Zogenix, Inc.
Q2 2017 Earnings Call Transcript

Published: 9 Aug 2017

[Operator:]

Good day and welcome to the Zogenix, Inc. Second Quarter 2017 Financial Results Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Brian Ritchie, LifeSci Advisors. Please go ahead Sir.

[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; and Chief Financial Officer, Mike Smith. This afternoon, Zogenix issued a news release announcing financial results and providing a business update for the second quarter and six months ended June 30, 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, August 8, 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 Farr:]

Thank you Brian and good afternoon to everyone who is joining us live on today's call. I am very pleased to report that we are on track to announce top-line safety and efficacy results from our first Phase 3 trial in Dravet syndrome late in this quarter. As a reminder Study 1, which was fully enrolled in April is a three arm double-blind fixed dose placebo controlled trial designed to enroll approximately 40 subjects per treatment group and includes 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 0.2 and 0.8 milligrams per kilogram per day or placebo. After a six-week baseline period randomized subjects are titrated to their target dose over two weeks, and then held about fixed dose for 12 weeks of maintenance treatment. The primary objective of this study is to demonstrate that ZX008 at the high dose is superior to placebo in controlling seizures based on the change in the frequency of convulsive seizures between baseline and the combined titration maintenance periods. The percent of patients who achieve equal or greater than 50% reduction in convulsive seizures a measurement of the longest seizure free interval are key secondary end-points. The same three analysis are all key secondary end-points for a comparison of the lower dose versus placebo. Other secondary endpoints include assessments of clinical global impression and quality of life. We are pleased to be close to the availability of top line results from our first pivotal trial of low dose fenfluramine and controlling seizures in children and young adults with Dravet syndrome. This will be a significant milestone for our Company. The second planned pivotal trial in 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 as part of that baseline standard of care. As a reminder because Study 1504 permits stiripentol it lowers from patients who are excluded from Study 1, which is beneficial for both enrollment of the study and expanding the scope of clinical experience of ZX008 in Dravet Syndrome. We initiated the safety and efficacy portion of Study 1504 in early February and the trial is now approximately two thirds enrolled. During the second quarter, sites in the UK and Spain joined the study adding to Belgium, France, the Netherlands, Germany, the U.S. and Canada who are actively enrolling subjects. All 24 of the planned sites are now up and running. We are continuing to drive recruitment efforts during the summer months to reach a target of last patient enrolled into this study during the current quarter. Across the entire Phase 3 program in Dravet syndrome over 300 patients have been screened. All patients currently more than 120 who have completed one of the ongoing randomized control trials have elected to enter Study 1503, the open-label long-term extension study. The vast majority of these patients around 97%, remain in the trial today on ZX008 treatment. Moreover, the first Dravet syndrome trial in our Phase 3 program has now entered the second year of open label treatment in Study 1503. Safety including cardiac safety is being evaluated in the clinical program by an independent data safety monitoring committee. Their most recent formal meeting occurred in July, the outcome of which was a recommendation to continue the trials without modification. We believe this outcome is a positive indicator, regarding the safety profile of ZX008 as administered in the studies to pediatric patients. Turning now to our second current target indications for ZX008, we were pleased to recently announce the receipt of orphan drug designation in Lennox Gastaut Syndrome or LGS in U.S. As you know the FDA also previously accepted our IND submission allowing us to proceed into a Phase 3 trial. We intend to initiate the study in the fourth quarter of this year, following our first Phase 3 results in Dravet syndrome. And have been engaged in a number of activities to ensure a fast and successful start to this global Phase 3 trial. Study start is underway with a participation of 17 U.S. sites that are being fast-tracked for patient enrollment. Feasibility for additional sites is also underway in U.S., and other countries. Based on our efforts to-date, we continue to expect that the first patients will enter the planned Phase 3 LGS trial in the fourth quarter of this year. Moving into the LGS indication for ZX008 presents a significant opportunity for Zogenix as there are an estimated 30,000 to 50,000 LGS patients in U.S. and Europe. LGS is another severe catastrophic chartered onset epilepsy with a high unmet need in which approximately 80% of patients remain uncontrolled despite currently available treatments. A broad spectrum of anti-epileptic drugs or AEDs are commonly used including Valproate, clobazam, levetiracetam, lamotrigine, topiramate and nearly all patients are being treated with multiple AEDs, generally three or four and treatment is often considerably modified due to poor efficacy and it's horrible side effects. Unfortunately, the vast majority of LGS patients would experience debilitating features throughout their entire life. On based on the unique profile of ZX008 we believe it has significant potential as a safe and effective treatment for LGS. 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 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 in U.S. and Europe for Dravet syndrome, and finally initiating a global Phase 3 study in LGS. And with that, I'd like to turn the call over to Mike for his review of the financials. Mike?

[Mike Smith:]

Thank you, Steve. Before jumping into the financials, I’d like to briefly touch on the recently announced termination of Relday license agreement with Durect Corporation. In September 2015, we announced positive results from a Phase 1b study for Relday, a preparatory long-acting injectable formulation of the risperidone in schizophrenia patients. At that time, we stated our intention to advance the program further by securing a global strategic, development and commercialization partner, so we could focus our internal efforts on ZX008 for Dravet syndrome. Despite multiple expressions of interest and due diligence engagement surrounding the asset, ultimately we were unable to conclude a global licensing partnership for the program. Accordingly, we have now returned full development and commercial rights related to Relday to Durect, which allow us to focus 100% of our efforts on building a product portfolio focused on orphan CNS disorders, beginning with ZX008 and Dravet. Consistent with this strategic focus in April we completed the fulfillment of all remaining orders of Sumavel DosePro and now have no further obligations to supply Endo with additional products. With that, hear our financial results for the quarter. Total revenue for the second quarter ended June 30, 2017 was $7.1 million this consisted entirely of contract manufacturing revenue for Sumavel DosePro. This compared to total revenue of $2.1 million in the second quarter of 2016, which also consisted nearly entirely of contract manufacturing revenue. The $5 million increase in revenue in the second quarter of this year was due to the delivery of more Sumavel DosePro units to Endo. R&D expenses for the second quarter ended June 30, 2017 totaled $14.9 million, and that is up from $10.4 million in the second quarter of prior year, as we continue to enroll patients into and expand the scope of our Phase 3 studies for ZX008 in both U.S. and Europe. Selling, general and administrative expenses for the second quarter ended June 30, 2017 totaled $5.5 million and that is down from $6.8 million in the second quarter ended June in year prior. Net loss from continuing operations for the second quarter in 2017 was $22.5 million, compared to $18.2 million in the second quarter of the prior year. Net loss from discontinued operations for both the second quarter ended June 30, 2017, and June 30, 2016, was $0.6 million. We reported a total net loss for the second quarter ended June 30, 2017, of $23 million, or $0.93 per share, this compares with a net loss of $18.8 million, or $0.76 per share, in the second quarter for one year ago. Turning to the six month period ended June 30, 2017 and 2016 total revenue for the six months ended June 30, 2017, was $9.8 million, comprised again almost entirely of contract manufacturing revenue. This compared with total revenue of $11.3 million in the same six month period of 2016. The decrease was due to a reduction in the number of Sumavel DosePro unit that we delivered to Endo. Research and development expenses for the first half of 2017, totaled $28.2 million, and this is up from $18.4 million in the first half of the year prior and again reflects the continued enrollment and expansion of our Phase 3 clinical trials for ZX008 in Dravet syndrome. SG&A expenses for the six months ended June 30, 2017, totaled $12.1 million, and this compares favorably to $13 million in the same six-month period of the prior year. Net loss from continuing operations for the six-months ended June this year, was $43.6 million, compared with $28.5 million for the six months ended June 30, 2016. Net loss from discontinuing operations for the six months ended June 30, 2017, was $0.7 million, compared to $0.8 million for the same six-month period of the prior year. We reported total net loss for the six months ended June 30, 2017 of $44.3 million, or $1.79 per share, compared and this compares with a net loss of $29.2 million, or $1.18 per share, in the same six-month period of the prior year. We ended the quarter with $65.8 million in cash and cash equivalents, and this compares to $91.6 million that we had at the start of this year. Our ZX008 Phase 3 program for Dravet remains a predominant operational focus for the Company and as Steve noted its Study 1 remains on track for its first top line readout in the program for the third quarter this year. Our next Phase 3 program investigating the potential of ZX008 as a treatment in LGS remains on track to initiate following our Study 1 readout. As these key milestones approach, we are pleased to remain in strong financial position with over $65 in cash and cash equivalents. We currently estimate that we have enough 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:]

Absolutely [Operator Instructions] And our first question will come from Tim Lugo of William Blair & Company.

[Ashiq Mubarack:]

Hi guys this is Ashiq Mubarack on for Tim, thanks for taking my question. So I was just wondering if you could kind of remind us about what you might define as a successful data for Study 1, have your expectations kind of shifted or can you share maybe some of your thoughts there if they have changed at all?

[Stephen Farr:]

Yeah, thanks for your question, obviously our definition of a successful study is meeting the primary endpoint of the trial and also the key secondaries as well, you will recall that we have actually empowered our trial, we think rather conservatively to assess a 40 point difference between active and placebo and just based upon what we’ve seen in open label, with this drug and also recognizing the placebo response in this patient population has been recorded as being quite lower than the other trials. So we have conservatively not just empower to detect a 40 point difference.

[Ashiq Mubarack:]

Okay, great thank you. And would you be able to tell us about any regulatory communications you have had recently or are there any plans to speak with the FDA any time soon.

[Stephen Farr:]

Really there has been no, other than routine updates – formal interaction with the FDA, we obviously are very busy during our Phase 3 program, and we look forward to getting the results from that Phase 3 program at the end of this quarter.

[Ashiq Mubarack:]

Okay, that makes sense. Just last one, can you talk a little bit about, your expectations for SG&A maybe particularly on hiring and any thoughts there, thank you. For the reminder of the year.

[Stephen Farr:]

I will hand that over to Mike.

[Mike Smith:]

Yeah, so we as you well, might likely know, that we retain full global rights to the product and so we have got a lot of flexibility with respect to how we introduced the product, should we be successful in Phase 3 and in garnering approval. We expect that the overall scope of SG&A will be similar to that for a orphan company, if we decide to commercialize and so there is a lot of leverage that we can gain from having a product that basically is in a small patient population roughly 5,000 treatable patients in the U.S. for this first indication. So we don’t expect to be on the high level at all for SG&A a bit more standard in terms of an orphan company with one product.

[Ashiq Mubarack:]

Okay thank you.

[Operator:]

[Operator Instructions] And with no further questions at this time, I’d like to turn the call back over to Dr. Farr, President and CEO.

[Stephen Farr:]

Well, thank you operator. We’re obviously looking forward to the availability of top line data from Study 1 later in this quarter. And we continue to believe that ZX008 has potential to transform the lives of children and their families with Dravet syndrome. Our Phase 3 program remains on track and we’re also preparing to initiate a Phase 3 program in LGS once of course we have the first pivotal trial results from Dravet syndrome. Importantly our clinical development activities continue to be supported by strong balance sheet, and we look forward to keeping everyone updated on our progress in the second half of 2017. Thank you for joining us today, enjoy the rest of your day.

[Operator:]

And ladies and gentlemen this does conclude today's conference. We thank you for your participation. You may now disconnect.