Flexion Therapeutics, Inc.
Q4 2014 Earnings Call Transcript

Published: 24 Mar 2015

[Operator:]

Good afternoon ladies and gentlemen, and welcome to the Flexion Year End 2014 Financial Results Conference Call. My name is Aminda, 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] Fred, please proceed with your call.

[Fred Driscoll:]

Thanks Aminda, and good afternoon everyone. This is Fred Driscoll, Chief Financial Officer and I thank you for joining us on today's year end 2014 financial results 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 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 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 will now turn the call over to Flexion's CEO, Mike Clayman.

[Mike Clayman:]

Thanks, Fred. Good afternoon everyone. Thanks for joining us on our 2014 year end financial results conference call. The agenda for today will be to discuss our 2014 and most recent accomplishments and follow that with our expectations for the remainder of 2015. I'll then turn the call over to Fred to summarize the year end audit financial results, and after that we will take your questions. 2014 was a truly transformational year for Flexion as we made significant progress across our entire business. We began the year with a completion of a successful initial public offering of our common stock at $13 per share and raised $75 million in gross proceeds. As importantly, we were able to attract a blue chip line up of investors who participated in the offering, and during 2014 many of these same investors continued to support the company and add on to their existing positions. With attraction we received throughout the year and executing on our clinical development program with our lead drug candidate FX006, which I will discuss shortly, we were able to complete a public follow-on offering of our stock in December and raised over $98 million. Here again, we are gratified to see many of our existing institutional investors participate in the offering as well as several new high quality institutional names. We entered 2015 very well positioned financially with over $150 million in cash, and as we have previously disclosed in our public filings, we anticipate that this cash will last through mid-2017 when we expect to have completed our FX006 pivotal clinical trials and submitted our NDA to the FDA. The driving force behind the success we have had this past year is based on FX006. For those of you who may be new to the Flexion story, this is a sustained release intra-articular steroid for patients with moderate to severe osteoarthritis or OA. It combines a commonly administered steroid, triamcinolone acetonide or TCA that has been approved by the FDA with a sustained release polymer called PLGA which is then manufactured as microspheres. Following injection into the knee, the microspheres slowly dissolve in the fluid of the joint also called the synovial fluid into their component sugar parts releasing TCA in parallel. This results in delivering therapeutic concentrations of drug in the joint for months while minimizing drug exposure in the blood. In clinical trials to-date it has enabled long-lasting local pain relief while avoiding systemic side effects which remain a liability of many currently available therapies. To date, three clinical trials have been completed to test FX006 against immediate release TCA injection and most recently we completed enrollment of our pivotal Phase 2b clinical trial against placebo. In aggregate, over 440 patients have been treated with FX006. Our clinical development program began by conducting two pharmacokinetic clinical trials that compared the persistence of FX006 to immediate release TCA in the joint by measuring synovial fluid concentrations following a single intra-articular administration. Data from these studies demonstrate that with FX006 administration likely therapeutic concentrations of TCA are achieved for at least three months, whereas with the immediate release TCA, drug concentrations become unmeasurable within a matter of weeks. They also demonstrated their plasma concentrations of TCA are dramatically less with FX006 than with immediate release TCA which could advantage FX006 in terms of fewer systemic side effects. The persistence of meaningful concentrations of TCA in synovial fluid after FX006 injection provides a pharmacokinetic basis for the efficacy absorbed in our completed Phase 2b dose ranging trial. That clinical trial show that FX006 conferred amongst the largest pain relief signals seen in OA clinical trials with almost 60% pain reduction at three months, which was the final time point assessed in the study. The ongoing pivotal trials have been designed to assess efficacy through six months to determine if and how much analgesia FX006 can deliver passed the already observed three-month time point. Another key accomplishment in 2014 was the initiation in subsequent enrollment this past February of 310 patients in our pivotal Phase 2b trial. This trial has been designed to further identify safe and well tolerated dose of FX006 that demonstrates superior pain relief compared to placebo at 12 weeks. However, as just mentioned, we will monitor patients for 24 weeks to assess efficacy. Another major step forward in our clinical development of FX006 was the recent announcement of the initiation of the Phase 3 clinical trial, which will be our second pivotal trial required for registration. This trial is an international multicenter randomized blind and single dose study in 450 patients with OA of the knee, who have three arms of 150 patients each which are a 40 milligram dose of FX006 placebo and a 40 milligram dose of immediate release TCA, and patients will be evaluated for a total of 24 weeks. The primary end point of the trial will be identical to the pivotal Phase 2b study, i.e., pain relief versus placebo at 12 weeks. These two pivotal studies will provide replicate efficacy and safety data for an NDA submission. So we feel good about having executed on a development plan that if successful will position us to file an NDA at the conclusion of these trials. An additional milestone in 2014 was the expansion of our intellectual property of state, first we 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 continuously atomizing method that has facilitated efficient scale up of Phase 3 clinical trial material and we expect we’ll provide for commercial supply. The agreement also encompasses an expanded field of use in a variety of musculoskeletal disorders, which offers us flexibility to explore different diseases where sustained release technology could be useful for patients. The license for this patented manufacturing technology affords another layer of intellectual property protection for FX006. Second, the U.S. Patent and Trademark Offices issuance of a composition of matter patent entitled Corticosteroids for the Treatment of Joint Pain, represents a major milestone, and provides IP coverage for FX006 into the year 2031. This patent underpins the formulation technologies surrounding FX006 and yields a critical foundation for its eventual commercialization. The issuance of this patent coupled with the exclusive license agreement with SWRI, are centrally important as they directly protect FX006. Ultimately our success comes down to our greatest asset our people, and to their dedication in making it difference for patients and creating value for our shareholders. Over the past year we have significantly bolstered our excellent employee base by selectively hiring superb talent that has increased our workforce from 16 to today's headcount of 30. Several highly skilled professionals with deep domain expertise and discipline such as clinical research, regulatory affairs, quality assurance, commercial operation, and legal affairs are now on board and making important contributions. In addition, we've strengthened our Board of Directors by adding Ann Merrifield, former President of Genzyme Biosurgery, Sandy Mahatme, Senior Vice President and Chief Financial Officer at Sarepta Therapeutics and most recently Scott Canute, former President of Global Manufacturing Incorporate Operations at both Genzyme Corporation and Eli Lilly and Company. With these additions, we have complemented the strength of our current Board with expertise in commercial, financial, and manufacturing disciplines. Looking forward in 2015, we expect to achieve several key milestones. First we're on schedule to report topline data from the pivotal Phase 2b trial of FX006 in the fourth quarter. Second, we have initiated the Phase 3 trials of FX006 and 450 patients with OA of the knee, we expect to complete enrollment of this trial by year end and to report topline data in the first half of 2016. With that, I’ll turn the call over to Fred, to review our year end 2014 financial results.

[Fred Driscoll:]

Thanks Mike. For 2014 the company reported a net loss of $27.3 million compared to a net loss of $18.2 million for 2013. The increase of the net loss of $9.1 million in 2014 compared to 2013 was primarily due to higher research and development expenses of $6.8 million associated with the FX006 clinical development program. General and administrative cost increased year-over-year by $2.4 million due to increased headcount costs, stock compensation expense, and cost associated without being a publicly traded company. At December 31, 2014 Flexion had cash, cash equivalents and marketable securities totaling $151.6 million, compared to $16.4 million at December 31, 2013. As previously mentioned by Mike, the increase in liquidity is driven by the proceeds raised from our IPO in follow on offering. 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 resource perspective, we believe that our existing cash resources will provide a run way into mid-2017. We expect research and development expenses to increase over the next several years due to late stage trials being conducted for FX006 expenses and capital additions surrounding scale of activities in manufacturing, cost associated with prelaunch commercial activities and preclinical and clinical work associated with FX007. We expect general and administrative expenses will grow over the next few years but at in inflation rate basis only. That concludes our prepared remarks. Operator, we'll now open the call for questions.

[Operator:]

[Operator Instructions] Our first question comes from David Maris with BMO Capital Market. Your line is open.

[Katie Brennan:]

Hi, this is Katie Brennan for David Maris. Thank you for taking my question. Can you just talk us through a bit - how quickly you think you can turnaround the NDA submission following the topline results from the Phase 3? Is that going to be complicated data to wrap up while you already have the NDA relatively complete as best you can by then how soon do you think you can turn that around. Thank you.

[Mike Clayman:]

Yeah, it’s a good question Katie, what I can tell you, I’ve been through this a number of times at Lilly, and I think it’s a key to shortening the timeframe from completion of clinical trial studies and the availability of those data to submission is planning, and I can tell you that we are already deep, deep, deep into the planning. But there are certain things that you have to wait for the data to accrue to be able to construct. So for example, the integrated summary of safety, the integrated summary of efficacy relies on the full data set. So you cannot do anything, but other than work – wait for the full data set to complete those. So I won’t give you an exact timeframe, I’ll simply say that for us once we have the data, every day counts, and we will work as hard as we can to get the quality NDA submission in as quickly as possible.

[Katie Brennan:]

Got it. Thank you.

[Operator:]

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

[Randall Stanicky:]

Great, thanks guys. Mike quick question, has anything from your perspective changed on a competitive front and obviously on tanezumab [indiscernible] to Pflizer, early collaboration, is there anything to be thinking about with respect to that and I have a follow up.

[Mike Clayman:]

It's a good question, I think most people are aware that it was announced today that on the clinical hold has been lifted on tanezumab and that they will be proceeding into Phase 3 clinical trials. Our understanding is that these trials are aimed at patients with very end stage disease, it’s our understanding, I’ve not seen the protocol but there is information. [Indiscernible] these are patients who are otherwise waiting to have knees replaced or if not that or at the point of having surgery, but have deemed for whatever reason not to proceed with that surgery. So, these are the most end stage patients. And we would see our product position much further upstream in the treatment paradigm. I mean I think as everyone's aware, tanezumab was associated with accelerated progression to joint replacement of rapidly progressive OA in a small but significant percent of patients. And that's why I believe and again this is speculation on my part but I believe that it's been moved to such a relative niche in the overall OA spectrum. And so, I see them occupying a different space in the space that we would be occupying, and I'll simply say that this is obviously also systemic therapy and any systemic consequences of those therapies are going to have to be fully appreciated in the course of development of that compound.

[Randall Stanicky:]

That’s helpful. So it sounds like in general the competitive outlook, the opportunities you see it hasn’t changed, that's a fair statement?

[Mike Clayman:]

I think that's a fair summary, yes.

[Randall Stanicky:]

Okay. And then one more question, you had talked about this before but as we think about the opportunity beyond knee, hip, shoulder, ankle, how long is some of that data going to take to compile post approval. In other words, when could we see additional indications for you from a market perspective?

[Mike Clayman:]

I can tell you Randall that we will and I think we've discussed this publicly, it’s our plan not to initiate those trials before we have approval in knee. Knee is an enormous indication, we want to proceed with single-minded focus on that, but once we have approval for knee, we will be aggressive in our pursuit of those other indications. The agency has indicated to us that those indications could be approved based on single studies once we have the knee approval. So, and I think as many of you know that there are a million patients a year who receive steroid injections now into joints other than knee for reasons of pain of osteoarthritis. So we would proceed with reasonable levels of confidence that single studies would get us to indications there. I won't give you an exact timeframe but I will say Randall that for us this is - we think this is an attractive and tractable set of opportunities and something that we'd pursue aggressively following launch for knee.

[Randall Stanicky:]

That's great. Thanks guys.

[Operator:]

Thank you. Our next question comes from Michael Faerm with Wells Fargo. Your line is open.

[Michael Faerm:]

Hi, good afternoon. Thanks for taking the question, I have a couple. The first one, could you please provide an update on the European partnership efforts. Is that and where it stands now and what your strategy is with respect to timing, would you seek to do that near term or you’re waiting for one or more of the clinical milestones? That would be great. Thanks.

[Mike Clayman:]

Mike I think that as we've mentioned before, our strategy is to commercialize ourselves in the U.S. and we’re open to partnerships outside the U.S. including Europe. I’ll say that we have had discussions and are having discussions with potential partners. I think it’s reasonable to expect that the data set later this year would be enabling for those discussions, but as you know as well as anybody Mike, these deals aren’t done until they’re done. So we won't, - I can tell you with certainty, we won’t be announcing anything until something is signed.

[Michael Faerm:]

Okay. My next question is on the other two products in your pipeline, 006 and 007, are you working on those now, I know you'd talked about potentially starting an 007 trial this year? Can you give us an update on the thinking there that would be helpful?

[Mike Clayman:]

Yes. So we’re continuing to progress 007, that's our small molecule TrkA antagonist intended for the treatment of post-operative pain administered by injection into the surgical wound at the time of wound closure. We are continuing to invest in that in terms of pre-clinical pharmacology studies and toxicology studies to set the stage for a clinical proof-of-concept study later this year. We elected not to make that a topic of substantial discussion during the earnings call simply because top of mind for us and for most of our investors is 006. But we're very enthusiastic about 007 and are continuing to invest judiciously in its advance. 005 is a product we are - frankly if we had unlimited resources, we absolutely would be advancing it. So p38 inhibitors formulated for sustained release injection into the knee joint, we're promising clinical proof-of-concept data but in a role of finite resources, we’ve elected to put those resources behind 006 our near term and very large opportunity in 007 which we think is a similarly very large opportunity and will advance our 005 when resources become available.

[Michael Faerm:]

My last question is about just potential uses of cash, you mentioned you have $150 million in cash and two year or more runway on that, would you consider business development at all for example something that was on market might add some diversification and pay for itself. Would that be in consideration at all for you?

[Mike Clayman:]

Well I would say Mike we would be opportunistic but it’s not top of mind for us.

[Michael Faerm:]

Great. Thank you.

[Operator:]

Thank you. Our next question comes from Chiara Russo with Janney Montgomery. Your line is open.

[ChiaraRusso:]

Yes great, thanks guys for taking my question. Just sort of quick question, I was wondering it maybe too soon to tell but how are the enrollment rates of the Phase 3 going compared to the Phase 2b, are they kind of enrolling around the same pace?

[Mike Clayman:]

Well I will simply say Chiaro that we’re pleased with the enrollment to-date and we remain confident that we’re going to enroll in a timeframe that allows the data to be provided in the first half of next year. It is early days though. Whenever you start a new trial, particularly with new sites, there's always a ramp and we're in the - we enrolled our first patient just a few weeks ago. So stay tuned we’ll keep you posted.

[Chiara Russo:]

And sort of my second question, [indiscernible] somebody in Phase 3 gets an infection in the knee. What do you think the FDA's response going to be? Do you think that they’re perhaps a little bit tampered now, since they want to do that whole thing with the Phase 2b, do you think it would take more than one infection to them to pull the trigger on this trial?

[Mike Clayman:]

It's clear the agency has high sensitivity about infection with the steroid containing product with just does. And I think that - should there be another infection what we would do is I think attack is even more aggressively from the outset than we did to begin with because with the first infection, frankly since it's so well known, that infection is injection into the intra-articular space are not common but they do occur. We were a bit surprise by the agencies response. So I think that we would be very aggressive in sorting through all of the details of that case even more so than we did the first time but I do think that having gone through this episode with us, having been as credible with the agency as we were, and as throughout as were. And what I'll say is they renewed appreciation for the fact and infections do occur with intra-articular therapies. It's impossible to predict exactly how they would respond but we would do everything humanly possible to provide all the data that could possibly reassure them in that setting.

[Chiara Russo:]

Okay. That sounds good. That's all I had. Thank you, guys.

[Operator:]

[Operator Instructions] Our next question comes from Jim Molloy with Summer Street Research. Your line is open.

[Jim Molloy:]

Hi guys, last but hopefully not least. Looking at the cash, you've got $152 million into the year going back to an earlier question I means that's pretty good chunk of change. Is that all needed for the Phase 3 and proof of concept into '17 or does that anticipate a potential acquired complimentary product?

[Mike Clayman:]

Well I would say Jim that, that realized during the next two year, we'll not only be investing in our clinical development program, we're going to be investing in terms of increasing capabilities within the company, one. We're going to be investing ensuring robust manufacturing capability, two. And three, we’ll be setting the stage for commercialization of this product. All of those things come with not insignificant cost. And as a result, there is not going to be a lot of leftover. FX006 will consume the vast majority of those $150 million and we are ensuring that we cover that portion for the appropriate development of 007.

[Jim Molloy:]

Excellent. And then I know that the long-term safety repeat-dose studies no longer getting factor for filing, but that's still interested to start in 2015 correct, and run through?

[Mike Clayman:]

No. We at this point our plan is to initiate the repeat dose study after we submit and get approval for the single dose indication because it's not necessary for the approval of the product and in our discussions with key opinion leaders and high volume clinicians is not top of mind for them in terms of the data they need to see to use the product.

[Jim Molloy:]

Got it. Thank you very much for taking the questions.

[Mike Clayman:]

Thanks Jim.

[Operator:]

Thank you. I'm showing no further question. I would like to hand the call back to Mike Clayman for closing remarks.

[Mike Clayman:]

Thank you. I'd just like to thank everyone for their participation in today's call. And we look forward to updating you on our progress throughout the coming year. I wish everybody have a nice day. Thanks.

[Operator:]

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