Zogenix, Inc.
Q1 2017 Earnings Call Transcript

Published: 5 May 2017

[Operator:]

Good everyone. Welcome to the Zogenix's First Quarter 2017 Financial Results Conference Call. Today's conference is being recorded. At this time I'd like to turn the conference over to Brian Ritchie, LifeSci Advisors. Please go ahead.

[Brian Ritchie:]

Thank you, operator, and thank you all for joining us this afternoon. With me on today’s call are Chief Executive Officer, Dr. Stephen Farr; Chief Financial Officer, Mike Smith; and Dr. Gail Farfel, Zogenix’s Chief Development Officer, will also be available during the Q&A session. This afternoon, Zogenix issued a news release announcing financial results and providing a business update for the first quarter ended March 31, 2017. Please note that certain information discussed on the call today is covered under the Safe Harbor provision of the Private Securities Litigation Reform Act. We caution listeners that during this call, Zogenix management will be making forward-looking statements. Actual results could differ materially from those stated or implied by these forward-looking statements, due to risks and uncertainties associated with the Company’s business. These forward-looking statements are qualified by the cautionary statements contained in Zogenix’s news releases and SEC filings, including in the annual report on Form 10-K and subsequent filings. This conference call also contains time sensitive information that is accurate only as of the date of this live broadcast, May 4, 2017. Zogenix undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this conference call. Now I'd like to turn the call over to Steve.

[Stephen J. Farr:]

Thank you Brian and good afternoon to everyone who is joining us live on today's call. I’m pleased to have the opportunity today to provide you an update on the recent progress we've achieved with our Phase 3 development program for ZX008 or low dose fenfluramine as an adjunctive therapy procedures associated with Dravet syndrome. As we discussed in our last quarter in large, we are currently on target to announce the first top line results from our ZX008 Phase 3 program Dravet syndrome in the form of Study 1 in the third quarter of this year. We were very pleased to announce last week that we have completed enrollment of Study 1 with the last patient randomized into the treatment period in April. As you will recall, Study 1 was a merged analysis plan that prospectively combine subjects from two identical ongoing Phase 3 trials, Study 1501 and 1502 into one adequately powered study. The study is a three arm fixed dose placebo controlled trial designed to enroll approximately 40 subjects per treatment group and is included patients from sites in the United States, Canada, Europe and Australia. A total of 119 subjects have been randomized into one of two dose groups of ZX008 or placebo. Randomized subjects are titrated to their target dose over two weeks, and then held about fixed dose for 12 weeks of maintenance treatment. The completed enrollment of patients in Study 1 represents an important milestone for our Phase 3 development program in Dravet syndrome and we look forward to the top line readout for this potentially transformative therapy for Dravet syndrome late in the third quarter of this year. In the interim studies 1501 and 1502 remain open for enrollment and are continuing to recruit patients across our clinical sites globally. Our second plan pivotal data readout for our Phase 3 Dravet syndrome program is Study 1504, a double-blind randomized two arm Phase 3 trial, in which all subjects will be taking stiripentol, valproic and clobazam as part of their baseline standard care. Study 1504 permits stiripentol. It draws from patients who are excluded from studies 1501 and 1502, which is beneficial for both enrollment of the study and expanding the scope of clinical experience for ZX008 in Dravet syndrome. Enrollment into the safety and efficacy portion of the study commenced its sites in France in February. We've made good progress and spend in expanding study 1504 to sites in the Netherlands, Germany, United States, and Canada. We are anticipating our sites in U.K and Spain will become positive study later this month. Moving on to our second current target indication for ZX008, Lennox-Gastaut Syndrome or LGS. I'm pleased to announce that the FDA accepted our IND submission within the 30-day review period, allowing us to proceed into a Phase 3 trial. As a reminder, we do not intend to initiate the LGS Phase 3 trial until the second half of 2017 after having top line data from Study 1 in Dravet syndrome. Although we have discerned [ph] full contract engagement of our CLL, preparations are underway for a fast start to the global Phase 3 trial. With finalization of the protocol and permission to the CV [ph] of the IND. We have begun to prepare study sites already in our clinical supplies. With these fast out initiatives, we expect that the first patients will enter the trial in the fourth quarter of 2017. As our ZX008 development program advances, we continue to focus on strengthening and expanding our intellectual property in parallel. We now have four issued patents that cover claims related to a method for the adjunctive treatment of seizures associated with Dravet syndrome with ZXC008. We expect that these patents will provide protection of the associated claims through 2033. Assuming our product is approved, we anticipate that one or more of these patents will be listed in the US FDA Orange book. We are continuing to pursue other patent applications globally related to the treatment of Dravet syndrome as well as several other patent families related to ZX008 in order to further protect our lead product candidate. We are also continuing our preclinical work to help understand the mechanism of action of ZX008 in Dravet syndrome and to understand the significance of the drugs affecting patients where other drugs have failed to control seizures. In addition to the previously identified activity of serotonin 1b, 2a, and 2c receptors. A recent publication resulting from our collaboration with the University of Leuven, in Belgium in the case of the fenfluramine we may have additional mechanism of seizure in vision [ph] via antagonism of signal one receptors. Signal receptors are known to [indiscernible] an interactive serotonin containing neurons. So this may have -- this may lead -- this maybe an exciting lead for us. Additional data derived from this search driven by Zogenix scientists using potential assays will be presented in a poster at the upcoming Society of Biological Psychiatry meeting in May. Before I turn the call over to our Chief Financial Officer, Mike Smith, let me review the potential value enhancing milestones we expect for ZX008 over the next 12 to 18 months. Top line data from Phase 3 Study 1 in Dravet syndrome, top line data from Phase 3 Study 1504 in Dravet syndrome, filing for regulatory approval submissions in Dravet syndrome in the United States and Europe, and initiating a global Phase 3 study in LGS. With that, I'd like to turn the call over to Mike for his review of the financials. Mike?

[Michael P. Smith:]

Thank you, Steve. Before I get into the financials, I’d like to provide a brief update on our supply relationship with Endo International, regarding the manufacturing supply of Sumavel DosePro. As you may recall, Zogenix and Endo recently agreed to have Zogenix discontinue its obligation to provide manufacturing supply of the DosePro product, a non-core area of focus for the Company. The parties continue to discuss finalizing the termination of our existing supply agreement, and in April we fulfilled all remaining orders for Sumavel DosePro and have no further obligations to supply Endo with additional products. In the three months ended March 31, 2017, the planned supply termination had a net expense impact of approximately $800,000 on our statement of operation. With that, let's move on to our financials out for the three months ended March 31, 2017. Revenue for the first quarter of 2017 totaled $2.7 million consisting entirely of contract manufacturing revenue from Sumavel DosePro. This compares to total revenue of $9.2 million in the first quarter of 2016, also consisting entirely of contract manufacturing for DosePro. The decrease in revenue is reflective of the winding down of our DosePro supply obligation and corresponding decrease in the number of units delivered to Endo. First quarter 2017 research and development expenses totaled $13.3 million and that is up from $8 million a year-ago, as we continue to enroll patients into the Phase 3 studies for ZX008 in both the U.S and Europe. First quarter selling, general and administration expenses in the quarter totaled $6.6 million, up from $6.1 million a year-ago. Net loss from continuing operations for the first quarter 2017 was $21 million compared to $10.2 million in the first quarter a year-ago. We reported total net loss for the first quarter of 2017 of $21.3 million or $0.86 per share and this compares to a net loss of $10.4 million or $0.42 per share for the first quarter a year-ago. Cash and cash equivalents at March 31, 2017 totaled $80.1 million as compared to $91.6 million at the start of the quarter. Our ZX008 Phase 3 program remains the predominant operational focus for the Company and as Steve noted its advancing nicely with completed enrollment for Study 1 and on track for first top line readout in the third quarter this year. As this key milestone approaches we are also happy to remain in a strong financial position with over $80 million in cash and cash equivalents, and as such we’ve no plans to raise capital prior to the Phase 3 readout in Dravet syndrome in the third quarter and have cash to fund our operations into the first half of 2018. I will now turn the call over to the operator and begin the Q&A session. Operator, would you please provide the instructions.

[Operator:]

[Operator Instructions] We will have our first question from Paul Matteis with Leerink.

[Paul Matteis:]

Great. Thanks so much and congrats on all of the progress. A couple of quick questions. Steve, I’m wondering as the study slowly enrolled and you’re watching the data accrue in the DSMB has reviewed the safety data, how much of a window you have from your seat into cardiac safety in the study and what your expectation is on that front heading into the full data in third quarter?

[Stephen J. Farr:]

Thanks Paul for your question. We do have obviously DSMB that’s meeting regularly. In fact the last meeting was just a month or so, in the last timeframe. I will ask Gail to give you a summary of that meeting.

[Gail M. Farfel:]

Thanks, Steve. The -- Paul, DSMB inform the Company as everything is settle for them and if the study should continue without modification and that [indiscernible] the report to us and we are encouraged by that response from the DSMB.

[Paul Matteis:]

Okay, thanks. And what about, I guess on a blinded basis, what you’re seeing with respect to variability and dropout rates and I guess integrating that into your original [indiscernible] assumption?

[Stephen J. Farr:]

Yes, we feel that our original assumptions are still valid. So we are comfortable with 119, which is adequate power to demonstrate significant effect.

[Paul Matteis:]

Okay. And then maybe one more quick question. Steve, could you just talk a little bit about the patents that were issued and the degree of congruence that you think those patents could have with the actual ultimate labeled indication for ZX008 if it succeed? Thanks so much.

[Stephen J. Farr:]

Yes. Once again for that question, it's a work in progress, Paul. What we’ve varied [indiscernible] four patents in the same family issue. The claims are very similar across those four patents. I will describe adjunctive therapy was the exudates amongst a variety of other antiepileptic drugs. We are working with other patent applications to ensure that we have further claims that will support the product and the ultimate labeled products, so it's still a work in progress, but we’re already pleased that we’ve issued patents already.

[Paul Matteis:]

Okay. Thanks so much. Appreciate it.

[Stephen J. Farr:]

Thanks, Paul.

[Operator:]

[Operator Instructions] And we will go to Annabel Samimy with Stifel.

[Annabel Samimy:]

Hi, guys. Thanks for taking my question. I just had, I guess, I want some clarification on the patients that are still enrolling in, 1501 or 1502 studies that are post the 119 patient. How can you possibly -- how can you use these patients in an event where you have more dropout? Is there any way you can use these patients in an event that something goes wrong with Study 1 in anyway without causing statistical problem? And, I guess, the second question I have for 1504 study, since its adjunct to treatment with stiripentol, clobazam and valproic and stiripentol is not approved in the U.S, how might that expect an FDA regulatory filing? So just a clarification point would be great. Thank you.

[Stephen J. Farr:]

Thanks, Annabel. I will address your last question first and then I maybe ask Gail to address the remaining patients that are being enrolled in 1501, 1502. With respect to the inclusion of stiripentol as part of the baseline standard of care, we did actually ask that question all to FDA through our FastTrack [indiscernible] status and they agreed with us, study was adequate and well-controlled trial. There are many patients in the United States who are taking stiripentol through a variety of FDA approved channels, including patient INDs as well as intermediate size IND. So we feel very confident that with successful data, this will be the second pivotal trial for our NDA.

[Annabel Samimy:]

And what does that mean for, I guess, in clinical practice? Are they -- its going to be [indiscernible] just using that adjunct treatment that they’re getting through these specific INDs?

[Stephen J. Farr:]

Yes, if they’re taking stiripentol and they’re not controlled by the [indiscernible] stiripentol regimen and the physician believes that [indiscernible] ZX008 would potentially be a benefit, then it will be added to that regimen. And as you know, stiripentol is a potent enzyme inhibit, I mean it does in fact inhibit the metabolism of ZX008. So we’ve done those studies to know what type of dose those patients should be on if they’re taking stiripentol concomitantly.

[Annabel Samimy:]

Okay, great. And then on the other patient …?

[Gail M. Farfel:]

The first.

[Stephen J. Farr:]

Yes. Please, Gail.

[Gail M. Farfel:]

So -- hi, Annabel, its Gail. The -- so all of the patients enrolling in 1501 and 1502 are being combined into a single data set and the first 119 are [indiscernible] on Study 1. The second 121 patients would be Study 2. So Study 2 is also designed and empowered to be a pivotal Phase 3 trial. In 1504, we complete and report that first, which is what we believe will be the case. Then we could either continue Study 2 and finish it and analyze it or depending upon its status of enrollment, we will consider whether something else should be done such as rolling those patients into open-label.

[Annabel Samimy:]

Okay.

[Gail M. Farfel:]

Regarding …

[Annabel Samimy:]

Sorry, go ahead.

[Gail M. Farfel:]

I think you're also asking about the regulatory aspect of it. The caution from regulators was that in analyzing Study 1 to minimize the bias that might be applied to new patients entering or decisions in Study 2, and a variety of operational ways that we are going about that. It seems for example that less than half and probably around a third of site will be contributing patients to both Study 1 and Study 2. That is [indiscernible] minimize the bias once the result of Study 1 will be revealed.

[Annabel Samimy:]

Okay. So either way if in any event, Study 1 fail, you’re maintaining Study 2 as if its -- its proceeding as a separate trial and it's almost like an insurance policy that you will be able to have another potential pivotal study to fall back on if there is something that goes wrong with Study 1?

[Gail M. Farfel:]

Yes, that’s correct.

[Annabel Samimy:]

Okay. All right, great. Thank you.

[Stephen J. Farr:]

Thank you.

[Operator:]

We will have our next question from Difei Yang, Aegis Capital.

[Difei Yang:]

Hi. Good afternoon and thanks for taking my question. So the first one is a quick one with regard to the enrollment update on 1504. Are you still on target to have a readout before year end?

[Stephen J. Farr:]

Thanks, Difei. Its Steve. As you know we announced the start of the efficacy portion of this study in February. So it's still in its early stages. And as I mentioned on the call earlier that we’ve made really nice progress in getting sites up and running and meeting our enrollment targets to date. Further progress over the next few months as enrollment targets ramp-up will be indicative of exactly where we're at in terms of completing randomization in the summer. If we do that, they now translates to a database lock at the term of the year and the readouts in Q1 of next year.

[Difei Yang:]

Okay. Thanks, Steve for the clarification. And then, turning to 1504, so on thinking the -- because of the trial design with a background therapy, and how do you think about the effect size versus statistics? So do you think FDA might take that into consideration, because certainly with a background therapy maybe the separation will be different, maybe they will give you a little lead way somewhere else? How do you think about the issues?

[Stephen J. Farr:]

I will ask Gail to address that for you.

[Gail M. Farfel:]

So, with all of our studies design we’re using as background any approved medication with the one exception being stiripentol approved in many countries, but not the U.S. So, our background meds are considered the same. And that patients entered our trial with a certain baseline number of seizures despite whatever background medications they have tried and currently are on. So they will all be considered the same and we do believe that there is the potential that ZX0008 will demonstrate a benefit in patients who are on the stiripentol regimen, but still have residual seizures.

[Difei Yang:]

Okay. So, Gail just, if I could [indiscernible] so something like you don’t think stiripentol is necessarily much better than the background therapies that are approved in the U.S?

[Gail M. Farfel:]

We believe that when patients have residual seizures, they haven't responded to their therapy, we think that that’s an opportunity that where our drug could show additional benefit. We don’t really address whether one is using one particular background set up and a baseline that’s different than another, that hasn’t been shown to the case in other [indiscernible].

[Stephen J. Farr:]

And just one thing to address, I know it's a small [indiscernible], but in the ongoing open-label trials in Belgium, there has been a few of those patients that were on stiripentol, where fenfluramine is added to their treatment and that those patients responded. So it's a -- I think it really sort of get back to Gail's point that different mechanism of action and the fact is that if they are uncontrolled on their baseline medications, it's an opportunity for ZX008 to provide benefit.

[Difei Yang:]

Okay. Thanks for the clarification.

[Stephen J. Farr:]

Thank you.

[Operator:]

[Operator Instructions] We will go next to Cathy Reese, Empire Asset Management.

[Cathy Reese:]

Hi, Good afternoon and congratulations on the progress from me as well. A lot of my questions have been answered. I just have one -- quick one on the LGS development program. Are you still expecting not to have to do any additional nonclinical or PK studies relative to that program?

[Stephen J. Farr:]

I'm happy to address that for you.

[Cathy Reese:]

Okay. Thank you.

[Stephen J. Farr:]

We are -- we will be conducting nonclinical trials. So that will be part of the development program. FDA with respect to our Dravet syndrome trial allowed -- permitted us to have some nonclinical trials as being a post market commitment, so that we could do them after approval, they’ve asked us to make sure that those studies are done ahead of the LGS supplemental NDA. So we will go ahead and do those trials according to timelines that we already are on. With respect to other clinical or PK trials, nothing else required. We are conducting a single Phase 3 trial with the assumption this will be a supplemental NDA following approval of the drug for the treatment of Dravet syndrome.

[Cathy Reese:]

Okay. And then with your fast start you’re -- I’m assuming that the Phase 3 will start potentially early in 4Q?

[Stephen J. Farr:]

We just -- we’re working through the details right now. The [indiscernible] early fourth quarter, but we will obviously have more details as we go forward.

[Cathy Reese:]

Okay. Thank you very much.

[Stephen J. Farr:]

And it's not out of the question, yes.

[Cathy Reese:]

Okay, great. Thank you.

[Operator:]

And at this time, we will turn the conference back over to Mr. Stephen Farr, President and CEO for closing remarks.

[Stephen J. Farr:]

Well, thanks again for joining us today. Obviously with the enrollments in Study 1 are complete. We look forward to the availability of top line data later this -- in the third quarter. And as we’ve said previously, we firmly believe that ZX008 have potential to transform the lives of children and families of Dravet syndrome. We are continuing to move forward with the Phase 3 program and also now in a position to initiate a Phase 3 clinical trial in LGS once we have the Dravet syndrome data. Importantly as Mike said, our clinical development activities continue to be supported by strong balance sheet, so we look forward to keeping everyone updated as we progress through the rest of the year. Thanks again for your time and enjoy the rest of your day.

[Operator:]

That does conclude today's conference. Thank you for your participation. You may now disconnect.