Zogenix, Inc.
Q4 2016 Earnings Call Transcript

Published: 10 Mar 2017

[Operator:]

Good and welcome to this Zogenix's Fourth Quarter and Full Year 2016 Financial Results Conference Call. Today's conference is being recorded. At this time I would like to turn the conference over to 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, Mike Smith; 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 fourth quarter and full year ended December 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 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, March 9, 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 J. Farr:]

Thank you Brian and good afternoon to everyone who is joining us live on today's call. I'm pleased to have the opportunity to update you on the significant progress we've made with our Phase 3 development program for ZX008, fenfluramine oral solution as an adjunctive therapy procedures associated with Dravet Syndrome. Also as initially announced last month at the Leerink Healthcare Conference, we have established a clear clinical development pathway to regulatory submissions with Dravet Syndrome in the United States and Europe and we are targeting top line data readouts this year. Let me now review on our ongoing Phase 3 program of three double-blind randomized clinical trials in children and young adults with Dravet Syndrome, studies 1501, 1502 and 1504. Studies 1501 and 1502 are identically designed, three arm fixed dose placebo controlled trials of ZX008 as adjunctive therapy for uncontrolled convulsive seizures in Dravet Syndrome patients. Both studies assess efficiency across the titration on 12 week maintenance periods and also enroll 40 subjects per treatment group, where one of two doses of ZX008 or placebo is being added as adjunctive therapy to standard of care in treatment of seizures. Study 1501 is being conducted in United States and Canada, and study 1502 is running at sites in Western Europe and Australia. Both studies exclude concomitant treatment with marijuana products like cannabis oil or CBD as well as stiripentol, a drug approved for Dravet Syndrome in Europe, Canada, Japan and Australia. In the United States stiripentol can be obtained via the FDA personal importation policy and expanded access IND. In addition to studies 1501 and 1502, Zogenix is conducting is a third double-blind randomized two arm Phase 3 trial, Study 1504 in which all subjects will be taking stiripentol, valproic and clobazam as part of their baseline standard care. Study 1504 is being conducted at clinical sites in France, the Netherlands, UK, Germany, US and Canada. We recently announced the initiation of these safety and efficacy portion of this study, which compares a single dose of the ZX008 versus placebo across the titration and 12 week maintenance period and is to enroll 40 subjects per treatment group. Study 1504 permits [ph] stiripentol, it rose from patients who are excluded from 1501 and 1502, which will be beneficial for both enrollment of the study and expanding the scope of clinical experience for ZX008 in Dravet Syndrome. In recent communications regarding the design study 1504 the FDA has agreed Study 1504 can meet the requirement of a Phase 3 pivotal trial in United States. To-date over 180 patients have been enrolled across these three studies. The limited patient population in Dravet Syndrome together with the use of artisanal CBD in U.S. and stiripentol in Europe has made complete enrollment in studies 1501 and 1504 challenging. To directly address this issue we recently established a merged analysis plan to prospectively combine data from randomized subjects in studies 1501 and 1502 into a single study which we call Study 1. This approach takes advantage of the fact that 1501 and 1502 are identical studies and addresses the risk that these studies may not complete with an acceptable timeframe as independent trials. We expect all subjects to have entered Study 1 by the end of the current quarter and as such are on track for top line data readout from our first Phase 3 trial in the third quarter of 2017. Key to the merged analysis plan for 1501 and 1502 is the ability to leverage study 1504 as our second pivotal trial in Dravet Syndrome. Study 1504 was initially to be conducted only in Europe, but due to significant investigator interest in North America, the study was expanded to include sites in U.S. and Canada. While the efficacy and safety portion of this study just started this quarter, we are encouraged by the initial enrollment trends at open sites in France firms and express strong activity from the selected sites in other European countries and in U.S. and Canada as they are activated during the next few months. We know this interest is being driven by the inclusion of stiripentol, which is commonly used for Dravet Syndrome in Europe as well as by many patients in the United States. We are targeting top line data for studies 1504 by the end of this year. The net result of our development plan is that we expect the availability of top line Phase 3 data and potential regulatory submissions to occur at least six to nine months ahead of what would be possible if studies 1501 and 1502 were read out as separate independent trials. We also believe that the combination Study 1 and Study 1504 provides the potential for a regulatory submission with data that closely resemblance global clinical practice with the inclusion of a concomitant medication use in many countries. Before I move on from ZX008 in Dravet Syndrome, I’d like to highlight the recent method of use patent issued in the United States. This Patent is expected to provide protection of associated claims through 2033 and represents the first issued patent covering the treatment of seizures associated with Dravet Syndrome using fenfluramine as an adjunctive therapy. We view the issue of this patent as a significant milestone for our ZX008 franchise and we will continue to pursue multiple additional patent families globally to further protect our lead product candidates. In addition, another important recent achievement was the receipt of conditional approval from the FDA and the EMA in Europe for the use of FINTEPLA as a proprietary name for ZX008, allowing us the opportunity with approval, to market ZX008 for Dravet Syndrome with one global brand. Moving on to another childhood onset epilepsy condition Lennox Gastaut Syndrome or LGS we were very pleased to recently announce that the European commission designated ZX008 as an orphan medicinal product for the treatment of LGS. We also intend to seek Orphan Drug designation in the U.S. later this year. Last December at the 70th American Epilepsy Society Annual Meeting, data were presented from an interim analysis of the first 13 patients who have completed at least 12 weeks of a Phase 2 open label dose finding investigator initiated study with ZX008 in LGS. In that interim analysis a median 50% reduction in major multi-seizure frequency over the entire treatment period compared to baseline was achieved in the intend to treat patient population, with seven patients or 54% of the group achieving a reduction between 50% and 90%. Of note the protocol restricts dose escalation once at least a 50% seizure reduction has been obtained. So even greater levels of seizure reduction might be seeing at higher doses. This study is been led by Dr. Lieven Lagae, Professor of Pediatric Neurology University of Leuven in Belgium. Based on these compelling data, Zogenix intends to advance into a Phase 3 clinical program in LGS. We recently completed a positive pre-IND meeting with the FDA and have a clear path to open the IND with a global Phase 3 protocol without the needs for additional non-clinical studies or clinical PK trials. In addition we are pleased to note that the FDA has confirmed that if two studies are filed to support an approval for ZX008 in the treatment procedures in patients with Dravet Syndrome than a single positive study maybe adequate support and indication for adjunctive treatment of seizures in LGS. We intend to file the IND before the end of this quarter and to initiate the LGS Phase 3 trial in the second half of 2017 after having top line data from study 1 in Dravet Syndrome. Before I introduce our new Chief Financial Officer Mike Smith, let me review the potentially value enhancing milestones we expect for the activity rate over the next 12 to 18 months. Top line data from Phase 3 study one in Dravet Syndrome; top line data from Phase 3 study 1504 in Dravet Syndrome; file regulatory approval submissions in Dravet Syndrome in U.S. and Europe and file an IND and initiate a Global Phase 3 study in LGS. 2016 was a productive year for Zogenix and our development programs and as Mike will discuss in a moment we have also ended the year in a strong financial position. This will allow us to focus on the execution of our late stage Dravet syndrome study on the multiple potentially transformative near term milestones of top line study results for studies 1 and study 1504 in 2017. We are obviously quite excited about the opportunities that lie ahead for us over the next 12 to 18 months. With that said, I would now like to finally introduce Mike who joined us in January. Mike was most recently the Chief Financial Officer of Raptor Pharmaceutical Corporation which was acquired by Horizon Pharma. He has over 18 years of experience in senior executive roles at publicly traded and private biotechnology companies including as CFO, Chief Business Officer and General Manager of Operation Divisions and has managed and lead over $3 billion of transactions. Mike has already been out speaking with investors and we’re really pleased, he’s come on board. I’ll now pass the call over to Mike for his review in financials. Mike?

[Michael P. Smith:]

Thank you Steve and good afternoon everyone. I start with a reminder, as a result of our decision to sell Zohydro ER business back in April 2015, all Zohydro ER revenue and expenses have been excluded from our continuing operations for all periods herein and reported instead as discontinued operation. Also before jumping into the financials I’d like to provide a quick update on our supply relationship with Endo International regarding the manufacturing supply of Sumavel DosePro. Zogenix and Endo recently entered into a letter agreement acknowledging Endo’s decision to have Zogenix discontinue the manufacturing supply of the DosePro product while the parties finalize the termination of our existing supply agreement. Based on this letter agreement we expect to fulfill currently open orders during the first half of 2017 and cease supplying Endo with additional products following such tack [ph]. DosePro has been a non-core asset for us since the time of its sale Endo in 2014 and the conclusion of the supply agreement allows us to focus on our strategy on therapeutics for CNS and orphan disorder. The planned supply termination has a net expense impact of approximately $3.5 million on our statement of operations in 2016. This charge is comprised of an $8.4 million of impairment of manufacturing assets and prepaid royalties which is partially offset by an acceleration of $4.9 million of previously deferred revenue. So with that background let’s move to the financials for the three months ended December 31, 2016. Total revenue for the fourth quarter of 2016 totaled $11 million consisting entirely of contract manufacturing revenue. This compares to total revenues $6.1 million in the fourth quarter of 2015 of which $5.3 million was contract manufacturing. Fourth quarter 2016 research and development expenses totaled $13.4 million. That’s up from $8.6 million a year ago as we continue to enroll patients and advance our Phase 3 studies for ZX008 in both U.S. and in advanced our Phase 3 study for ZX008 in both U.S. and Europe. Fourth quarter selling, general and administration expenses totaled $7.5 million, up slightly from $6.8 million a year ago. Altogether net loss from continuing operations for the fourth quarter of 2016 was $23.6 million, compared to $11.9 million in the fourth quarter a year ago. We reported total net loss for the fourth quarter of 2016 of $23.5 million or $0.95 per share, compared to a net loss of $8.8 million or $0.36 per share for the fourth quarter a year ago. Turning now to results for 12 months ended December 31, 2016 total annual revenue in 2016 was $28.9 million, consisting almost entirely, again of contract manufacturing revenue. This compares to total annual revenue of $27.2 million for 2015 which was comprised of $24.4 million of contract manufacturing revenue and $2.8 million of service and other product revenue. Annual R&D expenses in 2016, totaled $41.8 million, up from $27.9 million in annual R&D cost for 2015, again reflecting the advancement of our Phase 3 study for ZX008 in Dravet syndrome, and funding for the open label dose ranging investigator initiated study in LGS. Selling, general and administrative expenses for the 12 months ended December 31, 2016 totaled $27 million, up slightly from $26.3 million for the year in 2015. Net loss from continuing ops was $68.7 million for the year ended December 31, 2016 compared to $41.7 million in the prior year. Annual net loss in discontinued operations was $1 million in 2016 compared to annual net -- an annual net income of $67.8 million in year-end December 31, 2015 which included a net gain on the sale of Zohydro ER business. We reported total net loss with year-ended December 31, 2016 is $59.7 million or $2.81 per share compared to net income of $26 million or $1.23 per share for the 12 months ended in the prior year. Cash and cash equivalents at year-end 2016 totaled $91.6 million as compared to a $155.3 million in the prior year, December 31, 2015. As Steve noted we are pleased to be headed into the year targeting multiple Phase 3 topline data readouts with a strong financial position. We currently have no plans to raise capital prior to our planned announcement of our study one Phase 3 topline results. And we expect our cash runway to extend into the first half of 2018. I'll now turn the call over to the operator and begin the Q&A session. Operator, would you please provide the instructions.

[Operator:]

Yes, sir. Thank you. [Operator Instructions] And we'll first go to Paul Matteis with Leerink.

[Jeffrey Lin:]

Hi this is Jeffrey Lin on Paul Matteis. Thanks for taking our question. So I guess the first question is with the -- by combining study 1501 and 1502 do you see any foresee any kind of operational challenges or the introduction of any potential crises from this combination study?

[Stephen J. Farr:]

Thanks, Jeffrey, I'm going to pass over to Gail Farfel, our Chief Development Officer to address your question.

[Gail M. Farfel:]

Okay. The combination of 1501 and 1502 would result in Study 1, and Study 2. There will not be any introduction of bias into Study 1 nor would there be an effect on the third study, Study 1504. The potential to introduce Study 2 resulting from data that is known about [indiscernible] affecting study 2 is minimal and manageable. It's well described and can be controlled by solid good operations of running a clinical like this. So we believe that any substantiated bias in Study 2 is going to be problematic.

[Stephen J. Farr:]

Just to remind you that our regulatory strategy here to submit with a results from Study 1 and Study 1504.

[Jeffrey Lin:]

Right okay. Thank you for the color on that. And then I guess with regards to the LGS Phase 3 that you plan on initiate in the second half, do you have any preliminary thoughts on potential design endpoints and the fiscal [ph] assumption?

[Stephen J. Farr:]

We’ve had a good pre-IND meeting with the FDA and we’ll be submitting our protocol as part of the IND during this quarter. So we’ll probably talk more about design, about protocol and designing the trial once the IND is open. But it will be nothing unusual compared to other studies that are being conducted for this disorder. So don’t expect to see any surprises.

[Jeffrey Lin:]

All right. Thank you very much.

[Operator:]

Next question comes from Annabel Samimy with Stifel.

[Andrew Ang:]

Hi guys this is Andrew Ang for Annabel. I just want to confirm so there is no statistical hit with the combination of the two studies, and was the combination done in parallel and advising concern of the FDA?

[Stephen J. Farr:]

Go ahead Gail.

[Gail M. Farfel:]

See this is basically based on study 1 and study 1504 and there is not envisioned any statistical hit this combination for submission and [indiscernible].

[Andrew Ang:]

Okay and my second one is what’s going to happen with the remaining patients that were excited to be enrolled in this study?

[Gail M. Farfel:]

We will -- the enrollment is in an ongoing process so we will update you on our later calls as we understand whether we can get to full enrollment.

[Andrew Ang:]

Great, thank you.

[Operator:]

Next question comes from Difei Yang with Aegis Capital.

[Difei Yang:]

Hi, good afternoon. Thanks for taking my question. So just to circle back there are 180 patients in your total between the two studies do remind us how many in total is for full enrollment?

[Gail M. Farfel:]

Of those 180 patients some of those were screening failures. So there are not all randomized subjects that count for [indiscernible]. Study 1 requires 100 and originally 105, now 120 subjects, and study 1504 requires 80 subjects.

[Difei Yang:]

Okay thank you. So I’ll jump back in the queue. Thanks.

[Operator:]

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

[Raju Prasad:]

Thanks for taking the question. Can you just provide if there was any guidance from the FDA on what percentage of the patients would have to be in the U.S. for them to consider, the study to be good for pivotal?

[Gail M. Farfel:]

FDA is aware of our plans and they have not responded with a specific guidance. So they -- we infer that to deem that they are satisfied with our current plan.

[Stephen J. Farr:]

Yeah and just to make the point that there is no difference in the way that Dravet Syndrome patients are managed in United States and Europe and in fact we’re using the Epilepsy Study Consortium to review adjudicate and allow all patients in to trial in [ph] respect in labeling includes in Europe, Australia, U.S. and Canada. So we don’t see any differences in Dravet Syndrome patient in Europe compared with the United States. But if you look at the next patients that ultimately will comprise study 1 that needs no surprise really that’s the majority will be U.S. patients because that study started off faster and sooner than the study in Europe.

[Raju Prasad:]

Great and then on controls like gov -- under the inclusion criteria for the Dravet’s Phase 3 studies there is a minimal number of seizures can you just remind us what that minimal number is to be included in the trial?

[Gail M. Farfel:]

We have not spoken about that publicly as we believe it’s piece of information that in order to run the trial with high integrity we prefer not -- to have that within the investigators only.

[Raju Prasad:]

Okay. Thanks for the question.

[Operator:]

And we'll take a follow-up from Difei Yang with Aegis Capital.

[Difei Yang:]

Thanks, still just on for the Study 1 and Study 1504, do you expect to hear from the FDA before the readout that they're okay with both of the trial design and they're okay as pivotal trials, as part of NDA filing?

[Stephen J. Farr:]

This is Steve. Look they've given us guidance that all these studies are qualified as being adequate and well controlled studies and therefore could be eventual pivotal trials. It obviously was not really [indiscernible] trial, it depends upon the data and the extent of the data as part of our regulatory submission of course. But we've heard enough right now in terms of been able to set us to all this is the best and clearest pathway to regulatory submission and we are -- we have study 1501 in the back so to speak in terms of patients availability needed for that trail. And we're working very hard to advancing enrollment in study 1504.

[Difei Yang:]

Okay. Thanks Steve, for the additional color.

[Operator:]

And ladies and gentlemen, with no further questions, I’d like to turn the conference back over to Steve Farr, President and CEO for closing remarks.

[Stephen J. Farr:]

Well, thank you everyone for joining us today. Just want to leave you with the fact that this is a potentially very transformative year for us, we believe ZX008 has potential to remarkably improve the lives of children, families of Dravet syndrome, Phase 3 results available this year and a clear path directly to submissions, and a strong balance sheet. So we're in ideal operating position, and we remain very confident in the ZX008's potential. I'm looking forward to keeping you updated on our progress as we move through the year. Thanks again. Bye-bye.

[Operator:]

Ladies and gentlemen that does conclude today's conference. We thank you for your participation. You may now disconnect.