Strongbridge Biopharma plc
Q3 2018 Earnings Call Transcript

Published: 3 Nov 2018

[Operator:]

Good day, ladies and gentlemen, and welcome to the Strongbridge Biopharma plc Corporate Update and Q3 2018 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to introduce your host for today's conference, Ms. Lindsay Rocco of Elixir Health Public Relations. You may begin.

[Lindsay Rocco:]

Thank you, and good morning, everyone. We are pleased that you could join us to discuss today's announcements, including Strongbridge's agreement with Novo Nordisk, under which Novo Nordisk will acquire the U.S. and Canadian rights to MACRILEN and Strongbridge's third quarter 2018 financial results and corporate highlights. Joining me from Strongbridge this morning are Matthew Pauls, President and Chief Executive Officer; Dr. Fred Cohen, Chief Medical Officer; and Brian Davis, Chief Financial Officer. Before we begin, I would like to remind you that during this call, the Company will be making forward-looking statements that are subject to risks and uncertainties that may cause actual results to differ from the results discussed in the forward-looking statements. Reference to these risks and uncertainties are made in today's press releases and disclosed in detail in the Company's periodic and current event filings with the U.S. Securities and Exchange Commission. In addition, this presentation includes non-GAAP financial measures. This presentation is not intended to be a substitute for financial results presented in conformity with generally accepted accounting principles in the U.S. Investors and potential investors are encouraged to review the reconciliation of the pro forma financial measures included in the Company's earnings release. The most directly comparable GAAP information and a reconciliation between the non-GAAP and GAAP figures are included in the Company's third quarter 2018 earnings release, which has been furnished on Form 8-K. I will now turn the call over to Matthew Paul.

[Matthew Pauls:]

Thank you, Lindsay. Good morning, everyone, and thanks for joining us on this exciting day for Strongbridge Biopharma and the rare endocrine community. Earlier this morning, Strongbridge announced that the Company has entered into an agreement with Novo Nordisk to sell the U.S. and Canadian rights to MACRILEN for an upfront payment of USD 145 million plus tiered royalties on net sales. This transaction is advantageous for several reasons to Strongbridge's continued growth and evolution as a company dedicated to rare diseases. First, Strongbridge will receive an upfront payment of USD 145 million from Novo Nordisk for the U.S. and Canadian rights to MACRILEN, which will significantly strengthen our balance sheet after the transaction closes, which is expected in December. Additionally, Strongbridge will also receive tiered royalties on the sales of MACRILEN through 2027. Beginning January 1, 2019, and through December 31, 2021, Strongbridge will receive low double-digit royalties on net sales of MACRILEN. Then, from January 1, 2022, through December 31, 2027, Strongbridge will receive mid- to high single digit royalties on annual net sales of MACRILEN. In addition, Novo Nordisk will deploy Strongbridge's MACRILEN field force and fully reimburse Strongbridge for our 23-person team for the 3 years of the agreement. This will provide approximately USD 20 million to USD 25 million of funding to Strongbridge over 3 years, and allow us to maximize the potential of MACRILEN, while also continuing to prepare for the potential regulatory approval of RECORLEV in endogenous Cushing's syndrome, which is a rare condition that is often treated by the same endocrinologist who diagnose and treat adult growth hormone deficiency, or AGHD. Novo Nordisk will also purchase approximately 5.2 million ordinary shares of Strongbridge, which is equal to 9.9% of the Company at a purchase price of $7 per share. This represents a 73% premium to yesterday's closing share price and will result in gross proceeds of USD 36.7 million. Before I turn the call over to Dr. Fred Cohen, our Chief Medical Officer, to discuss our clinical development progress for RECORLEV, I would like to discuss our efforts on the commercial front with KEVEYIS in the primary periodic paralysis market. We have made strong inroads in organizing and structuring the treatment paradigms for this complex disease state. We are continuing to focus on retaining more patients and increasing awareness and diagnosis of primary periodic paralysis. We achieved KEVEYIS net product sales of USD 4.2 million in the third quarter of 2018, a 66% increase compared to USD 2.5 million in the third quarter of 2017. Due to slower than anticipated patient growth, we have adjusted our full year 2018 KEVEYIS guidance downward to USD 16 million to USD 17 million. With that, I will turn the call over to Fred to discuss the SONICS efficacy and safety results that were recently presented and our clinical development plans for RECORLEV moving forward. Then, Brian will review our third quarter 2018 financial results. Fred?

[Dr. Fred Cohen:]

Thank you, Matt. Good morning, everyone. As Matt stated, we continued to be encouraged by the positive results generated for RECORLEV in the pivotal Phase III SONICS study. On October 20, Dr. Maria Fleseriu, Professor of Medicine and Neurological Surgery and Director of the Oregon Health Sciences University Northwest Pituitary Center, presented detailed results in SONICS during the 18th Annual Congress of the European Neuroendocrine Association Meeting held in Wroclaw, Poland. As previously announced in August, the SONICS study met its primary endpoints, with urinary free cortisol, or UFC, a surrogate endpoint that predicts clinical outcomes confirmed to normal among 30% of the intent to treat population, without a proceeding dose increase following 6 months of maintenance therapy. Additional new analyses of UFC demonstrated that RECORLEV treatment was associated with robust reductions from baseline in urinary cortisol that were independent of the baseline UFC. At month 6, median UFC reduction exceeded 80% in the total of participants with the highest mean UFC at baseline, which averaged 5x the upper limit of normal. Dr. Fleseriu also presented results of sensitivity analysis of the primary endpoint, indicating that the primary analysis was, as previously noted, a conservative estimate of UFC normalization. Indeed, the end of maintenance UFC normalization rate was 42%, when counting as normalizers, those who completed at least 3 months of maintenance treatment with RECORLEV. Dr. Fleseriu also described clinically meaningful reductions from baseline at the end of maintenance treatment in several key predefined secondary endpoints in SONICS, notably LDL and Total cholesterol, glycemia and weight loss, that accompanied the marked improvement in urinary free cortisol. These benefits on cardiovascular risk markers are important to clinicians, health care providers and payers alike, as they represent a potential for RECORLEV to affect Cushing's syndrome cardiovascular comorbidities that are associated with excess mortality, substantial morbidity and high cost of care. Finally, Dr. Fleseriu's presentation described details of safety and tolerability data, demonstrating that RECORLEV is well tolerated by most participants and has an acceptable risk profile when used for the monitoring schemes of SONICS, with keep drug-related risks being reversible mild liver injury, asymptomatic QT interval prolongation and adrenal insufficiency. Results from further SONICS analysis are playing for the International Congress of Endocrinology in December 2018 and for publication and a Peer Review Journal in the first half of 2019. Given the strong results from SONICS, we believe it is in best, in the best interest of the RECORLEV clinical development program to expand enrollment in the Phase III LOGICS study to increase its statistical power and bolster the body of evidence for RECORLEV to further increase its utility as a confirmatory study. Therefore, we plan to amend the clinical trial protocol to increase the randomized patient target from 35 to 54 patients, ahead of our anticipated FDA Type C meeting, at which we will discuss the path forward for the NDA filing. Top line results from the LOGICS study are now expected in the fourth quarter of 2019. I will now turn the call over to Brian Davies, who will further discuss the financial details surrounding the transaction with Novo Nordisk and review our third quarter financial results. Brian?

[Brian Davis:]

Thank you, Fred. For the 3 months ended September 30, 2018, non-GAAP basic net loss attributable to ordinary shareholders was $22.2 million or $0.47 per share compared to a non-GAAP basic net loss attributable to ordinary shareholders of $13.1 million or $0.35 per share for the same period in 2017. The increase in non-GAAP net loss was primarily due to increased operating expenses, associated with the commercialization of KEVEYIS and MACRILEN, higher research and development expenses, primarily associated with the RECORLEV Phase III clinical trials, and higher interest expense. Those increases were offset in part by net revenues recorded from KEVEYIS and MACRILEN product sales. The Company recorded net revenues from sales of KEVEYIS of $4.2 million during the third quarter compared to net revenues of $2.5 million from the third quarter of 2017. As a result of the July 2018 MACRILEN launch, the Company recorded net revenues of $1.1 million during the third quarter. Obviously, there were no MACRILEN revenues in the same period for 2017. The Company recorded cost of goods sold of $1.4 million for the third quarter of '18 compared to cost of goods sold of approximately $600,000 for the same period in 2017. Strongbridge had $67.4 million of cash and cash equivalents and $88.3 million in outstanding debt as of September 30, 2018. After giving effect to the expected net proceeds from the closing of the transaction separately announced today with Novo Nordisk and after giving effect to the anticipated repayment of outstanding debt from a portion of those proceeds, the Company's pro forma cash and cash equivalents balance, as of September 30, was $148 million. And of course, no debt as of that date. And operator, with that, we are now ready for questions.

[Operator:]

[Operator Instructions] Our first question comes from Annabel Samimy with Stifel. Please proceed.

[Annabel Samimy:]

Hi, guys. And thanks for taking my questions. A lot of things going on today in your call. So I guess the first question I have is the timing of this MACRILEN -- I'm sorry, Novo Nordisk agreement. Can you just tell us why now specifically? And given that you just launched MACRILEN, is it something that you approached them with? Did they approach you? Just can you give us a little background there of how it came about? And that I have some follow-up questions on KEVEYIS and LOGICS.

[Matthew Pauls:]

Thanks, Annabel, appreciate the question. So as you know, we have been in construction mode in building a rare disease company, and MACRILEN was and actually continues to be an important part of that for us. This really unique innovative collaboration with Novo Nordisk was something that -- as we've -- we always are having discussions on various fronts around opportunities to partner around the BB front. And this came up because of the unique fit with their growth hormone leadership, and the fact that MACRILEN really has the opportunity to help potentially unleash and open up the Adult Growth Hormone Deficiency market here in the United States. So why now? It's purely just an opportunistic partnership that came across. And we felt that it was something that was the right -- clearly, the right thing for us, also the right thing for patients, adults with growth hormone deficiency here in the United States.

[Annabel Samimy:]

Okay. Well, so now that you have what appears to be appropriate funding for your program, is that one of the reasons why you expanded LOGICS? And, I guess what was the rationale behind that? Was it underpowered before, because you didn't have the funds to be able to expand it? Or is there something in the SONICS data that you needed to flush out with the LOGICS? It's a different study, it's a randomized withdrawal. So what shall we expect from LOGICS that you wouldn't have gotten under the study that you would design before?

[Matthew Pauls:]

Yes. Thanks again for the question. So I'll turn it over to Dr. Cohen. But upfront, let me just say that, number one, LOGICS at 35 subjects was adequately powered. However, given the strength of the SONICS data and the results, we felt that it was very important to maximize the potential and results of LOGICS. And this was a very opportune time. It had nothing to do with funding. It has everything to do with ensuring that we derisk this program as much as possible. Dr. Cohen?

[Dr. Fred Cohen:]

Yes. I would echo that. I mean, this is -- you can largely view this as a derisking move. It's also -- looking it at the other way, is that it's a strengthening move. It strengthens our regulatory position with LOGICS as a confirmatory study. It provides increased safety exposure with new patients that have never received the drug before. It increases the possibility of seeing secondary efficacy endpoints, with greater power on those as well. But power was high before and it's higher now, but it's not too high. So with that, I'll conclude.

[Annabel Samimy:]

Okay. If I could just follow up on that. Is there anything specific in SONICS that you're trying to flush out in LOGICS that remains the question mark for you?

[Dr. Fred Cohen:]

No. nothing that remains a question mark for us. Just so you know, we still don't have all of our secondary efficacy analysis from SONICS. So I can't really comment on that. But based on what we've seen from SONICS thus far, it was very strong, but remember that it's an open labeled study and LOGICS is placebo-controlled. So they're different in that regard.

[Operator:]

Thank you. And our next question comes from Hartaj Singh with Oppenheimer. Please proceed.

[Hartaj Singh:]

Hi, everybody, thank you for the questions. And again, a lot going on, but could stop. So just want to walk through a couple of specific questions and then maybe end with a broader question. One is, Matt, I know that you've got some tiered royalties or just some royalties on Aeterna Zentaris. Can you just go through the royalty payments that Novo is going to make into and how that applies to Aeterna Zentaris, the royalties you're paying them? And then secondly, just on the OpEx. Now you're going to be actually -- so I guess, Novo is going to be paying you the money at the end of the year for 3 years. Is that my assumption? Or will should we start taking out the expenditures for MACRILEN launch over the next 3 years? And I just got a follow-up question.

[Matthew Pauls:]

Hartaj, thanks for the questions. I will ask Brian Davis to opine.

[Brian Davis:]

So Hartaj, on the first question regarding royalties to Aeterna Zentaris that agreement is part of what gets assigned or acquired by Novo. So the -- all the rights and obligations under that agreement are Novos upon closing of this transaction. And so the royalties to us are not impacted by the royalties to Aeterna Zentaris putting another way. On the second question, I think where you're heading down the road of this impact of the transaction to our cash burn moving forward. You're right. They -- Novo -- this will be Novo's product, in all respects. Our field force will continue to promote the product and will be funded by Novo. But all other aspects of MACRILEN marketing, et cetera will be carried by Novo internally.

[Hartaj Singh:]

Great, thank you. So just a question on the Phase III SONICS. I mean, the poster of the data as you presented, is actually pretty compelling, and it seems that from your prior press releases as you dig in to the data, it seems to be getting stronger and stronger. Would -- do you think that you will disclose the specific changes to LOGICS once you've had the Type C meeting with the FDA? So I assume you're just going to wait Dr. Cohen until that you have that -- you've got visibility from them from then going into depth as to how LOGICS specifically changes?

[Dr. Fred Cohen:]

Yes. So just to be clear, the only plan really of a meaningful nature in LOGICS at this point is to increase the sample size from 35 to 54. The actual structure of LOGICS, and at least as of today, all of those endpoints are remaining the same. LOGICS is a very robustly designed study, very well designed, and we have confidence in the study as designed and as it's being executed. But as we said, it's prudent at this point to take off the sample size.

[Hartaj Singh:]

Yes. And Dr. Cohen on the liver related lab values that we saw at the presentation in Wroclaw, Poland, are you surprised that there is low as -- are in that table? I think that there was a fear they might be higher. Just any color on that as you dig into this data more, has that been a pleasantly surprising to you?

[Dr. Fred Cohen:]

Yes. I mean, I'm always pleased, first of all, when any drug that I'm administering as a Chief Medical Officer safe and well-tolerated as this one was. And I was equally as pleased that our monitoring scheme did an excellent job in detecting asymptomatic liver test elevations, and we could, if necessary, intervene. I think, going forward, we'll learn more as we get additional exposure data from SONICS, and now we'll have LOGICS. But I think we're in a very good position right now. So yes, let me stop there, and I'll take a follow-up, if necessary.

[Operator:]

Thank you. And our next question comes from Liisa Bayko with JMP Securities.

[Liisa Bayko:]

Hi. Congratulations on this deal, and certainly lots of going on. A couple questions for me. First of all, just wanted to understand the structure of the sales force a little bit more. Will Novo Nordisk be using your sales force plus promoting the product with their other sales force? So will there be more patients on KEVEYIS on MACRILEN than just your team? And then secondly, what happens, from a structural perspective, once you launch RECORLEV within that 3-year window? Do they still pay for the full force? And you get to leverage that to sell also RECORLEV? Or how does that work?

[Matthew Pauls:]

Liisa, thanks for both of the questions. Regarding the first question. Yes, our Strongbridge MACRILEN sales team and field reimbursement team, the 23 members that we referred to earlier, our Strongbridge employees will be selling and commercializing MACRILEN with the Novo Nordisk growth hormone team. So it will be, from that perspective, a co-promote. So that's the answer to question 1. To your second question, what happens with regard to the agreement, for instance, we are anticipating RECORLEV launches during that time period. We do have an agreement during that time period that we will provide 16 salespeople that will be focused squarely, 100%, on selling MACRILEN in partnership with Novo Nordisk. Will there be an opportunity to expand that team to be able to help launch RECORLEV? I'm sure. That makes a lot of sense. And we would have to of course to be able to do that. So more to come on that, but we think that there's a lot of creative opportunities, given the structure and this partnership with Novo Nordisk, as we move forward, such around RECORLEV.

[Liisa Bayko:]

And how many, what will be the size, how many of Novo's reps will be promoting MACRILEN?

[Matthew Pauls:]

I don't know the exact size of their team, so I can't comment on that. But again, thanks for the question.

[Liisa Bayko:]

And then just, as it pertains to LOGICS, and I understand the SONICS data was very strong. But, I guess, if something strong and you've adequately powered it, why do you need to add more patients? I'm just, I'm confused on that aspect of it. And then, so if you could just clarify that. And then just, if you could give us a sense for how that changes the timing of what you would expect the trials to complete enrollment and deliver results?

[Matthew Pauls:]

Sure. So if you think about how we do business here, it's all a matter of sort of mitigating risk, right? So here, if you were talking largely around regulatory risk. And so what we try to do in this situation is it to mitigate our regulatory risk. We made the decision to take and to resolve the SONICS results, because that what it make sense to make the additional investment. If the result has not been favorable, let's say, we may have reconsidered, we may have decided that it wasn't more putting more money into the LOGICS Study. But here it makes a lot of sense. This is the right time to do that. And as we said, it takes a good study and makes it better. So it's really as simple as that.

[Dr. Fred Cohen:]

It's regarding technical risk, Liisa. When you can, when we have the opportunity to increase the sample size to try to decrease technical risk as much as possible, especially given the fact that the SONICS study is so strong, we're going to do it. That it makes a lot of sense. And so, and then from a tiny perspective, we'll have top line data from LOGICS by the end of 2019.

[Operator:]

And our next question comes from Elemer Piros with Cantor Fitzgerald. Please proceed.

[Elemer Piros:]

I have a KEVEYIS related question or maybe a couple. As you indicated, sales for this quarter were a little bit down or flattish. And based on your guidance, you anticipate a slight increase in the fourth quarter. Could you please discuss the dynamics of new patient adds versus attrition? And how do you think the effort could be amplified perhaps?

[Matthew Pauls:]

Yes. Thanks for that question, Elemer. First of all, I want to state that we're very proud of our leadership role as the only company, really, effectively in the history of Primary Periodic Paralysis to be in the space and to be investing and to be really committed to this ultra-rare genetic neuromuscular condition. This is a market that is one that's not structured and not organized. So for example, Centers of Excellence, there are very few. Regional, local opinion leaders, again, are very few, although they are starting to increase. What we have seen as we have worked to organize and build this market is that, as we're identifying patients with PPP, there are 2 dynamics that we're really focused on right now. Patients sometimes early in their disease state, they're perceived in the position's perception of their severity is that it's not very severe at that time, right? Especially as we are starting to pull diagnosis earlier into, for instance, the second or the third generation of life rather than much later, which has been normally the case prior to us being in the space. So severity, unfortunately, increases in PPP very often over time as patients get older. So getting on therapy early to help reduce paralytic attacks is critically important. But it's also a difficult thing for patients as we know in many disease categories to understand the importance of. The second is what we realized about KEVEYIS is a very potent therapy, and that we are really focused and resourced now around when patients start on KEVEYIS that we are doing as much as we possibly can to help them through that first 45 to 60-day period. When they may see, for instance, some of the cognitive fogginess that you can see because once they get through that, it does tend to dissipate in patients of clearly see the benefit from an efficacy perspective on paralytic attacks in general. So the bottom line here is, we've got at this organized market that we are working were organizing. But there are definitely patients there that are in need, no doubt. And we're working really hard to help patients realize that staying on therapy is important. Short term, but also long-term, and helping them get through the -- some of the early tolerability issues. So I hope that helps.

[Elemer Piros:]

So -- what would you -- so there is going to be a continuation of strategy that you established, and that would lead to perhaps increased penetration, both in keeping the patients on the drug and demonstrating that earlier usage would have a longer time benefit.

[Matthew Pauls:]

Yes. So to be clear, Elemer, we are committed to continue to build this market and drive KEVEYIS utilization. It is a -- as the first and only drug approved for PPP. It has a great utility in the space. We will continue to build, and we are optimistic that much of what we have invested in, especially this year, both disease state awareness as well as patient-focused initiatives to help patients get on and stay on therapy, we'll continue to help grow us for that business. This is a patient population that is in need of a therapeutic option like KEVEYIS. And I think you're going to see that we'll continue to build it over time.

[Elemer Piros:]

I just wanted to state something that may have gone unnoticed here that you made a 7.5 fold return on investment in 10 months with some potential further benefits.That's a great achievement.

[Matthew Pauls:]

Thank you for noting that. We do appreciate that, Elemer.

[Operator:]

Thank you. At this time, I'm showing no further questions in queue. I'd like to turn the call back over to Matthew Pauls for further remarks.

[Matthew Pauls:]

Thank you, again, everyone, for attending the call this morning. As I stated earlier on the call, today is an incredibly exciting day for Strongbridge Biopharma. The transactions with Novo Nordisk strengthens Strongbridge's balance sheet and positions the Company from continued growth and success. We look forward to continuing to build our business, while serving the needs of the rare disease community. Thank you for joining today's call and for your continued support.

[Operator:]

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may now disconnect. Everyone, have a great day.