Molloy:]

Well, thank you very much for taking my questions.

[Operator:]

Thank you and I’m showing no further question at this time. I would like to turn the call back to over to Dr. Clayman for any closing remarks?

[Mike Clayman:]

Thanks very much in the absence of additional questions I just wanted thank everyone for your participation in today’s call. Obviously, we’re looking forward to provide any further update as soon as we get them and we will be in touch Thanks very much have a nice rest of your day.

[Operator:]

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