Flexion Therapeutics, Inc.
Q1 2015 Earnings Call Transcript

Published: 9 May 2015

[Operator:]

Good afternoon, ladies and gentlemen, and welcome to the Flexion First Quarter 2015 Financial Results Conference Call. My name is Huey, 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 would now like to turn the call over to Fred Driscoll from the company. Fred, the floor is yours.

[Frederick Driscoll:]

Thanks Huey and good afternoon everyone. This is Fred Driscoll Chief Financial Officer and I thank you for joining us on today's first quarter 2015 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 Chief Executive Officer, 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 plans, 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 overtime. 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 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. I will now turn the call over to Flexion's CEO, Mike Clayman.

[Mike Clayman:]

Thanks, Fred. Good afternoon everyone and thanks for joining us. Our agenda for today's call is to review Flexion's recent accomplishments and after that I'll turn the call over to Fred to summarize the first quarter financial results. Following Fred's comments we'll take your questions. The development of our lead drug FX006 continues to progress on track. As you know FX006 is a sustained release intra-articular or IA steroid, the specific steroid being triamcinolone acetonide, also referred to as TCA. This is for the treatment of osteoarthritis or OA of the knee. In the first quarter there were three significant advancements in our FX006 program. First in February we initiated dosing in the second required pivotal trial for FX006, which is a double-blind placebo controlled randomized Phase III study designed to further evaluate safety, tolerability and efficacy as a treatment for relieving pain associated with OA of the knee. This is planned to take place at about 50 centers worldwide. Approximately 450 patients will be equally randomized to of one three treatment groups and will receive a single IA injection of either saline placebo, 40 milligrams of FX006 or 40 milligrams of immediate release TCA. Each patient will be evaluated for efficacy and safety at seven outpatient visits over 24 weeks after receiving an injection. The primary outcome measure is the weekly mean of the average daily pain intensity scores, as assessed 11-point numerical rating scale. The primary endpoint is pain relief versus placebo at 12 weeks. The secondary objectives of this study are to assess the effect of FX006 on the magnitude and duration of pain relief, relative to immediate release TCA and the effect of FX006 on function responder status global impressions of change, stiffness and consumption of analgesic medications relative to both controls. To-date we are very pleased with the speed of enrollment of patients in this trial which is right inline with our recruitment plan and we expect to complete enrollment in the fourth quarter of this year with top line data read out in the first half of 2016. The second key accomplishment in the quarter was the completion of enrollment in the pivotal phase IIb clinical trial designed to further evaluate the safety, tolerability and efficacy of FX006. To remind you that trial is a double blind randomized study of 310 patients who are treated with the single injection of either 40 milligrams or 20 milligrams of FX006 or saline placebo, identical to that in just described Phase III study. The primary outcome measures the weekly mean of the average daily pain intensity scores as assessed using 11-point numerical rating scale with the primary endpoint at 12 weeks versus placebo and with patient follow up for 24 weeks. Secondary outcome measures are similar to those in the Phase III study and will be evaluated in comparison to placebo. Flexion expects to turn out top line results from this pivotal phase IIb clinical trial in the fourth quarter of this year. The current pivotal Phase IIb trial and the newly initiated Phase III trial are designed to provide the required clinical data for an FX006 NDA submission for regulatory approval by the FDA. The third key accomplishment occurred just last month when we initiated a Phase II clinical trial investigating FX006 as treatment for OA pain in active military and medically retired veterans with post-traumatic OA of the knee. This trial is being financially supported by the US department of Defense who awarded us a grant worth approximately $2 million to conduct the trial. The primary objective of this study will be to assess the analgesic effect of a single IA injection of 40 milligrams of FX006, relative to 40 milligrams of immediate release TCA and the primary endpoint is the average change from baseline in the weekly mean of the average daily pain intensity scores over weeks five to ten. The study is also designed to assess the effect of FX006 on function, responder status, global impressions of change, stiffness and consumption of analgesic medications and to assess the safety and tolerability of a single IA injection of 40 milligrams of FX006 relative to 40 milligrams of immediate release TCA. A key component of development plan that I believe is worthy of some discussion is the preparatory work that has begun on the NDA. To this end we have assembled our core working teams which include functional leads from regulatory, manufacturing commercial medical and clinical operations. These teams have created a detailed NDA plan and wherever possible the writing process has already started. In addition, we have engaged highly experienced external advisors with deep knowledge in analgesics and 505(b)(2) filings. Overall we are being as proactive as possible as we move toward NDA filing. So in summary we continue to execute against our FX006 clinical development plan on schedule and we look forward to announcing additional milestones before the end of the year. With that I will now turn the call over to Fred to recap our financial results for the first quarter.

[Frederick Driscoll:]

Thanks, Mike. The company reported a net loss of $9.2 million for the three months ended March 31, 2015 compared to a net loss of $6.5 million for the same period in 2014. The primary cause for the increased net loss was due to an increase in research and development expenses to $6.3 million for the first quarter of 2015, as compared to $4.2 million for the same period in 2014. Direct program expenses related to FX006, including clinical trials and manufacturing development increased by $1.1 million, due to higher cost related to the current pivotal Phase IIb trial, the preparation and initiation of the Phase III trial and manufacturing expenses related to clinical trial supplies. Additionally, there was an increase of $1 million in personnel and other costs primarily related to employee-related cost for additional headcount, stock compensation expense and outside consulting costs. General and administrative expenses increased to $2.8 million for the first quarter of 2015, as compared to $2.3 million for the same period in 2014. The increase in general and administrative expenses was primarily due to salary and related costs for additional headcount and stock compensation expense. As of March 31, 2015, the company had $137.4 million in cash, cash equivalents and marketable securities. From a liquidity and cash resource perspective, cash used in operations for the first quarter was inline with our expectations and we continue to expect that our existing cash resources will provide a runway into mid-2017. That concludes our prepared remarks, and operator we'll now open the call for questions.

[Operator:]

Thank you sir. [Operator Instructions]. Our first phone question will come from Randall Stanicky with RBC Capital Markets. Please go ahead. Your line is now open.

[Randall Stanicky:]

Great thanks. I just have a couple. Mike, can you talk about the Phase IIb DoD trial and how you're thinking about the timing for that data and I have a couple others.

[Mike Clayman:]

Yes, it’s a good question Randall. I'll just amplify a little bit on the DoD trial, and in terms of design of that trial and mention that we like generating an additional dataset against TCA IR. We like having chosen an endpoint that is in essence an AUC endpoint and optimizes the chances to down straight meaningful separation. And while we don't mention it, in this we haven't mentioned it in the session so far, it's important to note that -- and surprising to us to learn, but it's why I think we got the grant, that in the armed forces the most common unfitting condition rendering soldiers incapable of continued combat service is osteoarthritis. So this is a big problem for the military. In terms of timing of data delivery, frankly it's too early to provide you with an exact timeline for that. This study is currently a single site study and we are in the very early phases of enrolling patients. So I don't want to sound evasive at all Randall but I think it's just too early to give you a line of sight so I’ll say stay tuned.

[Randall Stanicky:]

Okay, well let me switch gears and can we get your view of HA's competitive threat and really how you're thinking more specifically about the HA injection combination product. How do they fit into what you view as the competitive landscape?

[Mike Clayman:]

Yes, I should say -- we have a -- I'll try to be diplomatic yeah we have reservations about the continued role that HA will play. What that looks -- what I mean by that is what HA usage looks like in the coming years, since we know on the heels of the American Academy of Orthopedic Surgeon guidelines that many end users have seen declines in their use of HA and many have experienced reimbursement challenges. And that's not surprising knowing that Blue Cross, Blue Shield and in multiple states already have withdrawn reimbursement for that product. And it is a product that according to the American Academy of Orthopedic Surgeons, basically doesn't separate meaningfully from placebo. So I think that we would be reluctant to tie our star to an HA product. And I'll just put it that way. It will be interesting to see where things go but it's been basically only two years since the AAOS recommendations and we've seen a lot of movement out there in terms of pressure on that product. So it's -- and I'll just say that I've always had a reservation about how important it is to create a combination product of HA and a steroid that obligates the end-user to use a specific HA, with a specific steroid at a specific dose, when we have survey data that indicates that 25% of physicians are combining their HA of choice with their steroid of choice at their dose of choice of already. So it's just unclear to me how the value proposition ultimately shakes out.

[Randall Stanicky:]

Speaking of that and reimbursement, I mean one of the questions I have, there’s been a lot a talk around pricing and one of the things that we've seen recently are some pretty aggressive pricing increases, specifically in the opioid space, supporting $500 monthly cost which would be significantly above where you guys are thinking. Have you rethought the pricing model at all and are you planning to do any pharmaco-economic work to support FX006?

[Mike Clayman:]

Yes I think as you know Randall we've done four rounds of payer research so far. Those data thus far comfortably support and consistently support of price of at least $500 per dose, but we're in the midst of additional detailed pricing work, including considerations of health generating health economic data that would help us to make the most cogent argument for the most appropriate price for the product.

[Randall Stanicky:]

Got it, thanks guys.

[Mike Clayman:]

Thank you.

[Operator:]

Thank you sir. Our next phone question will come from Chiara Russo with Janney. Please go ahead. Your line is now open.

[Chiara Russo:]

Yes, great, thanks guys. Thank you for taking my questions. So one of the things that’s sort of been floating around, with some of the people that I have been talking to is, that they believe that in the Phase IIb and the Phase III that you won't have any issues meeting your clinical endpoints against placebo. Everybody sort of thinks that you're going to hit that. They're more interested in the TCA piece on the Phase III and sort of how that's going to sort of affect how they're going to look to market that -- like value of the drug. So basically they're sort of like dismissing the primary endpoint, if you will and looking more towards that TCA endpoint. And yes, it like looks like it should separate at eight-weeks but really if it doesn't separate at 12, do you really think that that eight-week separation is going to be enough to differentiate it in the commercial base, I guess that’s kind of where I'm going.

[Mike Clayman:]

Yes, it's a good question and we do think that this asset is de-risked in terms of path to registration. And we do think that the optimal commercialization of the product will include being able to reference comparative data to TCA IR. So we'll just put that out a full stop. I'll just note for, and I'm sure everyone is aware of this but there is -- there are many products on the market that get to registration compared to placebo, charge a premium price and never have data in the label or that they can detail around in terms of comparator. And that's not the path that we're taking but I’ll just point out that that's the reality of the world we live in. And this is all in the public domain. EXPAREL label does not distinguish itself from unformulated Bupivacaine but it's done quite well based on the experience of physicians out there using it. So I’ll just put that out there. We think the path to registration is de-risked. Now in terms of comparison to TCA IR we've had substantial discussions with the agency about what it would take to have comparative data in the label. They'd like to see replicate data that demonstrates separation from TCA IR. So in the Phase III study, as you mentioned, the primary endpoint will be against placebo at 12 weeks and the first secondary endpoint, the highest level of secondary endpoint and the first one we will look at, is comparison to TCA IR at eight-weeks which is where we saw maximum separation in the Phase IIb, the first Phase IIb study. We've learned from talking with key opinion leaders and payers that a product that separates for at least eight weeks from TCA IR is a product that would be meaningfully differentiated. And to the extent that we are able to discuss that in the commercialization of this product and we expect we will, that would be to the advantage of the product.

[Chiara Russo:]

Okay, all right, great thanks. And sort of that, that also sort of rolls into that DoD trial, correct because you're looking at between the five to 10 weeks you can also pull again that head-to-head comparator data for marketing purposes.

[Mike Clayman:]

Yes, I think that would certainly -- obviously we would submit that trial when done to the agency and we would -- how should I say this -- use those data to inform the label consistent with what the FDA is open to allowing in its inclusion. But there is no doubt that once done, assuming we have a positive trial we will publish then in the appropriately prestigious journal. And add that to the repertoire to literature out there that supports this being a better product than TCA IR.

[Chiara Russo:]

Okay great. And I guess my last question is, I know you guys went to the ORC [ph] conference just sort of how was it. Any sort of anecdotal thoughts, did you guys get a lot of attention, lot of questions, anything like that.

[Mike Clayman:]

Well I'd say that one of the highlights of that meeting is the fact that we've established very good relationships with the leadership, the academic leaders at ORC. So there was -- we had a dinner with them. This includes the very -- most prominent osteoarthritis leaders in the world. And we've built a relationship that provides for that kind of access and meaningful dialog with them. And I think it's fair to summarize that there is substantial enthusiasm for FX006. The magnitude of the pain relief that’s seen and the potential void that it can fill in the therapeutic space that is desperately in need of new therapeutic options.

[Chiara Russo:]

Great, well, thank you, guys.

[Mike Clayman:]

Thank you.

[Operator:]

Thank you ma'am. Our next question will come from Jim Molloy with Laidlaw & Company. Please go ahead. Your line is open.

[Jim Molloy:]

Hey guys. Thanks for taking my question. Could you just talk a little bit about, a little more in that military DoD contract. I mean at the end of the day what's the big difference between sort of that contract -- that trial and we already have ongoing that’s in Phase III even when you get approved in the U.S. or when the authorities pick it up or is it just something else about that trial that could be faster or slower to market.

[Mike Clayman:]

Yeah, I think that Jim, the fundamental difference is you have to have post-traumatic OA to get in that trial either from typically -- I mean by definition and injury could be combat related, may not be combat related but it restricts -- you basically apply that filter to enrollment criteria which will inherently make enrollment somewhat slower. So you have to have all of these other elements in the inclusion, exclusion criteria and in addition you have to be a little bit younger and you have to have post-traumatic OA. So this is not going to be the fastest enrolling site. I mean to build on Randall's question earlier, the likelihood is it those data will be emerging during the review time of the NDA. We don't know for sure, we could be pleasantly surprised. But we're not depending on those data as part of our submission package.

[Jim Molloy:]

Excellent. Then on the R&D, have you guys sort of any guidance on sort of R&D, G&A for the year and then of the $137 million in cash you will get into 2017, how much of that will you need to sort of get through the NDA process and are there other usage for the excess cash beyond obviously getting FX006 to the FDA?

[Mike Clayman:]

Well, I'll take the first one and then I'll look to Fred for additional color. These monies get us -- realize we're building an organization, Jim. So we're at 30 or so people now, closer to 40 by the end of the year. 2016 is going to be a big year for us in terms of preparing for commercialization, so we will ramp up. So our infrastructure cost, or fixed cost if you will, will increase. And in addition, obviously we're paying for two clinical trials, which together in the $50 million or so range and we also have an active pipeline where we're devoting focused resources on our other assets. But when you look at commercialization effort, that ramping up, when you look at manufacturing ramping up and additional infrastructure cost, those are things that will consume a substantial portion of that $137 million. We continue to believe that that will get us through NDA submission and close to approval. And we, I think we're consistent in that stance. And I'll turn it over Fred for additional commentary.

[Frederick Driscoll:]

Yeah Jim. As we've said in the past from a corporate practice we do not provide detailed guidance on R&D and G&A. What I can point to is the ramp that we've seen in R&D year-over-year, which is about a 30% plus increase in R&D and we certainly expect that increase to continue this year and into 2016 to support, as Mike said, to support the ongoing trials we have and clearly gearing up for the commercialization of the product. And last but not least the repeat-dose study that we will conduct after the Phase III. So all of those things point to a trajectory of higher R&D costs going forward and as we've said in the call the cash will take us through mid-2017, well pass the point of the filing of the NDA.

[Jim Molloy:]

Great, thanks for taking the questions guys.

[Frederick Driscoll:]

Thank you Jim.

[Mike Clayman:]

Thanks Jim.

[Operator:]

Thank you. [Operator Instructions]. Our next question will come from the line of Serge Belanger with Needham. Please go ahead. Your line is open.

[Serge Belanger:]

Hi, good afternoon.

[Mike Clayman:]

Hey Serge.

[Serge Belanger:]

Couple of questions on FX006. Since now the Phase III trial is been enrolling since February, can you describe, I guess the pace of enrollment, is it what you expected? And then also I guess for the NDA, beyond the Phase IIb and Phase III studies are there additional tick the box clinical studies that need to be completed for NDA filing?

[Mike Clayman:]

Yes, thanks, Serge. So in terms of your first question Phase III enrollment, we're very much on track. We're quite pleased with how things are going and with the enthusiasm of sites for enrolling patients. So stay tuned, but we continue to guide towards the completion of enrollment in the fourth quarter and delivery of data in the first half of next year. This study recall has a six months follow-up so. And then in terms of the NDA submission nothing more is required than the two pivotal studies that we've described here.

[Serge Belanger:]

What about the manufacturing component, is that more of the gaiting item or will that be completed around the same time as when the data will be available?

[Mike Clayman:]

We expect that there will be good consonance between manufacturing preparation and data generation to file the NDA. They should be very close to right on top of each other.

[Serge Belanger:]

And then just on the pipeline, I think you had mentioned previously, FX007 I guess you are planning proof-of-concept study sometime in the second half of '15. Is that still on track or still under evaluation?

[Mike Clayman:]

Yes, I would say the best characterization is under evaluation; two points there, one is clearly the vast majority of our resources are focused on FX007. And we're simply not in a position to brew force [ph] FX007. And we've elected to put some more time on formulation preclinical work for FX007. So it's very possible that we will see the proof-of-concept study pushed out to the beginning of next year.

[Serge Belanger:]

Thank you.

[Mike Clayman:]

Thanks very much.

[Operator:]

Thank you sir. And presenters at this time I'm not showing any additional phone questions on the line. I would like to turn the program back over to Mike Clayman for any additional or closing remarks.

[Mike Clayman:]

Thanks very much. I'd like to thank you all for your participation in today's call and certainly we look forward to providing further updates to you in the future as we continue to make progress with our product pipeline. Have a good day.

[Operator:]

Thank you presenters and thank you to all of our attendees for joining us today. This will conclude our broadcast. You may now disconnect and have a wonderful day.