Zogenix, Inc.
Q3 2015 Earnings Call Transcript

Published: 10 Nov 2015

[Operator:]

Good day, and welcome to the Zogenix Third Quarter 2015 Financial Results Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Brian Ritchie of LifeSci Advisors. 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 Chief Development Officer, Dr. Gail Farfel. This afternoon, Zogenix issued a news release announcing financial results and providing a business update for the third quarter ended September 30, 2015. 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, November 09, 2015. 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.

[Steve Farr:]

Thank you, Brian, and good afternoon to everyone who is joining us live on today's call. The last few months have been extremely busy for Zogenix. We have made significant progress on multiple fronts. As such we are approaching a number of very important value creating milestones from both our development programs, the ZX008 and Relday. In addition, our efforts are supported by an extremely strong balance sheet which I will discuss further shortly. First, let me provide you with an update on where we stand with our Phase 3 program for ZX008. Let me remind you it’s an investigational proprietary paediatric formulation of low dose fenfluramine for the treatment of Dravet syndrome. We have done quite a bit of work over the past few months preparing to begin the Phase 3 program and continue to expect that this will kick off later this year. Dr. Gail Farfel, our Chief Development Officer will detail many of these activities shortly. But let me briefly address one of the important recent activities relating to ZX008 Phase 3 program. We submitted the IND for the Phase 3 pivotal safety and efficacy trial to the FDA at the end of August. As you know we subscript the enhanced on October the 19th, the FDAs request for additional information related to our IND submission prior to initiating the clinical trial. Specifically, the agency asked us to provide full review, normative ranges for echocardiograms and a proposed cardiac safety monitoring plan, in addition the FDA required that we include in the protocol a follow up echocardiogram three to six months after patients discontinue treatment with ZX008. We responded promptly to the FDA information request on the 19th of October which triggered a 30-day period for review by the agency. In a recent follow up communication from FDA, they agreed that our proposed threshold echocardiogram values that define potential valvulopathy, a side effect of high dose fenfluramine are acceptable. In the same communication the FDA however also asked to provide more detailed information on the criteria which establishes normal versus abnormal cardiac function on a echocardiogram. This level of detail is important because that has never been a prospective clinical study of the effect of fenfluramine on the heart. And some echo findings such as valve regurgitation are actually quite common in children. We appreciate the feedback FDA has provided and have prepared the relevant additional information that we now believe adequately addresses this recent follow on request. We remain confident of this latest information exchange will allow the FDA to permit us to proceed with the Phase 3 clinical trial later this year. We are continuing to prepare study sites for the first patients to enrol in the U.S. Phase 3 trial before year’s end. Looking ahead, we have three confirmed presentations that the American Epilepsy Society Conference to be held December the 4th through the 8th in Philadelphia. The subject of three presentations is, efficacy in a new cohort or prospectively followed patients, another focussed on cardiac safety and the final one exploring ZX008 mechanism of action and studies using the zebrafish model of Dravet syndrome. Now let me move onto Relday, which is our proprietary subcutaneous injected formulation of risperidone that is dosed once-monthly. In the third quarter, we announced positive topline pharmacokinetic results from a Phase 1b multi dose clinical trial of Relday. As I’ve said on our last conference call, we believe this product candidate represents a significant commercial opportunity based on its differential product profile including rapid achievement of therapeutic dose levels. We have concluded it is in the best interest of the Zogenix’s and the company’s shareholders for us to seek a global, development and commercialisation partner for Relday, who will take responsibility for the Phase 3 program both in the United States as well as in Europe. As such, Zogenix has retained Locust Walk Partners, a transaction advisory firm for life science companies to assist this in identifying the most attractive partner for Relday. This process is now ongoing. And while it is too early to provide direction on potential timing of the transaction, our goal is to have a partner identified before the end of the first half of 2016 to support moving into clinical program in the second half of 2016. I’d like now to turn my focus to the strong balance sheet I’ve referenced at the beginning of the call. During the third quarter, we raised $92 million in net proceeds through a public equity offering. Our expected cash runway now extends through 2017. During this time, we anticipate multiple key inflection points for ZX008 including initiation of the Phase 3 efficacy trials in Dravet syndrome in the United States later this year and for the ex-U.S. studies to initiate in the first quarter of 2016. Topline safety and efficacy results are anticipated late 2016. Potential U.S. and European submiussions for market authorization four ZX008 in Dravet syndrome which we currently expect in 2017, and also the opportunity to explore ZX008 efficacy in other orphan seizure disorder indications. And with that summary, and I’ll turn over the call to Gail. Gail?

[Gail Farfel:]

Thank you, Steve. As Steve said over the last few months we’ve significantly ramped up our activities in preparation for the start of the Phase 3 programs of the ZX008. Before I provide an update on some of that work, I want to take a moment to reiterate the proposed study design for the program from our last call. We will conduct two double blind randomized studies of ZX008 that compares with placebo. We are investigating two doses of ZX008 oral solution, 0.2 and 0.8 milligrams per kilograms per day with the highest dose capped at 30 milligrams per day which comes in when a subject weighs approximately 37.5 kilos. Importantly, this is significantly lower than what was previously used in the treatment of obesity when ZX008 [ph] was previously marketed. There will be an initial screening visit and then six weeks of baseline data collection along with the continuation of the screening procedures during the six week. Those subject to meet entry requirements will be randomized to 103 arms, placebo 0.8 or 0.2 milligrams per kilograms per day fenfluramine oral solution. Subjects randomized into the trial will titrate to their target dose over two week and continue on that dose during the maintenance period which is 12 weeks long. The subjects in the study will be 2 to 18 years of age inclusive and we will stratify for approximately equal numbers of subject between 2 and 6 years of age and 7 and 18 years of age. We plan to enrol 105 subjects in each of the two studies. One study is planned to be conducted in the U.S. and Canada that is termed Study 1501 and another study will be a multinational study termed 1502. There will be a total of approximately 30 sites in the U.S. and 30 sites outside of the U.S. and those sites will be in addition to the United States, Canada, Belgium, Germany, United Kingdom, France, Italy, Spain, Australia, Norway, Sweden and Denmark. Subject to complete the double blind study and our eligible and compliant can continue in long-term open label extensions. Our primary endpoint in the double blind study will be the change in the frequency of convert procedures from base line for the high dose group that is the 0.8 milligrams per kilograms per day fenfluramine group compared with placebo. The key secondary endpoints will be the 40% and 50% responder analysis which are important in the European Regulatory Submission and the convulsive seizure free interval which is of great interest to parents and to patients. Analysis comparing the lower dose fenfluramine treatment which is to remind you 0.2 milligram per kilogram per day with placebo on secondary efficacy endpoints. Additional secondary endpoints include the incidence of incidence of status level [Indiscernible] and the use of rescue medication as well as caregiver and clinician global impression of change ratings and quality of life assessments. In terms of safety, we will capture adverse events, laboratories, wide holes [ph] and urinalysis as typically conducted in these trials. We will also administer electrocardiograms and echocardiograms at six to twelve week intervals for the first year of treatment and every six months thereafter if no signals are detected. We are working with an accomplished team of cardiologists and with FDA to drive the appropriate guideline to monitor patient safety in these trials. With that, I’d like now to review some of the work we’ve been doing to prepare for the start of the ZX008 Phase 3 program. We’ve completed the investigators for sure and the IMPD, the Investigational Medicinal Product Dossier and we have conducted our initial kick off meeting with the Phase 3 programs Global CRO inVentiv Health. inVentiv is a full service CRO with operations in over 70 countries and has significant recent experience conducting clinical trials in both paediatrics and rare diseases. We are in the process of conducting pre-qualification visits in 11 participating countries. Today study 1501, 22 sites have been selected for participation through our internal process, and in our outside US studies 1502, 12 sites are approved already through this process. Finally, I'd like to speak briefly about our process to monitor cardiac safety in our ZX008 program. In September we convened an international pediatric cardiovascular advisory board which were announced cardiologist, electrophysiologist and pediatric specialist with the remap of [indiscernible] of this board to propose monitoring an alert criteria for pediatric patients on long-term low dose enthormy [ph] The board coach is Professor Damian Boney [ph] of pediatric cardiology of [indiscernible] children’s hospital [indiscernible] and Dr. Martin Keane, Professor of Medicine and Director of Echocardiography at Temple University Heart and vascular center. We are also working with biomedical system and their consultant academic cardiologist who will help us with the safety management collective during this program by reviewing the ECGs and EKGs. The alert criteria and normative value are part of the overall safety management and they are being shared with regulator. As stated earlier by Steve, this is the first study using fenfluramine that will prospectively evaluate cardiac function using ECHO cardiography in every subject. We are confident that we are taking appropriate steps to prepare for this start of the Phase 3 program and are excited to initiate both study shortly. We look forward to continuing to keep you updated on our progress with the ZX008Phase 3 program. That concludes my prepared remarks. So now, I'll turn the call over Ann Rhoads. Ann?

[Ann Rhoads:]

Thank you, Gail. As of the case in the first two quarters of 2015, as a result of our strategy decision to Zohydro ER business and focus on the clinical development of the VX008 and Relday. All Zohydro ER revenue and expenses have been excluded from continuing operations for all periods herein and are reported as discontinued operations. All prior period information is been recast to confirmed at this presentation. With that let begin my review of the financials for the three and nine months ended September 30, 2015. Total revenue for the third quarter of 2015 totaled $9.1 million and reflected $8.9 million of contract manufacturing revenue and 260,000 of service and other product revenue. This compares to total revenue of $4.9 million in the third quarter of 2014 which included $4.2 million of contract manufacturing revenue and 658,000 of service and other product revenue. This increase in contract manufacturing revenue in the third quarter of 2015 was due to an increase in shipments of Sumavel DosePro business to Endo International under this prior agreement between the two companies. Third quarter 2015 research and development expenses totaled $7.9 million, that was up $2.9 million a year ago as we continue preparations for our two Phase 3 studies for ZX008 and completed our multi dose clinical trial for Relday. Third quarters selling, general and administrative expenses totaled $5.7 million, down from $7.2 million a year ago. And our net loss from continuing operations for the third quarter of 2015 was $30 million compared with $1.5 million in the same quarter a year ago. Net loss from discontinued operations was $1.6 million for the third quarter of 2015, down from a $11.4 million in the third quarter a year ago, which reflected the operating loss related to the Zohydro business. We reported total net loss for the third quarter of 2014 of $14.6 million with $0.65 per share compared with a net loss of $12.8 million or $0.73 per share for the third quarter a year ago. Total revenue for the nine months ended September 30, 2015 totaled $21.1 million and reflected $19 million of contract manufacturing revenue and $2.1 million of service and other product revenue. This compares to total revenue of $90 million in the nine months ended September 30, 2014 which included $6.5 million of contract manufacturing revenue and $12.5 million of net product and service revenue. The increase in contract manufacturing revenue and decrease in net product revenue in the nine months ended September 30, 2015 was due to the sale of Sumavel DosePro to Endo International in May 2014 and a subsequent performance under the supply agreement between the two companies. Research and development expenses for the nine-months ended September 30, 2015 totaled $19.3 million, up from $8.6 million a year ago, as we continue preparations for two Phase 3 studies for ZX008, and completed the multi-dose clinical study for Relday. Selling, general and administrative expense for the nine-months ended September 30, 2015 totaled $19.5 million, down from $28.9 million a year ago as the Company incurred selling expenses for Sumavel DosePro prior to its sale to Endo in May 2014. Net loss from continuing operations was $29.8 million for the nine-months ended September 30, 2015, compared with net income from continuing operations of $71.1 million in the same period a year ago, which includes the pretax gain on the sale of Sumavel DosePro. Net income from discontinued operations for the nine-months ended September 30, 2015 was $64.8 million, compared to a loss of $42.0 million in the year ago period. The net income from discontinued operations in 2015 includes a gain on the sale of Zohydro business of $73.1 million net of applicable tax expense We've reported total net income for the nine-months ended September 30, 2015 of $35.0 million for $1.72 per share compared with net income of $29.1 million, or $1.66 per basic share, $0.17 fully diluted, for the year ago period. Cash and cash equivalents at September 30, 2015 totaled to $162.7 million, which includes the net proceeds of approximately $92.0 million from the recently closed follow-on offering. Now I'll take a look at our financial expectations for the fourth quarter of 2015. We expect that our R&D expenses will be in the range of $10 to $12 million reflecting the initiation of ZX008 clinical studies and anticipate that SG&A expense will be $7 million to $8 million for the quarter. Also contract manufacturing revenue from the supply of Sumavel DosePro to Endo is expected at a low single-digit markup over cost of contract manufacturing. And finally, the Company does not expect gain or loss from discontinued operations to be significant in the fourth quarter. I'll now turn the call over the operator to begin the Q&A session. Operator, will you please provide the instruction.

[Operator:]

[Operator Instructions] And we'll go first to Paul Matteis with Leerink.

[Paul Matteis:]

Great. Thank you very. I have few. Fist, on your current interactions with the FDA, I know you can never totally certain, but can you just characterize your level of confidence today that this recent iteration you had with the agency will be the last one before starting the Phase 3 and that they won't ask for any additional data?

[Steve Farr:]

This is Steve Farr. Thank for your question. Yes, we do feel that at this moment in time confidence. First and foremost, I think we took significant step forward by getting them to agree on what the dealer criteria should be as we move forward and evaluating potential [Indiscernible] in the patient population. The follow-on request was basically more detail information on what they describe as normal ranges and I can ask Gail, to go into that in a bit more detail but we have been working with BMS as well as the academic cardiologist to really ensure that we can put forward all the detailed information as required for the money that all the sites will follow. And I think the issue here is or the question here is we're trying to establish what is normal in a pediatric population relative to the literature which is more focused on the adult population. Maybe, Gail, you can provide some more color there.

[Gail Farfel:]

Sure. In -- until the -- of four cardiac valves that are in interest and in children it’s not uncommon for three of those valves to have some regurgitation sometimes it's diagnosed and told the parents is a heart murmur. This has been documented in perspective studies of numbers between 15% and 80% depending on the population and the valve. And so you can imagine that seeing these trace or mild signs of valvulopathy in the paediatric population is very common. And so what we have been working with FDA and with our specialist to review the literature and to come up with a set of normal and abnormal values and how to discern the difference, so that we are enrolling the appropriate population into the study. And once in we'll have message for signal detection and the valuation of those signals.

[Paul Matteis:]

Okay. Great. Make sense. And then on the upcoming data at AES, two things, can you just talk about who is on or I guess how many patients are still being treating with fenfluramine today in the Belgium study and then maybe in the context to that just round upon what abstracts you'll be presenting at the meeting?

[Steve Farr:]

Yes, Paul. This is Steve again. There are now a total of 17 patients active on therapy in Belgium and we are supplying the drug for that ongoing open-label trial. The focus of the AES Efficacy Post that will be on seven new patients who are not part of the original aplasia cohort, the reason for that is that these are being much more closely prospectively follow since the aplasia paper and we really want to – we have not presented data on that full cohort, in fact just two subjects on that cohort though in a earlier post presentation this year, so this will on the seven newer patients, some are very recent patients that have been put on fenfluramine There will also be an abstract which is more, sorry, I post the presentations more focused on cardiac space. And there it’s the I believe I’m right in saying this got us the entire cohort, it's not the seven patients. So the entire history of that cardiac spacing monitoring that's occurred on this study in Belgium. And then, finally as I said earlier, Paul it’s the final post presentation is on – the work that we are sponsoring trying to determine, making good progress there. The piece of the [Indiscernible] action in fenfluramine and the treatment Dravet syndrome, would have focusing on the sort of the synthetic pathway.

[Paul Matteis:]

Okay. Great. Thanks. And if you don't mind, I'll just ask one more quick on Relday, given that you – sorry given that you are looking for someone to pay the Phase 3, can you just talk about how much that might cost? And I guess for these products Phase 3 studies in Europe and rest of world can be more expensive because they are longer. So, to what degree are you really set and getting a partner for global development?

[Steve Farr:]

I'll ask Gail to give stuff for you.

[Gail Farfel:]

So, these are clinical trials that you require a significant investment on a per trial basis, the costing and of course it is depending upon what country, how many subjects exactly, how long they are in exactly. But it is on the order of $30 million to $40 million per trial, more can be expensive desire to have the patient in patient. And some of that we are creating many scenarios for partnering discussions, can it be done with the single trial with the long term extension, does it require two trials that encompass the one-year data that generally a company-lead submission. So there are number of scenarios that we have, but that's the general order of magnitude of the cost.

[Paul Matteis:]

Okay, great. Thanks very much.

[Operator:]

Thank you. We'll take our next question from Annabel Samimy with Stifel.

[Unidentified Analyst:]

Hi. This is Andrew in for Annabel. My first question was on what are some of the orphan indications you envision expanding 008 into? And I had a follow-up question for Redlay after that?

[Steve Farr:]

Yes. We still working on that and we just actually had a very successful Advisory Board Meeting with physicians who treat orphan epilepsy where we ask them to help prioritize what we should we go after next. We haven't said too much Dacus [ph] it's still work in progress other than the fact that we do intent to get up and running and initiate it a response initiative, sorry, physician initiative study, hopefully later this year we go into ethics we’ll be right now, and if that goes through first cycle than we're hopefully get that up and running. We will definitely give a press release out once that is up and running of course. And then, as we go into 2016 we think that at least one maybe two others that we could at least do proof-of-concept studies into physicians sponsored trial. So you'll see more about that as we move forward like this year and into next year.

[Unidentified Analyst:]

Great. Thank you. And on Relday, were you looking for just one partner for both the U.S. and ex U.S. are you open to separate partners and how involved will Zogenix be and the development following securing of a partners?

[Steve Farr:]

Well, ideally we'd like a partner that had global footprint, because we think that this product is at least as valuable in Europe as well as United States, so having someone with the right infrastructure that can very do a good job both in Europe and U.S. at the same time will be preferable. Having said that, if we can't find that right partner, but we see companies were more focus in a specific region of the world having interest and of course we will talk to them. But our hope is that we can certainly find someone who has both the expertise to develop this product to United States as well as Europe.

[Unidentified Analyst:]

Great. And one more question. On a business development are you looking at opportunities that will dive you deeper into the tenant open space?

[Steve Farr:]

Not right now. We are 100% focusing on getting this Phase 3 up and running for Dravet syndrome, it’s a critically important milestone, but in the fullest of time that’s certainly something we would like to look at.

[Unidentified Analyst:]

Great. Thanks guys.

[Operator:]

Thank you. We'll take our next question from Difei Yang with Brean Capital.

[Difei Yang:]

Hi. Good afternoon. And thanks for taking my question. Just three questions. The first question on the [Indiscernible] just a clarifying question with latest communication back and forth between FDA and do you think that November 19, potential approval IND approval date shift as a result?

[Steve Farr:]

As I said earlier Difei, we are confident as of today that we've adequately addressed the FDA's request for additional information by working with BMS the Bio Medical Systems as well as the academic consultants who really helped us, draws [ph] the information together for [Indiscernible] values in children. So we are hopeful, but the information we just have to wait -- so when the FDA they are back to us, but at this movement in time we remain confident that we should get Difei, in the open and the Phase 3 program ready to get started later this year. Gail has been doing a lot of work with her team ensuring that once we get the clearance that we can very rapidly transition into the Phase 3 program.

[Difei Yang:]

Okay. Thank you. So the next question is around Relday. So I guess it is -- if it’s a global you’ll probably will take more time and to remind you -- a new timeframe that you would like to see Relday, I guess partnered or of which – right now it’s a really time is not a concern, but finding the right ideal partner is more of a higher priority?

[Steve Farr:]

Exactly right. We deliberately decided to use external expert advisors to help us with this transaction, that they have the right network to be able to approach all the relevant companies in these area. As I said they were actually started their outreach. We are, I think encouraged with what we've seen. So far we're having our first meeting with the company coming up fairly soon, so that's our good progress. So our focus right now is as you said to find the right partner. Having said that, we would like this programs to go into Phase 3 in 2016, so we're giving ourselves as I said earlier in the prepared remarks, the first half of 2016 to make sure we do find that right path and have the right deals to queue it, for them to start Phase 3 in 2016. If that happens sooner, we would be of course delighted.

[Difei Yang:]

Thank you. So, to my last question on the SG&A guidance, so you guidance was $7 million to $8 million for Q4, is that should be issue, that rough run rate for these on a quarterly basis?

[Gail Farfel:]

Thanks Difei. So haven't given any SG&A guidance for 2016. We're likely be doing that kind of from where talking about Q4 result. So early next year, we'll be in a position to talk to you a little bit better and in more detail on SG&A as well as R&D.

[Difei Yang:]

Okay. Thank you. And thanks for taking my questions.

[Steve Farr:]

Thank you, Difei.

[Operator:]

[Operator Instructions] And we'll go next to Raj Prasad with William Blair.

[Raj Prasad:]

Thanks for taking my question. Given some of the requirements by the FDA, follow up echoes; is it still within our guidance for 2016 readout for the Phase 2 programs?

[Steve Farr:]

2016 readouts, you mean, yes, if we get the study up and running in the United States later this year, I would certainly – we expect we'll be at top line data toward the end of 2016. And we have to do fine job on enrolment in European trial, then we hope so we could do that as well, but that may slip into early part of 2017. But we're very hopeful to get at aleast on the studies to read out in 2016.

[Raj Prasad:]

Great. And then just regarding IP, is there any color or updates on the IP for ZX008, I know you have the fee patents pending?

[Steve Farr:]

Yes. No updates at all, everything is moving forward. We’ve addressed the office actions that should come up, but really nothing more to say there.

[Raj Prasad:]

Great. Thank you.

[Operator:]

Thank you. With no further questions in the queue, I'd like to turn the program back over to Dr. Farr, CEO of Zogenix's for any additional or closing remarks.

[Steve Farr:]

Well, thanks everyone for joining us today. Obviously it was been a very busy nine months that we've had, been extremely eventful for us as we transitioned our business. We feel that we're making significant momentum as moving forward. Lot of work to be done of course in particular, runs as we exceeded Dravet syndrome and we certainly look forward to keep appraised of the future success as we move forward. So, thanks again for your time and interest in Zogenix

[Operator:]

That does conclude today’s call. Thank you for your participation.