La Jolla Pharmaceutical Company
Q2 2018 Earnings Call Transcript

Published: 9 Aug 2018

[Operator:]

Welcome to the La Jolla Pharmaceutical Company Second Quarter 2018 Financial Results Call. [Operator Instructions]. As a reminder, today's conference is being recorded. On today's call, La Jolla will be making forward-looking statements. These statements relate to expectations regarding future events or future results of operations and are subject to risks and uncertainties that may cause actual results to differ materially from those anticipated. La Jolla cautions listeners not to place undue reliance on any forward-looking statements which speak only as of today's date. These risks include, but are not limited to, risks relating to La Jolla's ability to successfully commercialize, market and achieve market acceptance of GIAPREZA including its potential market sizes for septic or other distributive shock; the expected impact of the NTAP designation for GIAPREZA; the successful and timely completion of developmental and clinical activities for LJPC-401 and other product candidates including post approval studies for GIAPREZA; the timing and outcome of the European Medicines Agency's decision with respect to the marketing authorization application for GIAPREZA; the expected duration over which cash balances will fund operations; and other risks and uncertainties identified in their filings with the SEC. La Jolla disclaims any intent to update any forward-looking statements to reflect outcomes of subsequent events. The detailed forward-looking statements can be found in La Jolla's filings with the SEC which are available on the company's website at www.ljpc.com. I will now turn the call over to Sandra Vedrick, Director of Investor Relations and Human Resources at La Jolla. Please go ahead.

[Sandra Vedrick:]

Thank you, Operator. And thank you for joining our second quarter conference call. I would like to introduce the members of La Jolla management team that are present on the call today. Mr. George Tidmarsh, our President and Chief Executive Officer, Dennis Mulroy, our Chief Financial Officer, and Jennifer Carver, our Chief Operating Officer. Now I will turn the call over to George.

[George Tidmarsh:]

Thanks, Sandra. Good afternoon, everyone, and thank you for joining us. This has been a productive quarter and year for La Jolla. We are pleased to walk you through our progress. At the end of March, 2018, we announced the US commercial launch of GIAPREZA which is a synthetic version of a naturally occurring peptide, angiotensin II, that acts as a vasoconstrictor and increases blood pressure. Low blood pressure causes insufficient blood flow to the body's organs and is associated with shock which carries a mortality rate exceeding essentially any other medical condition. GIAPREZA was approved by the FDA in December, 2017, well in advance of the February 28, 2018 priority review PDUFA data, and included a broad label for adults with septic or other distributive shock. Additionally, we have recently heard from the FDA that they believe that it is no longer necessary to generate additional clinical data to inform clinicians regarding the use of GIAPREZA in pediatric patients. Therefore, we will be winding down our US pediatric study and we are in the process of preparing a publication on the pediatric patients treated to date. As you may recall from the press coverage, the first patient that entered into this clinical study was a boy named Lucas who was admitted into a pediatric intensive care unit following a virus that caused shock leading to organ failure. Unresponsive to treatments and near death, his doctor put him on GIAPREZA and Lucas successfully recovered. We estimate that over 800,000 patients suffer distributive shock in the US each year, the majority of whom suffer septic shock. Approximately 300,000 of these patients fail to respond to the current standard of care, resulting in an estimated 250,000 deaths each year in the US alone. Prior to the recent approval of GIAPREZA, there were no new treatment innovations for these patients in the past 50 years. Our commercial strategy is to initially target formulary approval for the 1,200 or so hospitals that treat about 80% of the patients in need. With just a little over one quarter into launch, we already have obtained formulary approval for more than 200 hospitals, including some large and highly regarded institutions that are normally slower to adopt. This represents a significant increase from the 29 formulary approvals by the end of the first quarter. Our progress in securing formulary approvals to date is well ahead of our internal forecast estimates. We expect the first 12 months of launch to be a period of groundwork as it takes time to go through the standard multitiered process for hospital-based therapies. After formulary review, there is still a set of internal processes required before a physician can prescribe a drug. This is more pronounced with the implementation of hospital electronic health record and prescribing systems which require a drug specific entry to be created, approved and programmed into the information technology networks before a drug is included in the hospital's standard order set. This process can take 3 to six months, depending upon the institution. In the months since launch, we have received encouraging feedback from physicians and critical care experts already using GIAPREZA. Their positive clinical experiences with GIAPREZA are especially gratifying and we should all fee grateful and humble for the hard work of these caregivers. Additionally, given the recent determination by CMS that GIAPREZA represents a substantial clinical improvement over existing therapies for these patients, we are confident that these patients have better care now than before the availability of GIAPREZA. That determination by CMS was that GIAPREZA represents a clinical advancement and led the center to grant new technology add-on payment or NTAP status. The NTAP program provides reimbursement to hospitals in addition to the standard Medicare DRG reimbursement. NTAP designation is only for specific products that meet a strict set of criteria for the treatment of Medicare patients. These criteria include one, a new and unique mechanism of action. Two, certain cost thresholds. And three, a demonstrated significant clinical improvement over existing therapies. To gain NTAP status, a new therapy has to meet all three of these strict criteria. The NTAP for GIAPREZA is effective for the CMS 2019 fiscal year which begins on October 1, 2018, and is expected to continue for a period of up to 2 to 3 years. In addition to our launch progress, we recently published important data that further support the differentiated profile of GIAPREZA and its potential to help patients in need. First, in February of this year at the Society of Critical Care Medicine's Annual Congress, our investigators presented a prespecified analysis from the ATHOS-3 study showing GIAPREZA significantly improved survival of patients with a high severity of illness index defined as an APACHE II score greater than 30. There was a lower 28-day mortality in the GIAPREZA group compared to the current standard of care group. 70.8% of those patients receiving the standard of care died by day 28 compared to 51.8% of GIAPREZA patients. Second, in March we published data from an analysis of patients enrolled in the ATHOS-3 study who had acute kidney injury at baseline. These analyses were presented at the International Conference on Advances in Critical Care Nephrology and published contemporaneously in the Journal of Critical Care Medicine. GIAPREZA demonstrated a statistically significant improvement in survival through day 28 in this subpopulation compared to continued current standard of care. 53% of patients on GIAPREZA survived through day 28 compared to 30% in a continued standard of care group, a P value of 0.012. Additionally, 38% of patients on GIAPREZA discontinued renal replacement therapy or dialysis by day 7 versus only 15% on current standard of care. This represented not only a clinical benefit, but also a potential cost savings to hospitals. The difference was statistically significant with a P value of 0.007. So overall, we believe we have established meaningful momentum in this beginning stage of launch with higher than anticipated formulary approvals, positive early feedback from physicians, and recognition by CMS of GIAPREZA's potential to advance the standard of care. Beyond the US launch, we announced in June 2018 the marketing authorization application for GIAPREZA was validated by the European Medicines Agency. Validation of the MAA confirms that the submission is complete and starts the MAA central review process. We submitted the GIAPREZA MAA for the treatment of hypotension in adults with distributive or other vasodilatory shock who remain hypotensive despite fluid and vasopressor therapy. The MAA is based on data from the ATHOS-3 study which established the safety and efficacy of GIAPREZA in the proposed indication. If approved, GIAPREZA could be available for marketing in the European Union in the second half of 2019. I will now turn the call over to Dennis who will review our financial results before I conclude the call with a discussion on our ongoing clinical investigational product, LJPC-401. Dennis?

[Dennis Mulroy:]

Thank you, George. For the 3 and six months ended June 30, 2018, we recognized GIAPREZA net product sales of $1.6 million and $2.4 million respectively. We launched GIAPREZA in March of 2018. Our net loss for the 3 and six months ended June 30 2018 was $52.8 million and $103.3 million or $2.02 per share and $4.22 per share respectively compared to $26.7 million and $50 million or $1.21 per share and $2.46 per share respectively for the same period in 2017. As of June 30, 2018, we had $241.4 million in cash and cash equivalents compared to $90.9 million as of December 31, 2017. Cash used for operating activities for the six months ended June 30, 2018 was $83.4 million compared to $41.2 million for the same period in 2017. I will now turn the call back over to George.

[George Tidmarsh:]

Thank you, Dennis. Before opening up the call for questions, I'd like to briefly review our development program for our second product candidate, LJPC-401, a synthetic human hepcidin. Hepcidin is the master regulator of iron absorption and distribution and helps to prevent an excess of iron accumulation in organs during disease states such as thalassemia, beta thalassemia and hereditary hemochromatosis. Our first ongoing Phase 2 trial is a randomized Phase 2 study in 100 patients with beta thalassemia. Beta thalassemia is characterized by the underproduction of hemoglobin due to a genetic mutation. Patients with this disease have intrinsically low hepcidin levels and are also dependent on blood transfusions to supplement their hemoglobin. However, these frequent transfusions result in excess accumulation or iron which can be fatal. The EMA has designated LJPC-401 as an orphan drug for the treatment of beta thalassemia and this ongoing Phase 2 study was designed conjunction with EMA as a registration enabling study. The second ongoing study of LJPC-401 is a randomized Phase 2 trial in approximately 60 patients with hereditary hemochromatosis, a genetic deficiency in the production of hepcidin that leads to excessive iron accumulation. The current standard of care for these patients, a phlebotomy procedure, is cumbersome, unpleasant and involves removal of about a pint of blood on a regular basis, sometimes as frequently as once or twice a week. At the European Hematology Association meeting in Stockholm this June, investigators reported data from our Phase 1 studies. The investigators concluded that LJPC-401 was well tolerated at doses between 1 and 30 mg, the highest dose studied, and demonstrated a significant dose dependent decrease in serum iron levels which was sustained in most patients for up to eight days. In conclusion, we are excited about the recent US launch of GIAPREZA. Given the robust response rates of GIAPREZA, the rapid speed at which patients can reach their target blood pressure with GIAPREZA, as well as the well-tolerated safety profile, we believe GIAPREZA has the potential to be a leading therapy in the treatment of patients with septic or other distributive shock. This is supported by CMS' NTAP decision which was based on their conclusion that GIAPREZA represents an advancement in medical technology that substantially improves treatment options for these patients. Additionally, we believe our development program, including LJPC-401, hold promise to help fulfill our goal of bringing important new therapies to patients in need. We will now open up the call to questions, but as a reminder, we are not going to be able to provide much detail of our commercial progress beyond what we have shared on this call. And we appreciate your patience during this early launch period. Operator?

[Operator:]

[Operator Instructions]. Our first question comes from the line of Yatin Suneja of SunTrust Bank. Your line is now open.

[Yatin Suneja:]

Hey, guys, thanks for taking my questions. Just a couple of questions. George, you mentioned 200 hospitals have approved it. Can you maybe give a little bit more color on of these 200 hospitals, how many are actually using the drug? Help us understand the steps between approval and adoption. What are those barriers? What sort of sell through you are seeing currently? And then I have maybe a few more follow-ups.

[George Tidmarsh:]

Sure. So it's over 200 hospitals. It literally is more hospitals by the day. I don't have the exact number, but it's well over 200. And there is a process that each of these hospitals has to go through to ensure that the drug can be ordered through the electronic systems in each of the hospitals. So there is electronic medical records as well as pharmacy systems. So once there is formulary approval, that doesn't mean immediately a hospital can go ahead and order the drug. What they need to do is they need to build out the protocol for the ordering and that needs to be programmed into the system and tested and so forth with a group of experts. So there is a substantial amount of work that has to be done after the formulary approval and that period of time differs from hospital to hospital as does the process. Some hospitals are relatively fast and adept at implementing that, some are more bureaucratic and take a little bit longer time. So it's highly variable. But it is essential that that that electronic order step be built because it is part of the drug safety of all hospitals that the appropriate patients get treated with the appropriate medications.

[Yatin Suneja:]

Got it. Are there any hospital pharmacies that have rejected GIAPREZA? And if so, on what grounds? And maybe can you talk about the approval versus rejection rate so far?

[George Tidmarsh:]

I can't give you the exact number there, but I will tell you by far and away, the approvals exceed any of the hospitals that have come back and asked for more information. So it's not typical for there to be an outright rejection. It is more typical that a hospital formulary will ask for additional information or will want to wait. But that's by far and away less frequent than a straight-out approval.

[Yatin Suneja:]

Got it. Then could you also maybe help us understand the impact of NTAP that you recently got? I mean we looked at the CMS document, I think it shows about 5,700 patients. Therefore, the impact on CMS should be about $9 million from next year. Just trying to understand, is that the right way to look at it? What are these - how did you come up with these, you or CMS come up with this estimate of 5,700 patients?

[George Tidmarsh:]

So that is CMS' estimate, not ours. We do provide information to CMS such as the number of vials that were used per patient in the ATHOS-3 study which was 2 vials. Obviously, the cost of the vial, as well a very large amount of epidemiologic data that CMS uses to come up with an estimate. And they do that to try to make an estimated budgetary impact. However, it is not a cap. There is not a limit, so that does not represent anything other than their own internal, well now external, budgetary estimate.

[Yatin Suneja:]

That's helpful. Just final question and I'll get back in the queue. Can you maybe help us on the expense side, how should we model the expenses going forward? Is Q2 a good proxy or should we ramp the either SG&A or R&D expenses? Thank you.

[Dennis Mulroy:]

Our expenses, operating expenses, we anticipate them to be consistent with the first and second quarter. Those are pretty consistent quarter-over-quarter and we expect to hold that rate through the rest of the year.

[Operator:]

Thank you. Our next question comes from the line of Gbolahan Amusa of Chardan. Your line is now open.

[Gbolahan Amusa:]

Hi, thanks for taking my call. Just another question on the new technology payment process for GIAPREZA. Per your press release it was shared with everyone, and other places, you get 50% of the amount by which the covered cost exceeds the DRG or 50% of the cost of the drug, whichever is less. So for us to understand whether that's going to be closer to 50% or closer to zero, we need a sense of where the system is on the relevant DRG reimbursement. Is there anything you can provide that can help on that assessment? Or alternatively, are there any case studies you can provide us where NTAP has been a material support for other launch products? So basically, is it important or is it kind of an aside, is what I'm getting at.

[George Tidmarsh:]

We've looked at the possibilities here and we believe that the vast majority of cases it will be the full $1,500. So that most of the time the cost will exceed the DRG and so they will get the add-on payment. That's our expectation. So most hospitals, if they properly code it, will get the $1,500. And with regard to coding, one important gain that CMS granted us is actually two separate codes for reimbursement. We got a separate code for administration through a central line and a separate code for administration through a peripheral IV. And why that is important is that the current standard of care, both the catecholamines and vasopressors can now be given safely through a peripheral IV. And there are many times that if it's an emergency, you get it through peripheral IV because you don't yet have central access. So the fact that CMS gave us administration through both a central line and a separate code for administration through peripheral IV, I think is very important for doctors and nurses to help patients. With regard to case studies, I can't tell you that I can cite a specific example, it's not something that we spend an inordinate amount of time doing. We do think from the feedback we've gotten from institutions that NTAP will be extremely helpful. So for example, if you look at what is arguably a relatively expensive drug, Vasostrict, that is not reimbursed by NTAP. So you can see that basically, if you look at the cost analyses that we've done versus Vasostrict, GIAPREZA in almost every instance on a response rate gain is actually cheaper than Vasostrict. And we're teaching the hospitals about that analysis. So I think our situation is unique compared to any of the other previous NTAP designations because of the second line therapy of Vasostrict. So we believe that the NTAP will have a disproportionally positive impact on GIAPREZA compared to any other previous NTAP designation.

[Gbolahan Amusa:]

Just as a quick follow on, do you anticipate that NTAP coming online will affect your sort of formulary inclusion negotiations? for example, might it make sense to wait to negotiate with certain hospitals or can you negotiate now with them knowing that it's going to come online? How does it interact with that whole negotiation process? If at all?

[George Tidmarsh:]

We think absolutely it will help the formulary process. And we are notifying every institution that is upcoming for any kind of formulary deliberation. And those that requested additional information on costs or the financial impact, of course we're going back to them with the analysis including the NTAP. So I think it's absolutely we are being proactive about this at the formulary level. I think it will only accelerate our already big success on the formulary. And it also will I think accelerate the larger networks to implement ordering faster just because of the net financial gain that they will have. Especially again, in comparison to the cost per response rate versus Vasostrict.

[Operator:]

Our next question comes from the line of Philip Nadeau of Cowen and Company. Your line is now open.

[Philip Nadeau:]

Good afternoon. Thanks for taking my questions. A couple of others on the launch logistics. You talked about more than 200 hospitals now having formulary acceptance. What is your targeted number of hospitals? What are the large accounts that you hope to establish?

[George Tidmarsh:]

Well there's a couple of different ways to look at it. Eventually we'd like every hospital with an ICU that treats shock patients to have some level of approval. Whether it's formulary or it's using the drug. Now what I can tell you for certain is that not every hospital will tell us that, whether or not they have formulary approval. So not every hospital allows that kind of communication. So the number actually could be higher than that. We don't know. But we're targeting all hospitals, eventually targeting all hospitals with an ICU. Initially the 1,200 to cover 80%. We probably are also going to modify that a little bit to include additional hospitals that seem to be earlier adopters. So that's in terms of the targeting and what we eventually would like. What was the second half of your question?

[Philip Nadeau:]

That pretty much answered the question. The second question is on additional protocols or clinical protocols outside of the logistical procedures that you talked about. So you talked about logistical procedures in coding and putting into electronic systems. How many hospitals - or do you have a flavor for what proportion of hospitals would require changes to ICU protocols, changes to actual clinical treatment protocols before a drug like GIAPREZA could be adopted?

[George Tidmarsh:]

I would say most actually require also a clinical protocol. I actually can't think of one that we've interacted with doesn't require also a clinical protocol. So what we do is we have a clinical protocol that has been adopted at a major academic institution and that institution has allowed us to share that with other institutions. So as it goes to formulary and once approved, we share the clinical protocol that's been developed. Partly we want - it's great if we can get it more standardized across the country, but also it helps them facilitate. Now not every institution is going to want to use some other institution's clinical protocol, but we make it available to them. But essentially every institution will have also a clinical protocol that needs to be developed after the formulary approval or in conjunction with the formulary approval.

[Philip Nadeau:]

Do you have a sense for how long that process can take? Is that something that will be largely coincident with the logistical procedures being put in place? Or is there a longer or shorter process for getting the clinical protocols ready?

[George Tidmarsh:]

It's part of the entire process and included in our estimate of 3 to six months from formulary approval, so the full implementation. I think we have time for one more question. Thank you.

[Operator:]

Our next question comes from the line of Kyung Yang from Jeffries. Your line is now open.

[Kyung Yang:]

Thank you for taking my questions. So in second quarter, sales were $1.6 million. Can you comment on what the end user demand was in the second quarter?

[George Tidmarsh:]

We report the sales to the distributor with the reserves and that's all the information that we give.

[Kyung Yang:]

Okay. Then can you comment on what the growth and the discount was in the second quarter?

[Dennis Mulroy:]

We distribute through specialty distributors, so we have the standard gross/net discount based on distribution through specialty distributors. And we take into account the standard, industry standard allowances for that particular distribution network as well.

[Kyung Yang:]

What's the kind of standard discount? Is that about 10%? We heard the various numbers from different companies.

[Dennis Mulroy:]

It's not that large for the system that we have in place presently. It may grow larger if we change our distribution network, but right now it's under 10%.

[Kyung Yang:]

Okay. I know it is kind of early to maybe comment on this, so when you have over 200 hospitals approved formulary and then obviously it takes time for clinical protocols to be set in, but based on usage, have you seen whether you see the GIAPREZA is more concentrated in certain centers and certain clinicians?

[George Tidmarsh:]

Like with any drug, there are early adopters and those that wait. So we have a growing body of very enthusiastic users. And as I think we've talked about before, the usage of GIAPREZA is extremely experiential. The onset of action of the drug is unlike any other vasopressor. Certainly, it's much faster than Vasostrict. And literally you can see the blood pressure go up in front of your eyes as you start the infusion. So what we found, we found this in the enrollment of the clinical trial, that as a physician/nurse has experience and witnesses that, they are changed and they become a huge advocate. So it's a matter of getting that first use. And we've found over and over again as soon as there's that first use, it takes off in terms of that particular center. And then just globally there are early adopters as there are with any new technology and there are those that want to wait and see. And in fact, some institutions will have a mandatory 6-month period that they have to wait after a drug is on the market before they'll include it on their formulary. They just, it's mandated, they have to wait six months. On the other hand, there are some out of the gate, boom. And I can't tell you there's a specific sort of profile of the early adopters versus the late. We have major academic institutions, the first vial used was a major academic institution that had an experience that was phenomenal and they put it on formulary within two weeks. On the other hand, we do have also major academic institutions that have said we're going to wait until the first six months after launch. So it's quite variable, but we have made exceptionally good progress.

[Kyung Yang:]

Okay, my last question. So based on your experience to date, just since the launch, I know that you mentioned that for the first 12 months that you'd require a lot of groundwork. But when you look at next year, look forward to next year, current street expectation is over $100 million in sales, so I want to ask you how you feel about that. Thank you.

[George Tidmarsh:]

We're not in a position to comment on any future forecast. So thank you all very much for participating. Thank you for the questions. And with that, we'll sign off.

[Operator:]

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