Flexion Therapeutics, Inc.
Q3 2015 Earnings Call Transcript

Published: 10 Nov 2015

[Operator:]

Good afternoon ladies and gentlemen and welcome to the Flexion Therapeutics Third Quarter 2015 Financial Results Conference Call. My name is Shenon and I will be your coordinator for today. [Operator Instructions] We’ll be facilitating question-and-answer session towards the end of today’s conference. [Operator Instruction] I'll now turn the call over to the Company. Please proceed with your call.

[Fred Driscoll:]

Good afternoon. This is Fred Driscoll, Chief Financial Officer, and I thank you for joining us on today’s third 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 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 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. With that, I will now turn the call over to Flexion's CEO, Mike Clayman.

[Michael 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 third quarter financial results. Following Fred’s comments we’ll take your questions. Over the past quarter, we have made substantial progress on numerous fronts in the development of our lead drug FX006. As you know FX006 is a sustained-release, intra-articular, or IA, steroid, the specific steroid being triamcinolone acetonide also referred to as TCA for the treatment of osteoarthritis or OA of the knee. In August we were gratified to receive a noticeable allowance for the trademark Zilretta from the United States Patent and Trademark Office. I’ll cover four of the more significant advancements in the Zilretta program. First in July we completed enrollment in the Phase 3 clinical trial for Zilretta to remind you that trial is a double-blind, randomize study of 486 patients who were treated with a single injection of either 40 milligrams of Zilretta or 40 milligrams of immediate release TCA, or saline placebo. The primary outcome measure is the weekly mean of the average daily pain intensity score as assessed using an 11-point numeric rating scale with the primary endpoint at 12 weeks versus placebo and with patient follow-up for 24 weeks. The secondary objectives of this study are to assess the effect of Zilretta on the magnitude and duration of pain relief, relative to immediate release TCA and the effect of Zilretta on function responder status, global impressions of change, stiffness, and consumption of analgesic medications relative to both controls. We plan on reporting topline data from this Phase 3 trial in February of next year. The second major accomplishment occurred in August, when we entered in to a strategic manufacturing and supply agreement with Patheon, a leading global provider of high-quality drug development and delivery solutions. We believe this agreement will complement our existing manufacturing relationship with Evonik Corporation and create redundant supply for Zilretta. This will help ensure that we have appropriate supply capacity for the future commercialization of Zilretta. We are very pleased with the progress we’ve made in just a few short months with Patheon and are on track to start producing drug product in the first half of 2016. We also disclose shortly after the Patheon announcement, that we’ve secured a $30 million non-dilutive debt facility with Silicon Valley Bank and MidCap Financial. With the addition of Patheon as a second contract manufacturer, we intend to use this debt facility over the next several years, primarily to finance the capital expenditures and manufacturing scale-up associated with Zilretta. The third major accomplishment was the announcement that the FDA had granted Fast Track designation for Zilretta, which reflects the agency’s recognition that osteoarthritis is a serious disease, and that Zilretta could provide meaningful improvement over existing therapies. The FDAs Fast Track program was designed to facilitate the development in expedited review of new drugs that are intended to treat serious or life threatening conditions. And that demonstrates the potential to address unmet medical needs. Drugs with the fast track designation generally qualify for priority review. It’s supported by clinical data at the time of NDA filing, thereby expediting the FDA review process. Additionally fast track designation allows the company to submit completed sections of a related NDA on a rolling basis. The fourth key accomplishment was reporting of the top line data from the pivotal Phase 2b clinical trial of Zilretta. To remind you the Phase 2b trial enrolled 310 participants in a multi-center, randomized, double-blind study, in which the participants received an injection of either 40 milligrams or 20 milligrams of Zilretta, or a placebo, saline. The primary outcome measure was the weekly mean of the average daily pain intensity scores, assessed using an 11-point numerical rating scale. In this trial, 40 milligrams of Zilretta, compared to placebo salien, demonstrate a statistical significance in average pain relief over weeks, one through 12 with a p-value of 0.0012. and over weeks one through 24 with a p-value of 0.0209. At weekly time points, 40 milligrams of Zilretta also demonstrates superiority to placebo, in pain relief beginning at week one, continuing to week 11 and also at week 13, P less than 0.05 at each time point. The primary end point of the trial, superiority and pain relief at 12 weeks did not reach statistical significance with a p-value of 0.0821. A pre-specified, commonly applied, sensitivity analysis, Baseline Observation Carried Forward/Last Observation Carried Forward, also referred to as BOCF/LOCF that addresses patient dropouts, however, did demonstrate statistical significance for the primary endpoint at 12-weeks, the p-value of 0.042, in addition to weeks one to 11 and 13. For reference, we have now posted the BOCF/LOCF data curve on our website and this can be found at www.flexiontherapeutics.com under Programs and Pipeline/Scientific Presentations. In addition, we have posted the original data curves with error bars to help illustrate the clear separation of the Zilretta™ curve from the placebo curve. Since we released the top line results on September 8, as you can imagine we have performed numerous in-depth analyses on the data. I won’t go into detail on all of our observations, but what I can represent is that the various analysis continue to show that Zilretta provided quite substantial, clinically meaningful and durable pain relief in the trial. And has the potential to make a real difference for the many millions of patients with symptomatic knee OA. We are proceeding with confidence in the development of Zilretta and we’ll meet with the FDA at the appropriate time to review all of the data that would contribute to our registration submission. So in summary, we continue to execute against our development plan for Zilretta. We intend to meet with the FDA soon as possible after the February topline results readout from the Phase 3 trial to review the Zilretta data in aggregate and gain clarity on the path to submission. We will share the outcome of that meaning with you once we have received with the written minutes from the FDA. With that I’ll now turn the call over to Fred to recap our financial results for the first quarter.

[Fred Driscoll:]

Thanks Mike. The company reported a net loss of $11.1 million for the three-months ended September 30, 2015, compared to a net loss of $7 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 $7.8 million for the third quarter of 2015, as can pay at [ph] $4.7 million for the same period in 2014. The key drivers behind the increase in the R&D expenses were the Phase 2B and Phase 3 clinical trial programs and manufacturing development scale up costs. General, administrative expense were $3.2 million in the third quarter of 2015 as compared to $2.3 million for the same period in 2014, due primarily to increases in salary and related costs associated with increased headcount including stock-based compensation expense. As of September 30, 2015 the company had $132 million in cash, cash equivalents and marketable securities. From a liquidity and cash resource perspective, cash used in operations for the third quarter was in line with our expectations and based on our current plan will take us into 2017. As Mike, mentioned earlier we are pleased to have concluded with $30 million debt facility and we anticipate using the funds under this facility to help fund, the expenditures associated with the Patheon manufacturing expansion. Through September 30, we have drawdown $15 million and if we achieved the primary endpoint in the Phase 3 with NDA enabled data we can draw down the reminder. That concludes our prepared remarks and operator we’ll now open the call for questions.

[Operator:]

Thank you. [Operator Instruction] Our first question is from Randall Stanicky with RBC Capital Markets, you may begin.

[James Chen:]

Hi, it’s James Chen on for Randall. Thanks for posting the BOCF/LOCF curves and the aero bars from the original data curve, it was useful. Looking at it now, I am just curious on the statistical calculation of how the p-value exceeded 0.05 significance, it looks like at the even the extreme error rates on the original data curve that we pulled doesn’t look like they would have touched, so just curious on that.

[Michael Clayman:]

Yes, I will just James, I’ll try to answer that, as best I can. I’m not a statistician, but it’s generally a rough guided, non overlapping, as I understand it non-overlapping standard deviations support strongly the likelihood of statistical significance standard error bars tend to be a bit a tighter. So I am not sure that one can extrapolate the same expectations to that. Nevertheless, the fact that we don’t see any overlap is reinforcing for us in terms of the separation of two curves.

[James Chen:]

Yes, yes I think so. Okay and so the other question I had was at week-14 for the original 20 milligrams and 40 milligrams, data curves you had released, obviously there’s a noticeable decrease in the curve, which I believe was to reduce smile we had discussed in the results call. Just wondering if you believe the second pivotal that’s going on now will exhibit that same move, in that week, clearly a degrade to separation 4006 if it did. But just want to gauge how costly you felt it could be replicated and if that was due just the formulation change, since the Phase 2b against TCA IR or you had that weeks of separation? Thanks.

[Michael Clayman:]

Yes, so thanks James. The way we understand the persistence of pain relief in the Phase 2b study, as opposed to the fee that we saw in the first study in weeks 11 and 12 is what we think is a reflection of essentially no aggregation of the microspheres in this just reported study and likely some aggregation of microspheres in the study that was against TCA IR. Why do I say that and why that is important? Well in the first study we injected patients with microsphere suspended in 3 ml and what we subsequently learned was that we are right at the critical micelle concentration that would have ensured that the microspheres would have existed, as independent entities and not aggregates. So we’re right at the [indiscernible] 40 milligram dose. And what we elected to do, in this last study and what we are doing in the Phase 3 study is suspending the microspheres in 5ml, which is also a totally acceptable volume for injection. And nicely exceeding as a result to critical micelle quantities that are required to keep that number of microspheres as individual units. So who cares about aggregation, well it turns out that if you aggregate microspheres you predispose to accelerated dissolution, autocatalysis and premature release of drug. And so to the extent that that was happening at all in the first study, we believe that we include solve it in the second study and probably saw a more gradual release of the drug in this last study than in the first study. And that would be consistent with even more durable effect.

[James Chen:]

Okay, great thanks.

[Michael Clayman:]

Thank you.

[Operator:]

Thank you. Our next question comes from Jim Molloy with Laidlaw, you may begin.

[Jim Molloy:]

Hey, thanks for taking my question guys. I wonder if you could talk a little bit about the phase – the comparison versus the HA obviously a big topic people have taken a look at shipped to the Phase 3 bear out the data and should this get approve by the FDA. Can you talk a little bit about some of the separation from placebo sort of HA separation with placebo would their approval versus the magnitude of pain relief you are seeing here and how that might speak to again should it be approved potential pricing of Zilretta?

[Fred Driscoll:]

Yes, so just to provide a frame, and what I’ll reference is the Sinduscon registration trail against placebo that’s in the public domain. And what you see there is separation that’s equivalent of 0.3 units to 0.4 units on zero to ten scale. In general, the clinical literature would teach that separation of at least 0.5 units to 0.6 units is what stretch to be clinically meaningful, so it falls below that threshold and what we see in our trial is separation of between 0.5 unit and 1.2 unit for half of that first 12-week period was separating by more than a full unit. So I would say that we’re substantially in access of the HA of the pain relief deliver by HA. And I think the other corollary there Jim is around absolute magnitude of effect. For regulators and payors separation from placebo obviously is important because it speaks to the, the validity of the analgesic effect. But for the individual patient what’s important is not separation from placebo but absolute magnitude of pain relief. And they are in, were is the HAs are generally providing in the range of 35% or so percent of pain reduction we’re depending on the study between 50% and 70%. So we believe that on both axis if you will separation from placebo and absolute magnitude of pain relief I don’t think it’s too strong we were to use were dramatically better than what's been demonstrated with HAs.

[Jim Molloy:]

Then on the Slide 4 that you just put out thank you for the additional data. How does that in form or do you think that will help in form the conservation with the FDA, should the Phase 3 again readout positive?

[Fred Driscoll:]

Yes, what we think, we thought all along that the FDA will look at all elements of the data from this most recently reported out study and obviously also in the Phase 3. So these curves would have definitely been scrutinized by the agency the AUCs this average pain relief for the first 12 and 24 weeks would definitely been noted by the agency. What we can say was certainty is exactly how the agency will integrate all of the information and come to a conclusion about the first out trial being pivotal, this most recent trial being pivotal. And again we believe that the curves that we’ve shown and put up on the web site, how should I say this, I think, its supports a reasonable expectation that with strong Phase 3 data the agency was see this most recently reported data as pivotal. But I think that as everyone appreciates anyone who claims to be able to predict exactly how the FDA will respond to a dataset is probably someone who doesn’t interact attract with the agency that much.

[Jim Molloy:]

Okay. Thanks for taking my questions.

[Fred Driscoll:]

Thanks, Jim.

[Operator:]

Thank you. [Operator Instruction] Our next question comes from Serge Belanger with Needham. You may begin.

[Serge Belanger:]

Hi, good afternoon.

[Michael Clayman:]

Hi Serge.

[Serge Belanger:]

Thank you for putting up the new data curves on your website. And I guess, just to help us interpret these all of some with a new POCS analysis, are we just staying with the, I guess, the impact was on patient dropouts and I guess what else could you – what do say about these curves now?

[Michael Clayman:]

Well, I think that we've described those curves verbally before and I think what all this going graphical credence to what we’ve stayed at when we announced the data. I think what the curve shows is – and actually states the BOCF/LOCF curve states is that we achieved statistical significant set every time point through 13 weeks. And we just thought it was important enough to have the external community be aware of that. I think it simply strengthens our position to have data like that. And I think that curve with the standard arrow bars similarly strengthens our position. And our belief, its our belief that FX006 is a real drug and consistently as demonstrated meaningful and durable pain relief. And ultimately it will be for the agency to the side what that is and as we say in this doctors [ph] now, we will go to the agency as soon as possible after we get the Phase 3 data to review all the data in aggregate as sense from them about the path to submission.

[Serge Belanger:]

Got it. And then I guess a question on the current plans to expand manufacturing capacity.

[Michael Clayman:]

Yes.

[Serge Belanger:]

It seems like I guess you have done some significant work there but the key trigger will be the positive Phase 3 data in February.

[Michael Clayman:]

Yes.

[Serge Belanger:]

I guess what has been done at this point and I guess should we also expect the same trigger for branching off in establishing, commercialization work at that point.

[Michael Clayman:]

Yes, I think that here is just a perspective for research. We’re working intensely at both Evonik and Patheon to prepare for the launch of this product. From our perspective we can’t imagine scenario who take our foot off the gas paddle in that regard. If there – for whatever reasons, if this the path of submission is in any fashion delayed beyond what we’ve currently guided to which is a second half of 2016 and what we continue to believe to be credible, that would not stop us from building inventory. This is a product that we believe has the potential to be used in literally millions of patients. And we want to be sure that we have adequate supply to be able to that. Obviously we will be reasonable, we’ll employee production schedules that will allow us to build what we think is necessary, inventory without being excessive, but we think its great to have two capable manufacturers actually making commercial products. So that ramping up becomes something that we can do with confidence.

[Serge Belanger:]

Okay, thanks for the update.

[Michael Clayman:]

Thank you.

[Operator:]

Thank you. Our next question is from Mark Landy with Northland Capital Securities, you may begin.

[Mark Landy:]

Hi good evening, folks. Thanks for taking my questions.

[Michael Clayman:]

Hey, Mark.

[Mark Landy:]

Hey, guys. Mike just I guess that Slide 4 on the BCS LOCS [ph], is there any another data that you can share out with respect to patients that dropped out for adverse events all those that when lost to follow-up and does that really matter at the end?

[Michael Clayman:]

Well, I think what one thing that matters at the end of course it will be adverse event profiles for our products versus placebo very close. And while the numbers are small, rallies when we say, if we refresh your memorandum as I’m sure you remember this, but 8% dropout through 12 weeks in the placebo arm, 3% drop out through 12 weeks in the FX006 40 milligram arm. There were small numbers but three times as many patients in the placebo arm and dropped out for reasons of lack of efficacy. And we think that is an important driver in the differential and the fact that in the BOCF/ROCF curves, you see almost no change in the FX006 curve. And no change whatsoever, 12 weeks, but you do see the placebo curve provides slightly less pain relief and we think that is reflection of their differential drop out rate.

[Mark Landy:]

Yes, I mean that’s – looking at the 12-week, as we’ve gone back before that kind of was anomaly at mean time.

[Michael Clayman:]

Yes.

[Mark Landy:]

But so, I guess in the end doesn’t really make a difference. Then just turning off to some of the focus on commercialization, is it too early to show that some of the folks on the plan for commercialization and should we anticipating some hiring soon of the Federal leave that the commercial charge. Now when should we be looking for the highest to be made?

[Michael Clayman:]

Yes, so we are – let’s just kind of play out a scenario, we assume that in the second half of next year, we get approved some time in 2017. I mean just with wide confidence integrals. You can expect that we will be ramping up the commercial organization, substantially in 2016 and even more aggressively in early 2017 and it will also be launched. We have already hired, I think, as you know, as our VP of Commercial Dan Dierdorf, previously the person who ran the marketing organization for the [indiscernible] franchise and was involved in growing that franchise from about $100 million a year to $500 million a year. And was the person who led the launch of [indiscernible] was previously a multi injection product and with regulatory approval, became a single injection product and that was a big driver their wealth. So we are not exactly asleep at the wheel here, we hired Dan he’s brought in, a couple of key people that he worked with closely from the [indiscernible] franchise and will continue to build on that going forward. So I would simply say, Mark its good question. Stay tuned and as we have more information, we’ll share.

[Mark Landy:]

Okay. It does maybe a little bit kind of putting the cost before the whole spreads out, I’ll just put it out there. In terms of the commercialization strategy is that there to assume there is going to be an even focus between the RAs and the surgical physicians or are you going to talk to one of others to start with.

[Michael Clayman:]

Between the RAs and the what?

[Mark Landy:]

And the surgical community obviously the [indiscernible].

[Michael Clayman:]

It’s a very good question. And what we've learned more out here is that the vast majority of injections in excess of 70% are done by orthopedic surgeons. We that – which means our focus will be predominantly orthopedic surgeons but clearly high injecting, high volume injectors in the rheumatology space will also receive attention. But it’s clear that this market is dominated in terms of numbers of injections by orthopedics.

[Mark Landy:]

My guess on the HA side, but on the steroid side, I'm not mistaken to state that most of the injections are on the rheumatology side.

[Michael Clayman:]

You are mistaken.

[Mark Landy:]

Okay. Thanks for that.

[Michael Clayman:]

I'm just saying that we – I’ll tell you that more about just – I don’t mean to be abrupt but that was absolutely our buyers going in. We knew that the rheumatology community was more negative on HA on average than the orthopedic community but when you actually look at intra-articular injections across the board, it’s still the orthopedics including steroids, it’s still the orthopedics who dominate.

[Mark Landy:]

My – the data point, that I’ve always carried was the one that [indiscernible] you obviously got the better data than I have. So it’s good to know. Thanks for that update. Because there always the belief that the RAs is most of the steroids and the surgical folks where the guys are dominating HA. That’s a [indiscernible] I am certain I’ll dig into that with you later. So thanks so much.

[Michael Clayman:]

Yes. And the thing is that we are happy more to have an offline discussion with you. Because we've done a lot of research in this area as you might imagine, it’s quite to remain to the commercialization efforts. And we can get Daniel Roff to talk with you and kind of walk you through some of the data.

[Mark Landy:]

That will be interesting. Thanks guys. I appreciate it.

[Michael Clayman:]

Sure.

[Operator:]

Thank you. [Operator Instruction] Those have shown no further question at this time. I’d like to turn the call back over to Dr. Clayman for closing remarks.

[Michael Clayman:]

Yes, I just like to thank everyone for their participation in today’s call. And we look forward to providing further updates to you in the future. As we continue to make progress with our product pipeline. Have a nice day.

[Operator:]

Ladies and gentlemen, this concludes today’s conference. Thanks for your participation. Have a wonderful day.