Zogenix, Inc.
Q3 2016 Earnings Call Transcript

Published: 8 Nov 2016

[Operator:]

Good day and welcome to the Zogenix Incorporated Third Quarter 2016 Financial Results Conference Call. Today’s conference is being recorded. At this time, I would like to turn the call over to Brian Ritchie. 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, Ann Rhoads; and 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 ended September 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 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, 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 joining us live on today’s call. Zogenix continue to move all of its business objectives forward in the third quarter, specifically our Phase 3 program evaluating ZX008 as an adjunctive therapy for seizures associated with Dravet syndrome continues to advance in both the United States as well as in Europe. As you know both studies, Study 1501 in North America and the multinational Study 1502 are currently enrolling patients. We are continuing to press on several fronts to activate sites and recruit patients into the 1501 and 1502 studies. 17 of the planned 24 sites are approximately 70% in U.S. and Canada are now open to screen patients to Study 1501 with three more U.S. sites to be fully activated this week, and others coming on line during remainder of the month. In addition to the patients identified by investigators at the open sites, we are experiencing strong levels of interest in our study directly from the patient parent community as a result of our internet and social media program with parents reaching out to Zogenix directly for detailed study information on the location of participating sites. Study 1502 has experienced the expected influx of patients driven primarily from centers in United Kingdom, Australia, Germany, Denmark and Belgium. We believe the next wave of recruitment will come from all these countries as well as from Spain and in Italy. To reiterate what we have said in the past, we will hold this excitement as an indication of the potential of ZX008 to make a significant difference in the lives of Dravet patients and their families. And we remain focused on the availability of top-line Phase 3 results in Dravet syndrome in Q2 of 2017 and continue to project record of submissions to follow by year-end 2017. Now let me move on briefly to Study 1504, which is a two-part study to investigate the effect of ZX008 in Dravet patients, who are not controlled on a stiripentol regimen. The first part of Study 1504 began in the third quarter and focused on collecting pharmacokinetic data in children with Dravet syndrome on stiripentol, valproate and clobazam to model any potential interaction with ZX008 and the selective dose of ZX008 for the clinical cohort. We are on track to begin with safety and efficacy part of Study 1504 before the end of this year. Next, I’d like to review our significant presence at the 12th European Congress on Epileptology, which took place September 11 through the 15 in Prague, Czech Republic. At this meeting Zogenix sponsored four posters

[Ann Rhoads:]

Thank you, Steve. As a reminder, as a result of our strategic decision to sell the Zohydro ER business in April of 2015, and focus on the clinical development of ZX008 and Relday, all of the Zohydro ER revenue and expenses have been excluded from our continuing operations for all periods herein and reported as discontinued operation. With that, let me begin my review of the financials for the three months ended September 30, 2016. Total revenue for the third quarter of 2016 totaled $6.6 million, consisting almost entirely of contract manufacturing revenue. This compares to total revenue of $9.1 million in the third quarter of 2015, which also consisted nearly, entirely of contract manufacturing revenue. The decrease in contract manufacturing revenue in the third quarter of 2016 was due primarily to a decrease in deliveries to Endo International under the supply agreement between the two companies. Third quarter 2016 research and development expenses totaled $10.1 million, up from $7.9 million a year-ago, as we continue to enroll patients in our two Phase 3 studies through ZX008 in the U.S. and Europe. Third quarter selling, general and administrative expenses totaled $6.5 million, that was up from $5.7 million a year-ago. Net loss from continuing operations for the third quarter of 2016 was $16.6 million, compared to $30 million in the third quarter a year-ago. And net loss from discontinued operations was $400,000 for the third quarter of 2016, compared to a net loss from discontinued operations of $1.6 million in the third quarter a year-ago. We reported total net loss for the third quarter of 2016 at $17 million or $0.69 per share, compared to a net loss of $14.6 million or $0.65 per share for the third quarter a year-ago. Turning now to the results for the nine months ended September 30, 2016, total revenue was $17.9 million, consisting almost entirely of contract manufacturing revenue. This compares to total revenue of $21.1 million in the same period through 2015, which included $19.0 million of contract manufacturing revenue and $2.1 million of service and other product revenue. Research and development expenses for the nine months ended September 30, 2016, totaled $28.4 million, up from $19.3 million a year-ago as we enrolled patients in our two Phase 3 studies for ZX008. Selling, general and administrative expenses for the nine months ended September 30 2016, totaled $19.5 million, that was flat as compared to a year-ago. Net loss from continuing operations was $45.1 million for the nine months ended September 30, 2016, compared to $29.8 million for the same period a year-ago. Net loss from discontinued operations was $1.1 million for the nine months ended September 30, 2016, compared to net income of $64.8 million in the year-ago period, which included the gain on the sale of the Zohydro ER business. We reported total net loss for the nine months ended September 30, 2016 of $46.2 million or $1.87 per share, compared with net income of $35 million or $1.72 per share for the year-ago period, which included the net gain on the sale of the Zohydro ER business. As Steve noted, cash and cash equivalents as of September 30, 2016 totaled a $109.9 million, as compared to a $155.3 million at December 31, 2015. We continue to expect that our cash runway extends through 2017. Moving on looking at our financial expectations for the full-year 2016, we’ve updated our research and development expense guidance and now expect these will be in the range of $42 million to $44 million, compared to the prior estimate of $54 million to $59 million. This is reflecting slower site initiation and ramp-up of the ZX008 clinical study. We continue to anticipate that selling, general and administrative expenses will be unchanged than in the range of $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 will now turn the call over to the operator to begin the Q&A session. Operator, would you please provide the instructions?

[Operator:]

Thank you. [Operator Instructions] We will go first to Annabel Samimy with Stifel.

[Annabel Samimy:]

Hi, thanks for taking my question. So, the enrollment for 1501 has been a little bit slower because the on boarding of sites is not affecting 1502 at all. And secondly, I was wondering if you could remind us again of the powering of the trial and expectations for placebo response in this trial? And then finally within the Lennox Gastaut population, how does that population differ in terms of severity? Is it a more difficult population or a more let’s say refractory population in Dravet, can you just give us a little of characterization of the differences? Thanks.

[Stephen Farr:]

Thanks, Annabel. Let me take the first part of your question and ask Gail to comment on the powering as well as she can give you some color on LGS as well as a disorder. In terms of Europe, we always felt it would have taken longer in Europe to get the sites up and running, which is why we actually announced that program – that 1502 studies started in June of this year. So to some extent we are tracking to plan on 1502 and it was really the period of contracting and budgeting in the U.S., which took us a little bit by surprise during this year. But we’re getting over that and seeing some nice healthy enrollment into 1501 as well now.

[Annabel Samimy:]

And then on the placebo response for powering in the Lennox-Gastaut?

[Stephen Farr:]

Gail, can you address that? Gail? Looks like she has got off the call, we’re in different locations today. So let me take the placebo response first. We haven't given too much information in terms of our power analysis. We were heartened by the fact that the Dravet – the most recent Phase 3 results, I mean Dravet syndrome, Epidiolex Phase 3 actually reporting out a low placebo response of 13%, which is pretty much in line with what we’ve seen in Europe several years ago for another drug called stiripentol that also had a fairly low and placebo response actually less than 10% in those studies. So we have not assumed as low as what we saw – what was seen in the stiripentol trial, but certainly we think we have more than adequate [indiscernible] placebo response along the lines of what was observed in the Epidiolex trial. And LGS, yes, it's actually a disorder that was characterized by a very severe epilepsy, it starts in childhood with children little bit older than in Dravet syndrome. The incidence is probably about three to four times out of Dravet syndrome, so it is indeed a catastrophic severe form of epilepsy. There are several drugs approved for LGS today, but there’s still a real unmet need with respect to these patients having very severe and frequent seizures. So it is certainly a disorder that we are interested in evaluating for ZX008.

[AnnabelSamimy:]

Is there anything specifically about the disorder that’s significantly different from Dravet in terms of the biology of it and how fenfluramine might act on that – on those pathways versus Dravet syndrome?

[Stephen Farr:]

Yes, it has in contrast to Dravet which is at least an epilepsy is almost regarded as monogenetic epilepsy around the sodium challenging mutation or deletion. LGS passed many theologies and it’s really characterized by the clinical symptomatologies that those patients have. The reason we decided to move forward with an invest initiated study is there was no high priority, preclinical data or clinical data that we could use to establish rather not the ZX008 would be effective in LGS, which is obviously the reason why we conducted that study and look forward to reporting that data out later this year.

[AnnabelSamimy:]

Okay. Thank you.

[Stephen Farr:]

Okay. Thanks, Annabel.

[Operator:]

We’ll go next to Jeffrey Lin with Leerink.

[Jeffrey Lin:]

Hi, this is Jeffrey Lin on of Paul Matteis. Thanks for taking my question. I just have one. As you think about the LGS study, what will you be looking for in order to determine the go and no go decision to advance the program? And what, I guess, is the BAF advancement?

[Stephen Farr:]

Well, I think its – first to recognize – it’s important to recognize right now that we’ll be presenting or the investigator will be presenting interim data at BAF. So we don’t have any priority rational both into what we need to see in that open label trial, before we believe would make a determination of whether or not LGS was a good target. So what I would like to do is look at that data in detail at the end of the year when it’s available and then we can move on from there.

[Jeffrey Lin:]

Thanks. I actually have one more follow-on, for the new study, the 1504, you are looking at the pharmacokinetics with stiripentol and potentially other AEDs. Are you doing this study in order to examine whether or not there’s a potential drug that been in action as we saw GWPH with clobazam?

[Stephen Farr:]

Yes, I believe Gail is now back on the line, so I will ask her to address that for you.

[Gail Farfel:]

Yes, I’m back on the line. With the pharmacokinetics we predict that stiripentol affects fenfluramine not the other way around and so we have something known as volunteer data that supports a model that is just that. And so we are moving forward to understand the magnitude of this interaction in children, so that we can determine the proper dose for the clinical trial.

[Jeffrey Lin:]

Alright, thank you very much.

[Operator:]

[Operator Instruction] We will now to turn Tim Lugo with William Blair.

[Tim Lugo:]

Thanks for taking my question. And more we will see it AES, I guess putting an investigator led LGS study, is that only going to be a preliminary efficacy or where we also see some safety data out of that? And could the investigator work in cardiac testing similar to what the FAS on Dravet.

[Stephen Farr:]

Hi Tim, good to hear your voice again. We obviously as part of the open-label study, which the design is on the clinicaltrials.gov is – there is a periodic echocardiography and EKG testing as well. And it’s really following the same format as we’re following in our Phase 3 program in Dravet syndrome. So certainly we would expect to see efficacy on safety really reported at the AES.

[Tim Lugo:]

Okay, great to hear. And is the maximum available dose similar to Study 1502 and Study 1501? And may be in those programs, how many patients have hit that maximum allowable dose?

[Stephen Farr:]

I can’t address the second one, because the update will be forthcoming at the AES. But in terms of the maximum dose it’s very much in line with what we’re doing with Dravet. So it’s 0.8 mg/kg/day, or a maximum of 30 mg/day for those who are on the heavier side.

[Tim Lugo:]

Okay great, that’s very interesting. And may be just a question for Ann, should we because of the reduction in R&D expenses related to the pivotal programs, should we just roll those expenses in 2017, it sounds like that’s mostly just enrollment related?

[Ann Rhoads:]

I think that’s a fair way to look at it.

[Tim Lugo:]

Okay, great. Thanks for all the questions.

[Stephen Farr:]

Thank you.

[Operator:]

And it does appear there are no further questions at this time. I’d like to turn it back to Steve Farr, for any additional comments or remarks.

[Stephen Farr:]

Well thanks to everyone for participating today. We obviously continue to focus on conducting Study 1501 and Study 1501 and look forward to availability of top-line data next year in Q2, as well as reporting out on the Lennox Gastaut information at the AES. We remain very confident in ZX008’s potential and look forward to keeping everyone updated on our progress as we close out the year and go into 2017. Thanks again for your time.

[Operator:]

This concluded today’s call. Thank you for your participation. You may now disconnect.