Zogenix, Inc.
Q2 2016 Earnings Call Transcript

Published: 10 Aug 2016

[Operator:]

Good day and welcome to the Zogenix Incorporated Second Quarter 2016 Financial Results Conference Call. Today’s call is being recorded. And at this time, I would like to turn the call over to Brian Ritchie of LifeSci Advisors. Please go ahead.

[Brian Ritchie:]

Thank you. 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, Ann Rhoads. This afternoon, Zogenix issued a news release announcing financial results and providing a business update for the second quarter ended June 30, 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, August 09, 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. Second quarter was another busy one for Zogenix, importantly our Phase 3 program evaluating ZX008 an adjunctive therapy for children associated with Dravet syndrome is progressing well both in the United States as well as in Europe. During the second quarter, we initiated our multinational study, Study 1502 with sites in Western Europe and in Australia. We're now actively enrolling patients at sites for our North American study, Study 1501 as well as in Study 1502. For Study 1501 over half of the planned 24 sites are now able to enroll patients and we expect the majority of the other sites will be active by September, pending final IRB approvals. Study 1502, which is planned for total of 30 sites is now open for enrolling patients at 13 sites over four countries. We expect to have the vast majority of the remaining participating sites up and running in the August, September time period. We are truly gratified by the enthusiasm we're seeing for our Phase 3 program from some of the leading U.S. and European academic centers who care for large number of Dravet patients, which we view as validation of potential of ZX008 to make a significant difference in the lives of Dravet patients and their families. For example the principle investigator study 1501, Dr. Joseph Sullivan from the Paediatric Epilepsy centre UCSF, running of children's' hospital enrolled his allocated member of subjects within the first week of his site being up and running. Most importantly though based on the current figures of Study 1501 and 1502 we continue to expect that the U.S. and European submissions for market organizations for ZX008 will occur in 2017. For us this is the key timeline on which to focus. Let me move briefly on to Study 1504, which is a two-part study to investigate the effect of adjunctive ZX008 for Dravet patients who are not completely controlled on a stiripentol regimen. The first site was initiated recently for cohort 1, this is the PK portion of the trial and we expect that Study 1504 will be getting enrolling patients too. Next I'd like to discuss two important upcoming catalysts for us. At the 12th European Congress on Epileptology which takes place September 11 through the 15 in Prague, Czech Republic, there will be an update on efficacy and cardiovascular safety in a new cohort of Dravet syndrome patients participate in an ongoing prospective open-label trial of ZX008 or low-dose fenfluramine that's being conducted in Belgium. As you know the open-label data generate the data shown unprecedented levels of efficacy with respect to seizure reductions. These results further enhance our confidence in a potential for a positive outcome for our ongoing Phase 3 program. There will also be presentations on our work on the burden of illness in Dravet syndrome as well as efforts towards a composite clinical end point that refract patient and caregiver relevant outcome measured through semi qualitative research and on the global impact to Dravet syndrome this were being led by expert Dr. Rima Nabbout in Paris. In addition, a poster will be presented by Dr. Mark Jensen of the University of Washington and Seattle reporting new data from an expert panel on caregiver Dravet syndrome. This work by funded by Zogenix under an investigator initiated study group. And lastly at the same conference, we will be sponsoring a symposium entitled, Understanding the Biology and treating early onset of epileptic enteropathy in the year 2020 and this will be with international experts speakers including Dr. Joe Sullivan from the U.S. Lieven Lagae from Belgium, Rima Nabbout from France, Ben Whalley from the United Kingdom and [Tim] from Germany. Another important upcoming milestone for us the availability of topline data from the Phase 2 investigator initiated study obviously ZX008 in Lennox Gastaut syndrome, a drug-resistant, childhood onset epilepsy syndrome. This study is currently being conducted by Lieven Lagae, MD, PhD, who is a professor at the University of Leuven in Belgium. Professor Lagae intensely submit a late breaking abstract full presentation of the topline data at the 2016 American Epilepsy Society Meeting which will take place December 2 through the 6 in Houston, Texas. I am pleased to report that this study is enrolling well and there are number of patients currently on drug. Before I conclude my comments on the ZX008 I would like to talk a little bit about the significant presence we had of the 2016 Dravet syndrome foundation annual meeting, which took place in June in Coral Gables, Florida. This unique meeting pulled together multiple stakeholders in the Dravet syndrome community, panelist, caregivers, clinicians, researchers and pharmaceutical industry professionals. For Zogenix the conference provide us with an important opportunity to discuss our Phase 3 clinical program for ZX008 to a significant number of parents and clinical investigators. Again we were quite pleased with the high level of interest in ZX008 from each of the stakeholders groups in attendants. 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 for Ralday remains ongoing. As stated in prior updates the ideal partner is one with the resources experienced and developmental infrastructure to successfully advance the program through Phase 3 clinical study as soon as possible. Once we have a material next step here we will certainly update the market. Finally, I’d like to reiterate our strong cash position. We concluded the second quarter of 2016 with $127.8 million in cash and continue to expect that our cash runway extends through 2017. In addition, while Ann will discuss that in further detail shortly, I should add that our recent debt refinancing results in approximate $10 million increase to our expected cash balance at the end of 2017. As a reminder, we anticipate multiple key inflection points for ZX008 during the 2016, 2017 timeframe and these include data from the Phase 2 investigator initiated study of ZX008 and Lennox Gastaut syndrome, top line Phase 3 and efficacy results from Study 1501 and 1502, the planned U.S. and European submissions for market authorization for ZX008 in Darvet Syndrome which as I said earlier we currently expect will occur in 2017. And lastly the opportunity to explore VX008 efficacy in other pediatric orphan seizure disorder indication as it occurring in the investigator initiated study Lennox Gastaut syndrome. With that I'll now turn the call over to Ann. Ann?

[Ann Rhoads:]

Thank you, Steve. As a reminder, as a result of our strategic decision to sell the Zohydro ER business in April 2015 and the focus on the clinical of the ZX008 and Relday, all Zohydro ER revenue and expenses have been excluded from our continuing operations for all periods herein and reported as discontinued operations. With that let me begin my review of the financials for the three months ended June 30, 2016. Total revenue for the second quarter of 2016 was $2.1 million consisting almost entirely of contract manufacturing revenue. This compares to total revenue of $7.4 million in the second quarter of 2015, which included $6 million of contract manufacturing revenue and $1.4 million of service and other product revenue. The decrease in contract manufacturing revenue in the second quarter of 2016 was due primarily to a decrease in deliveries in Endo International under the supply agreement between the two companies. Second quarter 2016 research and development expenses totaled $10.4 million, up from $6.2 million a year ago, as we initiated Studies 1502 and continued enrolment in Study 1501 our two Phase 3 Studies for ZX008 during the quarter. Second quarter selling, general and administrative expenses totaled $6.8 million was down modestly from $7.6 million a year ago. Net loss from continuing operations for the second quarter of 2016 was $18.2 million, compared with $6.7 million in the second quarter a year ago. And net loss from discontinued operations was $600,000 for the second quarter of 2016 compared to net income of $79.2 million in the second quarter a year ago, which included a gain on the sale of the Zohydro ER business of $75.6 million net of tax expense. We reported total net loss for the second quarter of 2016 of $18.8 million, or $0.76 per share, compared with net income of $72.5 million, or $3.78 per share for the second quarter a year ago, which included the net gain on the sale of the Zohydro ER business. Turning now to the results for the six-months ended June 30, 2016. Total revenue was $11.3 million, consisting almost entirely of contract manufacturing revenue. This compares to total revenue of $12 million in the same period for 2015, which included $10.2 million of contract manufacturing revenue and $1.8 million of net product and other service revenue. Research and development expenses for the six months ended June 30, 2016, totaled $18.4 million, up from $11.4 million a year ago, as we initiated our two Phase 3 Studies for ZX008 earlier this year. Selling, general and administrative expense for the six months ended June 30, 2016, totaled $13 million, down from $13.9 million a year ago. Net loss from continuing operations was $28.5 million for the six months ended June 30, 2016, compared to $16.9 million for the same period a year ago. Net loss from discontinued operations was $800,000 for the six months ended June 30, 2016, compared to net income of $66.5 million in the year ago period, which included the net gain on the sale of the Zohydro ER business. We reported total net loss for the six months ended June 30, 2016, of $29.2 million, or $1.18 per share, compared with net income of $49.6 million or $2.59 per share, for the year ago period, which included the net gain on the sale of the Zohydro ER business. Cash and cash equivalents as of June 30, 2016, totaled $127.8 million, as compared to $155.3 million at December 31, 2015. We continue to expect that our cash runway extends through 2017 and we currently have no near-term plans to access the markets to raise additional fund. We did however, as Steve mentioned opportunistically refinance our debt in the second quarter. Historically we entered into an amendment to our existing term-loan facility with Oxford Finance and Silicon Valley Bank to increase the total amount of our term-loan principal to $20 million. The term-loan facility provides for interest only payment through January of 2018, followed by consecutive monthly payments of principle and interest until maturity on July 1, 2020. We also reduced the interest rate on the loan as well as improved certain covenants under the agreement. We expect the amendment to result in an increase of approximately $10 million to our anticipated cash balance at the end of 2017. Moving on, looking at our financial expectations for the full year 2016, we continue to expect that our research and development expenses will be in the range of $54 million to $59 million reflecting the initiation and ramp up of the ZX008 clinical study. In addition we continue to anticipate the selling, general and administrative expenses will be in the $25 million to $27 million for the year. Also contract manufacturing revenue from the supply of some of those credits Endo is still expected at a low single digit mark-up 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 instruction.

[Operator:]

[Operator Instructions] We'll take our first question from Annabel Samimy with Stifel.

[Andrew Finkelstein:]

Hi, guys this is Andrew in for Annabel, just a -- just a few questions first on the ZX008 if you can remind us of what your commercial plan was, if you would been envisioning a partner in the U.S. or EU and if you can pursue the loan how big of a sales force do you need?

[Steve Farr:]

Hi, Andrew this is Steve. Yeah, we’ve actually stated that we intend to commercialize the product ourselves both in the U.S. as well as in Europe and ultimately try and secure a partner for Asia Pacific and in fact then towards that end we already have a small team of commercial minded experts on staffing United States and we also have European office in Maidenhead, getting ready to do all the pre-marketing activities in Europe. So, we intended yes we will commercialize it with respect of what the structure of the ultimate commercial team would look like. We're still doing that analysis right now. We think it will be very efficient relatively small numbers of sales reps than the MSLs but we don’t have a specific number for you today.

[Andrew Finkelstein:]

Great and my second question is on Relday, what's the appetite for the market regarding the product? I know you guys have been in discussions for a while and secondly assuming discussions take longer than expected or interest on the product begins to end, at what point do you just take the program forward or is there a plan B you are considering.

[Ann Rhoads:]

We are -- we're still in the process right now and we're still optimistic that that process will yield the right partner. What I will say where people have done most diligence is really know on the product profile to say I think there has being really wide appreciation of what we're trying to do with the product profile and getting those plasma levels up into therapeutic range on the first day of injection. But people have to do their work on what is the ultimate clinical program and what is the cost associated with that, and as well as trying to look at the commercial landscape once this product is ultimately approved. It's heartening to read yesterday about analyst who covers the space to see the long acting injection space is still growing double-digits year on year. So, that’s good to see. But it is a competitive space and so I think we're going to take this product on and needs to really feel comfortable that they can compete in the market.

[Andrew Finkelstein:]

Great to know no plans to just go at it alone -- you're main focus. Okay great thank you.

[Steve Farr:]

We not -- we're not going to do this alone. It’s a very different market to ZX008. We believe that we are best focusing in orphan neurology and that’s where we're going to be doing our commercialization.

[Andrew Finkelstein:]

Great, thanks Steve.

[Steve Farr:]

Great, thank you.

[Operator:]

We’ll go next to Difei Yang with Brean Capital.

[Difei Yang:]

Hi, good afternoon Stephen and thanks for taking my questions. So just a quick on the LGS trial design would you remind us what you would be looking for in the Phase 2.

[Steve Farr:]

Yeah, it’s an investigated initiative study to tell you, it's actually up on clinical trials focus. So, you will be able to see the design later on but let me just take you through it right now. It is open label as I said. It's enrolling 20 patients with LTS. There is a six-week baseline period during which we actually collect that baseline seizure type and frequency, and if they have the requisite number of seizures they are allowed to enter the treatment arm and that's where it’s a little bit different from what we're doing in our Phase 3 program. We're actually starting all patients on a low dose of ZX008 0.2 milligrams per kilogram per day. And then we do an efficacy assessment after four weeks, and if it reaches a certain threshold they remain on that dose. It doesn't escalate to a 0.4 milligrams per kilogram dose with the same efficacy of test about the four weeks, and again if they don't reach that threshold they are escalated to the highest dose which is 0.8 milligrams per kilogram and they're followed for 12 weeks during the treatment arm.

[Difei Yang:]

Okay. Thank you, Steve.

[Stephen Farr:]

Thank you.

[Operator:]

We’ll go next to Rohit Vanjani with Oppenheimer.

[Rohit Vanjani:]

Hey, Steven, thanks for taking the questions. You mentioned submission in the U.S. and Europe in 2017, but I just wanted to confirm that the data from 1501 is still anticipated for 1Q '17 and 1502 in first half '17 is that right?

[Stephen Farr:]

Yes, we're still currently targeting the availability of top line data for Study 1501 by the end of the first quarter next year. Obviously this is very busy time for us right now and we feel that we can still hold out that guideline. We expect data from Study 1502 about a quarter later. So with those in hand we’ll have to move forward with both the NDA and NA submission.

[Rohit Vanjani:]

Okay. And then can you just remind us for 1501 and 1502 is the primary endpoint median or mean reductions in convulsive seizure frequency?

[Stephen Farr:]

As its stated right now it’s the mean, but obviously if the date are not normally distributed then they will allow us to move to a median.

[Rohit Vanjani:]

Okay. And then for the Study 1502 you mentioned 30 of 20 sized of four countries, is that right and you’ve started enrollment -- have you started enrollment in the U.K., Spain, Italy and Australia?

[Stephen Farr:]

I didn't mention Australia to the four countries that are up and running today I'd be happy to talk a little about Belgium, Italy, the U.K. and Spain. We’re seeing good progress right now in both Belgium as well as in U.K. It's the system holiday period right now in Europe and our intent and particularly in collaboration with inVentiv as well as our European office is to have all sites ready to do some serious enrolling, 171 is back from a summer vacation. So we expect to see it really kick off in the late August, September timeframe.

[Rohit Vanjani:]

And then did I get that right of 13 of 25 you have up and running?

[Stephen Farr:]

No, we have 13 of 30.

[Rohit Vanjani:]

30 okay.

[Stephen Farr:]

Yes.

[Rohit Vanjani:]

And how many countries do you plan to be in, if you're in four right now?

[Stephen Farr:]

Total of 10, and the vast majority of those sites will be active in the August, September timeframe.

[Rohit Vanjani:]

Okay. And then the last one for me I think TW data was high 30s, mid 40s median reduction in seizure, I think your open label data was in the mid 70s, I'm guessing that will come down in the environment study. But can you provide any commentary from whatever you're seeing in the trial thus far in terms of content or otherwise that you still get a pretty good cushion there to work with?

[Stephen Farr:]

It’s way too early for that in terms of, yes and I think that really we would need to get towards the end of the study to be confident in saying anything about that.

[Rohit Vanjani:]

Okay, great. Thanks for taking my questions.

[Stephen Farr:]

Thank you.

[Operator:]

[Operator Instructions] We’ll go next to Raju Prasad with William Blair.

[Raju Prasad:]

Hey thanks for taking the question. Steve, can you just give us a little bit of more color on what type of data we're going to expect from the open label Dravet study are there more patients that have been enrolled than the nine that was presented in May?

[Stephen Farr:]

Sorry, just the open label study in Dravet syndrome.

[Raju Prasad:]

Yeah the open label from Belgium.

[Stephen Farr:]

Yes, I can often -- the abstract I don't think is up online quite yet, but it will be very soon. So we should probably not say anything until the abstract is up in the public domain.

[Raju Prasad:]

Okay. And are those patients, would they qualify for 1501 to 1502 if they were involved in that process or -- are they different?

[Stephen Farr:]

Some would and some would not and the big difference is basically the age. So some of the patients in the open label trial are actually in excess of 18 years old.

[Raju Prasad:]

Okay. Great. Thank you.

[Operator:]

And at this time with no further questions, I would like to turn the call back over to Steve Farr for closing remarks.

[Stephen Farr:]

Thank you. Well reminder of this year will be a critical time for us and we look forward to completing enrolment of Study 1501 and 1502. And also two significant accounts there our data presentation coming up next month in Prague as well as top line data from the Phase 2 investigation initiated study in Lennox Gastaut. We remain confident in ZX008 potential and look forward to keeping everyone updated on our progress as we move ahead this year. Thanks again and thanks for joining the call.

[Operator:]

This does conclude today’s conference. We thank you for your participation. You may now disconnect.