Zogenix, Inc.
Q1 2016 Earnings Call Transcript

Published: 11 May 2016

[Operator:]

Good day everyone, and welcome to the Zogenix Incorporated First Quarter 2016 Financial Results Conference Call. Today’s conference is being recorded. And at this time, I would like to turn the call over to Mr. Brian Ritchie of 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; Chief Financial Officer, Ann Rhoads; Chief Development Officer, Dr. Gail Farfel. This afternoon, Zogenix issued a news release announcing financial results and providing a business update for the first quarter ended March 31, 2016. 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’s 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 10, 2016. 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. We are off to a busy start this year. our Phase 3 program evaluating ZX008 as an adjunctive therapy for seizures associated with Dravet syndrome is advancing well in U.S. and the European clinical study is very close to enrolling its first patient. Let me begin with an overview of the recently presented news results from the ongoing prospective open-label trial of ZX008 or low-dose fenfluramine in patients with Dravet syndrome being conducted in Belgium. These new data were the subject of a podium presentation last week at the 14th International Child Neurology Congress in Amsterdam. The data continue to demonstrate sustained effectiveness and cardiovascular safety for Dravet patients treated with ZX008, as an adjunctive therapy for control of seizures. In addition for the first time, data were presented on patient and caregiver sleep quality and quality of life, which indicate we believe that a decrease in seizures maybe associated with improvements in aspects of daily living. To remind you all the new cohorts represents all patients who began treatment in the study following the original publication in epilepsy here in 2012. This cohort now includes nine patients, who range in age from one year to 29 years at the time they entered the study. There are five males and four female patients all with confirmed mutations of the SCN1A gene. The mean, initial, or staffing fenfluramine dose for the group was a 0.24 milligrams per kilogram per day with a range of 0.1 to 0.5 milligrams per kilogram per day and mean current dose is 0.35 milligram per kilogram per day, with a range 0.16 to 0.69 milligrams per kilogram per day. The average duration of treatment is now 1.9 years with a range of 0.3 year to 5.1 year. The primary objective for the analysis presented in Amsterdam was to assess the change in frequency of all major motor seizures, during add on treatment with a low-dose fenfluramine, compared to a three-month baseline period. These are the same seizures that will be counted for the primary endpoint in our ZX008 Phase 3 program. During the three months running period prior to initiating low-dose fenfluramine treatment, the median frequency of major motor seizures was 15.0 per month with a range of 0.4 to 39.47. Results over the entire observation period continue to support the efficacy and safety of low-dose fenfluramine for this difficult-to-treat patient population. It’s also noteworthy that a robust response was demonstrated at the first assessment period of three months and was maintained over the entire treatment period. In particular, the median frequency of major motor seizures at three months had declined from 15.0 to 2.0 per month and over the entire treatment period the median frequency of major motor seizures was 1.5 per month. This represents a 75 median reduction in seizures with a range of in seizure reduction of 28% to 100%. The corresponding mean value was 71%. Two subjects have modest responses and the remaining seven have responses that range from 68% to 100%. In terms of a responder analysis, six out of the nine patients experienced an equal or greater than 70% decrease in major motor seizure frequency and seven out of the nine subjects experienced an equal or greater than 50% reduction in major motor seizure frequency. In addition, treatment with low-dose fenfluramine continued to be generally well tolerated and did not result in any echocardiographic or clinical signs of cardiac valve abnormalities, pulmonary hypertension or any other cardiovascular abnormalities. There were no discontinuations due to adverse events or lack of affect. Dravet syndrome can have significant negative impacts on sleep quality and quality of life of the patients, parents and caregivers. During this trial, parents and caregivers were asked to rate both their child and their own sleep quality and quality of life using 0-10 scales where 0 was extremely bad and 10 was very good. At the most recent visit, mean sleep quality reported for patients and parents was 8.1 and 7.9 out of 10, respectively, while mean quality of life scores were 7.4 to 10 for both groups. We believe the relatively high levels of sleep quality and quality of life reported, reflect benefits tied to better seizure control in these patients. Importantly, these end points are being investigated in the ZX008 Phase 3 program. With that, let’s turn to the for Phase 3 program, which has now commenced. The North American Phase 3 study, we encoded Study 1502, began as you know in January on a multinational study, Study 1502 is close to beginning in Europe and in Australia. As Gail would expand upon shortly, the ramp up for our North American study was slower than planned, as we managed the contracting process with academic medical centers. So we now expect the availability of top line data, from the ZX008 Phase 3 program in this first quarter of 2017 and not at the end of 2016, as previously anticipated. Importantly, this slight delay in top line data does not affect our projected NDA submission timeline. We continue to expect the U.S. and European submissions for market organization for ZX008 and Dravet syndrome will occur in 2017. Moving on, I’m pleased to report that a Phase 2 investigator-initiated study on ZX008 and Lennox Gastaut syndrome, a drug-resistant, child with onset [ph] epilepsy syndrome was recently initiated. The first patient in this open-label dose finding Phase 2 study have entered the treatment phase. And data from this study are expected to be available prior to the end of 2016. As a reminder this study is being conducted by Lieven Lagae, M.D. Ph.D., who is Professor at the University of Leuven in Belgium and one of the investigators who has been studying the ZX008 in Dravet patients in the ongoing open-label trial. We are also exploring other opportunities to evaluate the ZX008’s efficacy in additional orphan pediatric seizure disorders for potential new indications. Now let me turn to Ralday, our proprietary once-monthly subcutaneous investigational formulation of risperidone for the treatment of schizophrenia. Our process aimed at identifying a development and commercialization partner is still ongoing. We continue to engage in discussions with a focused list of potential partners with a goal of bringing the process to a successful and timely conclusion. As we stated in prior FAs, the ideal partner is one with the resources, the experience and development infrastructure to successfully advance the program to Phase 3 clinical studies, as quickly as possible in 2016. Finally, I’d like to mention our strong cash position. We concluded the first quarter of this year with a $132.2 million in cash and continue to expect that our cash runway extends through 2017. To reiterate, we anticipate multiple key inflection points for ZX008 during the 2016, 2017 timeframe, including the initiation of Study 1502, the multinational Phase 3 efficacy and safety trial, top line Phase 3 and efficacy results from Study 1501. The North American Phase 3 trial or ZX008 in Dravet syndrome, which are now expected along with the results of Study 1502 in the first quarter of 2017. Data from the Phase 2 investigator-initiated study of ZX008 and Lennox Gastaut syndrome in the second half of this year, the planned U.S. and European submissions for market authorization, in Dravet syndrome, which we currently expect in 2017 and the opportunity to explore the ZX008 efficacy in other pediatric orphan seizure disorder indications, as is occurring in the investigator-initiated study in LGS. With that, I will now the call over to Gail. Gail?

[Gail Farfel:]

Thank you, Steve. I will start with an update on the clinical program ZX008, our investigation of proprietary liquid formulation, of low-dose fenfluramine for the treatment of seizures in Dravet syndrome. We have three controlled studies in the program, two identical, double-blind, randomized, clinical trials, running in North America and in the rest of the world, respectively called studies 1501 and 1502, as well as Study 1504 in which fenfluramine or placebo is given to patients who are on stiripentol, but still suffer from uncontrolled seizures. Study 1501 was initiated in the U.S. in January, and Study 1502 is expected to enroll subjects shortly in Europe and Australia. The stiripentol add-on study, Study 1504, is holding an investigator meeting this month and we expect the first cohort of patients to enter the trial in the third quarter of this year. To imagine the trial design, Study 1501 and Study 1502 are identical, double-blind, randomized studies on ZX008, compared with placebo in children and young adults aged two to 18 years of age. We are investigating two doses of ZX008 in these studies. 0.2 milligrams and 0.8 milligrams per kilo per day, with the highest dose capped at 30 milligrams per day. Importantly, this is significantly lower than what was previously used in adult obesity treatment. There will be an initial screening visit followed by six weeks of baseline data collection. Subjects who meet entry requirements will be randomized to either placebo 0.8 or 0.2 milligrams per kilo per day and ZX008 oral solution. Randomized subjects will titrate to their target dose over two weeks, and continue on that dose, during the 12 weeks maintenance period. Subjects will complete the double-blind study and are medically eligible and compliant can continue in a long-term open label extension. Our primary end point for these studies will be the changing frequency of convulsive seizures from baseline for the high dose of 0.8 milligrams per kilo per day group compared with placebo. The key secondary end points will be a 40% and 50% responder analysis which are important from European Regulatory submissions and the convulsive seizure-free interval, which is a significant interest to parents and to patients. Analysis comparing the lower dose ZX008 treatment, 0.2 milligrams per kilo per day with placebo are secondary efficacy end points. Additional secondary endpoints include the incidence of status epilepticus and a rescue medication use, as well as caregiver and clinical global impression of change ratings and quality of life assessments. In terms of safety, we will capture adverse events, and the typical lab vitals and analysis, we will also administer electrocardiogram and ECGs – I’m sorry echocardiograms and ECG at six-week to 12-week intervals for the first year of treatment and every six months thereafter. And if there are no issues there will be a fellow cardiac follow-up visit after the subject has discontinued study treatment. We have a set of assembles and accomplished team of cardiologists and specialists to design the safety monitoring for these trials. As stated by Steve earlier, we were slower than planned in getting the academic sites initiated in the North American Study 1501, as the contracting process at University medical centers took longer than we allotted in our timeline. However, since that time we have been pleased to see an acceleration of recruitment into the trial. Therefore, based on where we currently are with the momentum of the study, we now expect the availability of top line data from the ZX008 Phase 3 program in the first quarter of 2017. As you will recall, we had previously anticipated that this data will be available at year end. We continue to expect that the U.S. and European submissions for marketing authorization for ZX008 and Dravet syndrome will occur in 2017. As regards to the status of Study 1502, the multinational clinical trial, FX Committee’s submissions have been made in all ten countries, which is the final step prior to site initiation and enrollment. Based on the current status of these reviews, we anticipate approval to begin the study, very soon in several of the countries, including UK, Spain, Italy and Australia. With that I now like to spend a little time discussing Study 1504, which we initially talked about on our last call, few months ago. As you will recall, Study 1504 will be a two-part study to investigate the effect of adjunctive ZX008 for Dravet patients who are not completely controlled on a stiripentol regimen, a group of three medications which is approved in Europe and Canada, stiripentol, plus valproate, plus clobazam. We intend to enroll 90 to 100 subjects and the first cohort will participate in a pharmacokinetic portion that will help select the dose for the second outpatient clinical cohort. The endpoints collected for the clinical cohort are the same as in studies 1501 and 1502, with some additional quality-of-life assessments and the quality of sleep scale. The purpose on this study is to support pricing and reimbursement activities in Europe and for the Zogenix to maintain ZX008 European orphan drug exclusivity, as European regulations require that a new orphan demonstrate incremental efficacy over a drug that is already marketed in the class. The investigator meeting for this study is planned for this month and we expect enrollment to begin in the third quarter. With that I will now turn the call over to Ann Rhoads. Ann?

[Ann Rhoads:]

Thank you, Gail. As was the case in the 2015 as a result of our strategic decision to sell Zohydro ER business and focus on the clinical development of the ZX008 and Relday, all Zohydro ER revenue and expenses have been excluded from continuing operations for all periods herein and reported as discontinued operations. Our prior period information has been recast to confirm to this presentation. With that let me begin my review of the financials for the three months ended March 31, 2016. Total revenue for the first quarter of 2016 totaled $9.2 million consisting entirely a contract manufacturing revenue. This compares to total revenue of $4.6 million in the first quarter of 2015, which included $4.2 million of contract manufacturing revenue and $400,000 of service and other product revenue. The increase in contract manufacturing revenue in the first quarter of 2016 was due primarily to an increase of $4 million in expenses billed to Endo International under the supply agreement between the two companies. First quarter 2016 research and development expenses totaled $8.0 million, that was up from $5.2 million a year ago, as we continued preparations for our two Phase 3 studies for ZX008 and initiated the North American study. First quarter selling, general and administrative expenses totaled $6.1 million that was down slightly from $6.3 million a year ago. And net loss from continuing operations for the first quarter of 2016 was $10.2 million, essentially unchanged from the same quarter a year-ago. Net loss from discontinued operations was $200,000 for the first quarter of 2016 compared to a net loss from discontinued operations of $12.7 million in the first quarter a year ago. We reported total net loss for the first quarter of 2016 of $10.4 million, or $0.42 per share, compared with a net loss of $22.9 million, or $1.19 per share for the first quarter a year ago. Cash and cash equivalents as of March 31, 2016 totaled $132.2 million as compared to $155.3 million, at December 31, 2015, we continued to expect that our cash runway extends through 2017. With that said, while we currently have no near-term plans to access the markets to raise additional fund in order to maintain sound corporate finance practices and balance the flexibility, you'll know that, as stated in our 10-Q filed today, we have filed a $100 million S-3 shelf registration statement and a $25 million ATM facility. Moving on, looking at our financial expectations for full-year 2016, we continue to expect that our R&D expenses will be in the range of $54 million to $59 million, reflecting the initiation and ramp up of ZX008 clinical studies. In addition, we continue to anticipate that selling, general administrative expenses will be $25 million to $27 million for the year. Also contract manufacturing revenue from the supply of Sumavel DosePro to Endo is still expected at a low single-digit markup over the cost of contract manufacturing. I’ll now turn the call over to the operator to begin the Q&A session. Operator, would you please provide the instructions.

[Operator:]

Absolutely. [Operator Instructions] And we'll take our first question from Rohit Vanjani with Oppenheimer.

[Rohit Vanjani:]

Hi, good afternoon. Thanks for taking the question. For those new nine patients in the new clobazam population, do you know if any of the nine or if all of the nine run clobazam?

[Stephen Farr:]

Yes, we do know the breakdown of the treatment, I don't have in front of me, will be part of obvious a manuscript is being prepared on this cohort. But, yes some of them were actually on clobazam.

[Rohit Vanjani:]

And then do you know if anywhere on [indiscernible] therapy?

[Stephen Farr:]

Yes, that was an exclusion.

[Rohit Vanjani:]

Okay. And then, do you know how many meds on average, they were on compounded meds?

[Stephen Farr:]

That’s three to five, so obviously we are on four.

[Rohit Vanjani:]

That was it for me, now thanks, I appreciate.

[Stephen Farr:]

Thanks, Rohit.

[Operator:]

From Brean Capital we will hear from Difei Yang.

[Unidentified Analyst:]

Hi, this is Derek, filling in for Difei. Just a quick question on the Belgium study, were any of the patients or any of the nine patients seizure-free, during the testing period?

[Gail Farfel:]

There was one that’s been seizure-free for the entire testing period. So that is a 100%, response obviously and then there have been others which have had other intervals of seizure-freedom. But they have not been as long as one year.

[Unidentified Analyst:]

Okay, that is all from me, thank you.

[Gail Farfel:]

Thank you.

[Operator:]

From Stifel, we will hear Annabel Samimy.

[Esther Hong:]

Hi, this is Esther Hong in for Annabel Samimy. I have two questions. My first question is in regards to the patients in the open-label trial in Belgium. Is there anything different about the profile of patients that have been in the Belgium study as compared to the patient type being enrolled right now in the Phase 3 study? And then my second question is on enrollment. Do you expect any similar delays in the trial occurring in Europe. Thanks.

[Stephen Farr:]

Let me take the first part of your question. Really there is no difference than the inclusion with respect to the open label trial in Belgium, as well as what we we’re doing in Phase 3. So there are obviously, patients who have confirmed diagnosis of Dravet syndrome, they are on a variety of concomitant medications, they’re still uncontrolled with – launched on those medications. So it is the same, it’s basically the same patient population interview. Now we’ve reported data on the major motor seizures, I oversee the number has gone up from, up to about 15 per month, which is pretty typical. Data is being reported in other studies. And Gail do you want to address the second part?

[Brian Ritchie:]

Maybe you could ask your question again. Can you please repeat it.

[Esther Hong:]

Yes, sure, it’s in regards to the enrollment. Do you expect any similar delays in child occurring in Europe?

[Gail Farfel:]

We do not – we did build additional time for the contracting and budgeting process in Europe knowing that it is often conducted in series rather than in parallel for contracts and budgets and we do not expect the same delay.

[Esther Hong:]

Okay, great. Thank you.

[Operator:]

[Operator Instructions] And we will go to Tim Lugo with William Blair.

[Raju Prasad:]

Hey this is Raju Prasad on for Tim. Thanks for taking the question. I know previously, I think you said you would complete enrollment of 1501 in the summer of 2016, is that now pushed back to maybe the fourth quarter or is it still a summer time frame. And will you guys be putting a press release on that?

[Gail Farfel:]

So, yes, the ended results for top earnings related to quarter of the enrollment is shifted by approximately a quarter. We have not yet determined when we’ll release our press release but it’s certainly, something we’re considering.

[Stephen Farr:]

Yes and we’ll certainly keep you updated with respect to enrollment as we go through the year.

[Raju Prasad:]

Great. And then just a question on the AES presentation, there were seven patients now I guess there's two more and the median frequency has gone from three to 15. Can you just give me the baseline of the additional two patients?

[Stephen Farr:]

Let me just correct something for us because it's a three and a it was actually tonic-clonic seizures, so one type of major motor seizure. The recent study actually included all major motor seizures. So it wasn't as if the two others pushed the number right up, we were ready, now counting all major motor seizures revise [ph] gone from 15 to three. But certainly the two were added recently had fairly high frequency at baseline, that was certainly an excess of 20 per month?

[Raju Prasad:]

Okay, so if you counted the major motor seizures in the previous seven are they almost consist or maybe little bit?

[Stephen Farr:]

It will be about the same, yes. Perhaps a little bit lower but not by very much.

[Raju Prasad:]

Okay. Great, thanks for the all the questions.

[Stephen Farr:]

All right, no problem.

[Operator:]

And at this time, I would like to turn the call back over to Dr. Steve Farr for any additional or concluding remarks.

[Stephen Farr:]

Well, thanks again for your time today. A fairly brief time between this call and the one we had a few months ago. But obviously still very excited about where we are and all aspects of our business. We have a very busy and the potential [ph] remainder of 2016 and then you look forward to keep me praised about future and for the successes. So, thanks again for joining us today we really appreciate your interest in Zogenix. Good bye.

[Operator:]

And ladies and gentlemen, that does conclude today's presentation. We do thank everyone for your participation.