Zogenix, Inc.
Q3 2017 Earnings Call Transcript

Published: 8 Nov 2017

[Operator:]

Good day and welcome to the Zogenix, Inc. Third Quarter 2017 Financial Results Conference Call. Today's conference is being recorded. At this time, I like to turn the conference over to Mr. 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. 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 third quarter and nine months ended September 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, November 7, 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 on today's call. This is obviously a very exciting time for Zogenix. We were, of course, thrilled to recently announce a positive top-line data from our first global Phase 3 trial of the ZX008 Study 1 for the control of convulsive seizures in pediatric and young adult patients with Dravet syndrome. As you know this study met the primary efficacy endpoint, ZX008 received 0.8 mg/kg/day dose achieved a 63.9% greater reduction in mean monthly convulsive seizures compared to placebo, which was highly significant with a p value of less than 0.001. These results corroborate the impressive efficacy of low-dose fenfluramine first observed in an open-label study conductive in Belgium over several decades. Study 1 was also positive on all prespecified key secondary efficacy endpoints, which included patients taking 0.2 mg/kg/day achieving a reduction in mean monthly seizures - convulsive seizures of 33.7% versus placebo with a p value of 0.019. A responder analysis show that 70% of patients in the 0.8 dose group and 41% in the 0.2 dose group, achieved at least 50% reduction in seizure frequency, compared with a 7.5% in placebo group. Results for both ZX008 doses were significant compared to placebo. Moreover, 45% of patients in the 0.8 group and 21% of patients in the 0.2 group achieved a 75% or greater response, compared with only 3% in the placebo arm. Again, the results for both ZX008 doses were significantly favorable compared to placebo. As a reminder, the 50% responder rate is considered the primary endpoint by European Medicines Agency in their evaluation of anti-epileptic medications. This study also evaluated a unique key secondary outcome, the median of each patient's longest continuous interval of seizure-free days by treatment group. In the 0.8 dose group, a median of 20.5 days of seizure freedom was observed, while patients in the 0.2 dose group experienced a median of 14 days as their longest seizure-free interval. When compared to a median seizure free interval of nine days in placebo, the results of both ZX008 doses were significantly longer. Finally, with regard to efficacy, as we previously noted, the average baseline convulsive seizure frequency, for patients in Study 1,was approximately 40 per month. Despite this substantial baseline seizure rate, 25% of patients at 0.8 dose group and 13% of patients at the 0.2 dose group experienced a reduction to a single convulsive seizure or none throughout the duration of the full 14-week treatment period in the study. No patients in the placebo group achieved this level of seizure control. In regards to study on top-line safety, ZX008 was generally well tolerated with adverse events consistent with known safety profile of fenfluramine. The incidents of adverse events was higher in the treatment groups as compared to placebo group, but the incidents of serious adverse events was similar in all three groups. Five subjects in the 0.8 group had an adverse event leading to study discontinuation, compared to none in the other treatment groups. Prospective cardiac safety margin through the study demonstrated no clinical or echocardiographic evidence of cardiac valvulopathy or pulmonary hypertension in any subjects. We will present FAIR [ph] analysis of the data from Study 1 at the upcoming American Epilepsy Society Annual Meeting taking place December 1 through the 5 in Washington, D.C. Zogenix will have an extensive presence at this important meeting. In fact, I'm very excited to announce that a total of 12 abstracts have been accepted for presentation at the conference, including a poster presentation focused on Study 1 results that was recently accepted as a late breakup. This Study 1 poster presentation will provide additional efficacy and safety results from the trial, and is scheduled to be presented on Sunday, December 3. In addition to the Study 1 results, two other clinical study posters will provide updated results from the ongoing investigator-initiated open label studies in Dravet syndrome and Lennox-Gastaut Syndrome. There will also be three scientific posters focused on the pharmacokinetics of ZX008, including an evaluation of interactions between our product candidate and other antiepileptic drugs. In addition, three posters will focus on disease impact on caregivers in pediatric epilepsy such as Dravet syndrome. And finally, three preclinical posters will highlight our current understanding of mechanism of action refractory epilepsy on an evaluation of ZX008 in a mouse model of SUDEP. In addition, we are very pleased to be sponsoring a CME Symposium at the conference entitled, Dravet Syndrome

[Michael Smith:]

Thank you, Steve. Prior to jumping into quarter's financial results, I'd like to first touch upon our recent activity in the capital market, and its impact on our plans going forward. As you know, early in the fourth quarter shortly following the announcement of our positive Phase 3 Study 1 results and subsequent share price appreciation of 170%, we commenced a secondary public offering of common stock, which culminated in a capital raise of $289 million in growth, $271 million in net proceeds at a price of $37.50 per share. This rate plus an additional $19 million raised through common stock offerings from aftermarket sales transaction in the third quarter puts Zogenix in the strong financial position as we approach multiple potential value enhancing milestones in the coming quarters. And now to our financial results for the quarter. Due to the wind-down of Sumavel DosePro operations, we did not record revenue in the third quarter ended September 30, 2017. This compares the total revenue of $6.6 million recorded in the third quarter ended September 30, 2016. R&D expenses in this past quarter ended $21.2 million, up from $10.1 million in the third quarter of the prior year, as we continue to enroll more patients and expand the scope of our Phase 3 studies for ZX008 in Dravet syndrome and prepare to initiate our global Phase 3 study for ZX008 in LGS. SG&A expenses for the third quarter ended September 30, 2017, totaled $6.1 million, down from $6.5 million in the third quarter of 2016. Net loss from continuing operations for the third quarter in 2017 was $42.7 million compared to $16.6 million in the third quarter of the prior year. Please note this $42.7 million includes a $10.5 million non-cash charge related to the change in the fair value of contingent consideration that is associated with an increased likelihood that Zogenix will pay milestone payments related to the acquisition of ZX008 from Brabant Pharma that occurred in October 2014. We reported a total net loss for the third quarter of $42.8 million, or $1.68 per share, compared to a net loss of $17 million, or $0.69 per share in the third quarter a year-ago. For the nine months period ended September 30, 2017, total revenue was $9.8 million comprised entirely of contract manufacturing revenue. This compares with total revenue of $17.9 million in the same nine month period of 2016. The decrease was due to the reduction in the number of Sumavel DosePro units delivered to our former DosePro partner, Endo. R&D expenses for the same nine months - for the first nine months of 2017, totaled $49.4 million, up from $28.4 million for the first nine months of 2016, reflecting the aforementioned increased activity in our Phase 3 programs for Dravet syndrome and LGS. SG&A expenses for the nine months ended September 30, 2017, totaled $18.1 million compared with $19.5 million in the same nine month period of the prior year. Net loss from continuing operations for the nine months ended September 30, 2017, was $86.2 million, compared with $45.1 million for the nine months ended September 30, 2016. We reported a total net loss for the nine months ended September 30, 2017, of $87.1 million or $3.48 per share compared with a net loss of $46.2 million or $1.87 per share in the same nine months period of 2016. Cash and cash equivalents at quarter end September 30, 2017, totaled $64.7 million as compared to $91.6 million at the start of 2017. During the three months ended September 30, 2017, the company issued a total of 1.6 million shares of its common stock under an existing ATM offering program. Net proceeds amounted to approximately $19.4 million. As I previously mentioned, shortly following quarter end, Zogenix closed on a public offering with common stock of approximately 7.7 million shares at a price of $37.50 per share. The net proceeds from the offering, following underwriting discounted commissions and offering costs were approximately $271.3 million. We're now in a very strong position financially to carry out the next phase of growth for the company. As we've noted, we're very excited about the initial Phase 3 data coming out of the ZX008 Dravet syndrome program. And we are also thrilled to have multiple key catalysts over the next several quarters in front of us, including top line data from Study 1504 in Dravet syndrome, filing for regulatory approval submissions in Dravet syndrome in the U.S. and Europe and initiating a global Phase 3 study in LGS. With that, I will now turn the call over to the operator to begin Q&A session. Operator, would you please provide the instructions.

[Operator:]

[Operator Instructions] And we'll take our first question Difei Yang with Mizuho Securities.

[Difei Yang:]

Hi, good afternoon, and thanks for taking my questions. It's a great third quarter. And so a question with regard to the mechanism of action of ZX008, to what degree do you think, what we have seen in Dravet syndrome can be translate it to LGS? Is the MOA very specific to the Dravet syndrome or if there's an element of it that can be, basically, just saying the agent is a very strong antiepileptic agent?

[Stephen Farr:]

Thanks, Difei. I'll say a few words and then ask Gail to focus more on the mechanism of action, but obviously, to let you know, we actually have clinical evidence of efficacy for ZX008 in LGS. So we know it works in LGS. But I'm going to hand over to Gail, who can give you a little bit more information on MOA.

[Gail Farfel:]

Sure, hello, Difei. Great question. We are in the process, in have an ongoing work stream to understand the mechanism of action. The contribution of the effected serotonergic receptors, will have what we believe is an effective positive allosteric modulation of signal receptors and whether there are other contributed query [ph] mechanisms that can underlie the seizure control. So the best evidence that Steve just mentioned is the clinical evidence in the open label work done in Belgium, with patients with Lennox-Gastaut Syndrome, who are treated with ZX008 fenfluramine at the same doses as used in the Dravet program and in a dose-responsive manner saw seizure control. So we do believe that this mechanism will translate to Lennox-Gastaut.

[Difei Yang:]

Thank you. Just a quick follow-up on the Phase 3 program for LGS. What will be the maximum dose? Will that be 0.4 mg per kilo per day, or will that be the 0.8 mg, similar to what the high dose in the Study 1?

[Gail Farfel:]

It will the 0.8 mg per kg per day with a maximum of 30 milligrams per day for any patient.

[Difei Yang:]

Thank you.

[Stephen Farr:]

Thank you.

[Operator:]

We'll take our next question from Paul Matteis from Leerink.

[Paul Matteis:]

Great. Thanks so much for taking my questions. I appreciate it. My first one was I was wondering if you were going to present any more color on the safety you've observed in the open label extension study at any medical meetings or what's the right form for that? And then just separately, if you could kind of comment maybe more qualitatively, on what you're seeing in the open label extension and whether or not you've observed any sort of symptomatic cardiac-based events. Thanks a lot.

[Stephen Farr:]

Gail, if you want to address both questions on 1503?

[Gail Farfel:]

Certainly, we do plan to present additional data on Study 1 at the American Epilepsy Society Meeting in December as Steve said. Regarding the ongoing open label study, we will have a data cut from that study that it's time to support a regulatory filing. And so that data cut is planned in 2018. And we do not yet have a firm time with which we can share data from that cut. We will be advising you in the future.

[Paul Matteis:]

Okay. Is there anything you can say sort of qualitatively about what you've observed beyond dosing for 14 weeks?

[Gail Farfel:]

As we haven't crunched the data there's nothing I can say at this time. Is true is, we have a data safety monitoring board that reviews our data periodically throughout the year from all of the ongoing trials. And they have, as in the response of these four, they have not had caused to ask us to modify any protocol or change the treatment on any subject. So that can be taken as a sign that things are going reasonably well.

[Paul Matteis:]

Okay. Thanks, Gail. And then, can you - would you be able to comment on kind of the durability of treatment and the long-term drop off rate that you're seeing?

[Gail Farfel:]

We can't at this time, as we haven't crunched the data.

[Stephen Farr:]

What we have said publicly, Paul, is that we're seeing really good transfer of patients from the double-blind trial, into the open-label trial. And so, very few people, difficult patients discontinue in open-label. So we try to allow discontinuation rate during open-label. And the first patients who are actually in our trial, in the double-blind trial are now in their second year of treatment over the ZX008.

[Paul Matteis:]

Okay. That's great. Thank you, Steve. And then just one more quick question. I was wondering, what sorts of considerations and regulatory feedback went into the decision to size the LGS trial at 250 patients. It's a little bit bigger, I think, in both of the GW LGS studies, if I remember correctly. And so just kind of curious, what you're thinking about with respected size and necessary safety database and then statistical powering as well? Thanks a lot.

[Stephen Farr:]

Yeah, just a quick comment quick comment from me, and then I'll ask Gail, towards the specifics around powering. But it's actually about the same actually about the same size of the GW trial, where they looked at three - at two different doses placebo. So it's a three arm trial, not a two arm trial. And so I think, we are about in the same ballpark, and I think it basically reflects that there is known - more heterogeneity within the LGS and Dravet syndrome, and perhaps, Gail, you can talk a little bit about our powering assumptions here.

[Gail Farfel:]

That's exactly correct, Steve. In the Dravet program, we assumed a 40 point differential between the drug dose and placebo, whereas, in LGS, we are assuming a 30 point differential due to the increased heterogeneity in the cause of LG - causes of LGS as well as the larger age range. The age grows from two years old up to 35 years old. So looking at the studies in the literature of which there are a number of call them GWs Epidiolex topiramate, we - and rufinamide. We concluded that the powering assumption that should go into our power calculation was a 30 point differential, with a standard deviation of 50% as was used in some of the other studies.

[Paul Matteis:]

Okay. Great. Thanks so much of the clarification. I appreciate it.

[Stephen Farr:]

Thank you, Paul.

[Operator:]

We'll go next to Annabel Samimy with Stifel.

[Andrew Abriol Santos Ang:]

Hey, guys. This is Andrew in for Annabel. Just a question, for the - will 1504 study be sufficient for - in the EU? And for LGS, will you be pursuing that in the EU? And will the single study that you're doing in the U.S. suffice for that? And I have another question on commercialization after that.

[Stephen Farr:]

Yeah. 1504 is an important study, particularly in Europe, because of the fact that it's using what's known and what is the standard of care here, which includes stiripentol as the baseline antiepileptic drug. We do have a pediatric investigation plan that's an agreement with the European Medicines Agency and that does include both Study 1 as well as Study 1504. So Study 1504 is important for the European submission as well.

[Andrew Abriol Santos Ang:]

Got you. And for - on the payor side, have you had any conversations since the data been released? Do you envision any step that is required on that? Thank you.

[Stephen Farr:]

It's way too early for that. Obviously, we just got our first Phase 3 results and we're about a year away from submitting the NDA. So that's something obviously we'll have more clarity on as we get closer to approval of the product.

[Andrew Abriol Santos Ang:]

Great. Thank you.

[Operator:]

[Operator Instructions] We'll go next to David Sherman with LifeSci Capital.

[David Sherman:]

Hi, guys.

[Stephen Farr:]

Hi, David.

[David Sherman:]

I was just wondering if you could discuss your plans on the manufacturing front as you lay the groundwork for potential regulatory submissions.

[Stephen Farr:]

Yeah, thank you. We made really great progress there, and the reason why we don't talk about our manufacturing in CMCs, because we have things that are going along very well in the background. Nothing is on the sort of critical path towards the submission or indeed the launch of the products. So, we already have in place our commercial supply for both the drug substance as well as the final drug product. Those are at commercial scale. We still have final process validation to do, but that's certainly not on the critical part. So we are in great shape there, David. Thanks for the question.

[David Sherman:]

Okay. Thanks a lot.

[Operator:]

We'll take our next question from Tim Lugo with William Blair.

[Myles Minter:]

Hi, Myles Minter on for Tim Lugo. Thanks for taking the questions. I'm just wondering how your placebo affect rate might be altered in Study 1504, considering you're including patients on the stiripentol? Do you think that the GABA organisms going to have an effect there compared to your Study 1?

[Stephen Farr:]

Can you take the question, Gail?

[Gail Farfel:]

Certainly. Another good question. Remember that anybody who is eligible to enter Study 1504 has been stable on their other anti-epileptic medication and would have enough residual seizures to qualify for our study. And then the only agent that's being newly added is either ZX008 at one of - at our dose or placebo. The doses of the background medications are held stable. So we do believe that there's a reasonable expectation that the placebo rate will remain slow for individuals, who have been on stiripentol or any other background medications and are still eligible to be included in our trial.

[Myles Minter:]

That's great information. Thanks very much. Just a follow-up, if I might. Just with your LGS trial, I'm wondering that patients that are coming in on multiple combinations of antiepileptic drugs. Do you have any comment on how you're going to stratify that - stratify those 250 patients to ensure that you're going to get the palliative same effect? Thanks.

[Gail Farfel:]

Steve, I can address this.

[Stephen Farr:]

Please go ahead.

[Gail Farfel:]

We are not - the only drug that is approved in some countries that is not permitted as a background medication in the LGS protocol is - are the cannabinoids. And other than that, we're not - we are taking what is coming in. So as we launch to different countries, there will be approximately 80 sites in North America as well as Europe and Asia and Latin America. We will have to watch as we onboard to make sure that there is representations from all of the important background medications and that for the ones that are commonly used, such as clobazam and topiramate, normal randomization should take care of those. We will and have not yet opened to the protocol or the analysis plan, whether we will have to pay attention to some of the less common background medications that might be of great interest to a regulatory agency in a particular region.

[Myles Minter:]

Okay. Thanks very much. Great data thus far and look forward to more. Thanks.

[Stephen Farr:]

Thank you.

[Operator:]

And there are no further questions left in the queue. Dr. Farr, I'd like to turn the call back over to you for any closing remarks.

[Stephen Farr:]

Okay. Thank you, operator. Well, thanks for joining us today. We're obviously thrilled with the results in Study 1 and look forward to the availability of top-line from Study 1504, which is nearly fully enrolled. And we hope it will be enrolled this quarter, with data leading out to second quarter next year. Following this, of course, as we said earlier, we intend to submit applications for regulatory approvals in the second half of 2018. And we are also excited and remain in focus to begin initiating our Phase 3 trial for ZX008 as we announce very shortly. So I look forward to keeping everyone updated on our progress in the months ahead. Thanks, again, for joining us today and enjoy the rest of your day.

[Operator:]

Ladies and gentlemen, this does conclude today's conference. We appreciate your participation.