Zosano Pharma Corporation
Q1 2019 Earnings Call Transcript

Published: 14 May 2019

[Operator:]

Good day, ladies and gentlemen, and welcome to the Zosano Pharma First Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference call maybe recorded. I would now like to introduce your host for today's conference Mr. Greg Kitchener, Chief Financial Officer. Sir, please go ahead.

[Greg Kitchener:]

Good afternoon and welcome to Zosano's first quarter 2019 financial results and operational update conference call. Today's call will focus on our financial results and highlights of the quarter ended December 31, 2019, as well as important recent milestones. Copies of our press release are available on the Investor Relations, Press Release section of our website at www.zosanopharma.com. Today's call is being recorded and a replay of our webcast will be available on our website approximately three hours after the call and available through June 14, 2019. Joining me on the call today with prepared remarks is John Walker, Chairman and Chief Executive Officer. During the question-and-answer session, we will be joined by Don Kellerman, VP of Clinical Development and Medical Affairs; and Hayley Lewis, SVP of Operations. Before we begin, let me remind you that today's call may include forward-looking statements reflecting management's current expectations and beliefs. These statements are subject to risks and uncertainties that are difficult to predict and actual outcomes may differ materially from those anticipated in such forward-looking statements. Forward-looking statements include but are not limited to, our current expectations and projections related to the anticipated progress of Qtrypta, or M207, and the projected timelines for our research and development activities and other milestones, our ability to obtain FDA approval of Qtrypta, our expectations regarding the relative benefits of our product candidates versus competitive therapies, our business, partnering and capitalization strategy, our expectations regarding potential markets or market sizes, our expectations regarding the therapeutic and commercial potential of Qtrypta, and our financial results. We assume no obligation to update or revise any forward-looking statements, except as required by law. For a detailed description of the risks and uncertainties regarding our business, please refer to the Risk Factors section of our 10-Q and 10-K filed with the SEC. Before I turn the call over to John, let me spend a few minutes discussing our financial results for the first quarter. Zosano reported a net loss of $9.4 million, or $0.79 per share, during the first quarter of 2019, which compares to a net loss of $8.2 million or $4.16 per share, during the first quarter of 2018. Total operating expenses for the first quarter of 2019 were $9.5 million, up about $1.4 million over last year. Research and development expenses of $6.6 million for the quarter compared to $5.8 million last year. The increase in R&D was mainly due to the scale up and transfer of technology to our contract manufacturer, which was offset by a decrease in cost associated with our long-term safety study. General and administrative expenses were $2.9 million during Q1 of 2019, compared to $2.3 million during Q1 of last year. The increase in G&A was primarily due to higher professional service fees and an increase in compensation including stock compensation. As of March 31, 2019, we had cash, cash equivalents and marketable securities of $11 million, which does not include the proceeds from our $18.4 million equity financing, which was completed after the quarter ended. The base public offerings was for $5 million shares at a price of $3.50 per share and close in April 11th. In addition, last week, our underwriters exercised their over-allotment option or shoe, which was for 15% or 750,000 shares. Related to cash used in the first quarter of 2019, our quarterly cash burn was partially impacted by the timing of certain payables, as well as capital expenditures related to the future manufacturing and commercialization of Qtrypta. Over the next several quarters, we expect our quarterly cash burn will remain in the low double digits of millions of dollars. This is a bit of a step up from the 2018 levels, due to the construction of the capital equipment that will be used for the commercial scale production of Qtrypta, the transfer of our technology to our contract manufacturer and the build out of our commercial suite at that contract manufacturer. With that, I will now turn the call over to John Walker, our Chairman and Chief Executive Officer. John?

[John Walker:]

Thank you, Greg. As Greg has noted, we completed our equity offering in early April. This financing adds additional strength to our balance sheet as we continue commercial scale up of manufacturing for Qtrypta and our ongoing discussions with potential partners for the marketing and commercialization of Qtrypta upon FDA approval. We have held discussions with a number of companies that have a presence in either the migraine market or, more broadly, in the CNS therapeutic area. While it is too early for me to comment about the eventual outcome of these discussions, with our cash position bolstered with the equity financing, we can focus on a partnership arrangement that would ensure that the appropriate amount of time and energy would be devoted to the launch and long term success of Qtrypta. We are increasingly convinced that the market opportunity for Qtrypta is substantial and market penetration and maximizing sales for Qtrypta are our foremost objectives in discussions with potential partners. We will continue to keep you updated on our progress in these discussions and remain hopeful that we will be able to achieve such a partnership by the end of this year. In the meantime, and in parallel, we are aggressively moving forward with the NDA preparation and commercial scale up activities. A portion of those efforts have been to proceed with pre-launch marketing and logistical planning. We engaged an outside group to help us with a number of these activities, including selecting a third-party logistics vendor, known as a 3PL, to facilitate our listing in the compendia, including product classification and label or code development, as well as channel strategy to assess the benefits and cost of a specialty pharmacy versus traditional wholesalers or a combination of both, and lastly to help us with the state licensing process. At the beginning of April, Anne Fields [ph] who had consulted with the company for the last two years joined us as our Senior Director of Marketing. Ann has over 30 years of experience in managing sales and marketing activities for a number of different products, including several successful product launches. She was the VP of Schering Sales at Schering-Plough which included the successful launch of Claritin. She was also the Director of Sales for the launch of LUCENTIS at Genentech and has been a consultant for various companies including MAP Pharmaceuticals, XL, REX and Nuvious [ph]. Over the last 10 years, Anne has established strong relationships within the migraine community from patient advocacy groups to the leading key opinion leaders. As we move through 2019, we will continue to be well represented at both regional and national headache meetings, including an expanded booth presence at the AHS Meeting in Philadelphia, the 2nd week of July, building on the presence we had at the AAN meeting which was held last week. Since the start of the year, we have had the benefit of two additional papers being published in Headache, The Journal of Head and Face Pain. The first which we feel represents a strong view of the value proposition that Qtrypta will offer to physicians and their patients is titled efficacy of ADAM zolmitriptan for the acute treatment of difficult to treat migraines. In this analysis researchers examined the efficacy of Qtrypta in treating subsets of patients who migraines have traditionally been difficult to treat and have been associated with poorer outcomes when triptan with oral medications. Migraine characteristics included severe pain, duration of migration of more than two hours without treatment, awakening with migraine and the presence of nausea. The results as presented, indicate the Qtrypta should offer an effective alternative to these patients, if approved by the FDA. The second paper, review of acute treatment of migraine trial results with the new FDA endpoints design implications for future trials, examined eight different clinical trials in the acute treatment of migraine and their results in achieving the co-primary endpoints of pain, freedom at two hours and freedom for most bothersome symptoms at two hours. The tables included in this paper, highlight the relative performance of Qtrypta in relation to potential new modalities, such as oral CGRP inhibitors and 5-HT1F inhibitors in achieving these key endpoints. As you know, we completed our long-term safety study in the first quarter and reported on the treatment of nearly 6,000 migraines with Qtrypta. In total, 260 patients completed six months of treatment with Qtrypta and 127 subjects were treated for one year. We were pleased that we exceeded our targets for patients completing both the six-month and one year follow-up on Qtrypta and look forward to submitting that data to the FDA with our targeted fourth quarter submission of the NDA. At the American Headache Society meeting in July, we hope to be able to present the results of a qualitative questionnaire that patients completed during their participation in our recently concluded long-term safety study. The survey asked the following as part of a validated questionnaire referred to as the migraine assessment of current therapy or ACT questionnaire. Those questions include. Does your migraine medication work consistently? Does the headache disappear in two hours? Are you able to function normally within two hours? Are you comfortable enough with your medication to be able to plan your daily activities? We feel that the results of this assessment will help to underscore the patient response to Qtrypta and the ability to achieve sustained usage by individual patients who are currently among the 80% who are unsatisfied with their regimen for treating acute migraine. As we seek to expand Qtrypta’s applicability beyond the migraine indication, we are on target to initiate a Phase II clinical study and cluster headache, while a cluster is a smaller indication than acute migraine therapy. This devastating disease is one that has not had a new drug approved for treatment in the last 20 years and is of significant importance in the headache community. Success in this indication would underscore the fast relief that we have seen in our pivotal efficacy study for the treatment of migraine. Separately, we are continuing our evaluation of biologics to deliver using our ADAM microneedle technology as well as expanding our pipeline with the addition of a clinical stage program in the anti-emetic market. We expect to have more to comment about both of these initiatives on our second quarter call. In concluding my remarks, I want to emphasize that our entire company is focused on delivering shareholder value. We believe that the potential of Qtrypta there has not been fully recognized as this program is largely derisked that it can be clearly differentiated in the market pending approval that it is well-positioned to address difficult to treat migraines that represent as much as 50% or greater of presenting migraines. As noted in Headache, our efficacy data compares favorably to others who have reported out against the new FDA guidelines for pain freedom and freedom for most bothersome symptoms, so we believe we are well-positioned regarding new modalities. We have manufacturing in place. We have a clear path to FDA filing and approval and we see an overall market potential greater than $400 million in annual sales. We know that the best way for us to provide value to our shareholders is to ensure the success of this new approach to treating acute migraines and to further leverage our proprietary ADAM microneedle technology for a convenient, safe and effective delivery of important medicines to patients. Thanks for your attention. And we will now open for Q&A.

[Operator:]

Thank you. [Operator Instructions] Our first question comes from Charles Duncan with Cantor Fitzgerald. Your line is open.

[Charles Duncan:]

Hi, guys. Thanks for taking the question. And Don, great to see you last week at AAN. I had a couple of questions. One is, I'm not sure if I missed it, but did you update the plan to file the NDA either in terms of timing, or could you provide a little bit of color on remaining necessary steps to get that file in with the agency.

[John Walker:]

Yes. Charles, we can do that. Let me give you a quick overview and then I'll ask to Hayley to fill in details for you. As you know Hayley is our Senior Vice President of Operations, has oversight responsibility regarding the filing of the NDA. But we are on our way in terms of writing the NDA at this point in time and still see a late fourth quarter submission of the FDA. But I'll let Hayley comment about a couple of the items that still remain to be done.

[Hayley Lewis:]

Hi, Charles. How are you?

[Charles Duncan:]

Good. Thanks.

[Hayley Lewis:]

So -- good. So, we have our registration stability that we have put on. We have a 12-month timeline that's happening later on this year. As you know all NDAs need about 12 months of that room temp stability. And without change to pacing or with our contract manufacturer, we also have some information to put into the NDA. So that timeline allows us to have a fourth quarter filing. We have some human factors to complete as well as some sections that we obviously have to wait for the data from the long-term safety study. And as we’ve communicated we will be asking for the pre-NDA meetings later on this year once we have a full data set to present the outline of the NDA.

[Charles Duncan:]

Okay. And with regard to human factors stem, there has been a little bit of a challenge for certain companies that have kind of a device component as well as a drug component to their therapeutic modality. And I guess, I'm wondering as you -- as you work through the development in the last couple of years with Qtrypta, how do you feel about human factors analysis? Do you think that that's pretty well kind of vetted?

[Hayley Lewis:]

Yes, we've conducted several of the formative studies, which you would typically do before doing your validation study and through that we've studied it with volunteers and folks who have actually had migraines as well. We've refined our instructions for use, which is our patient labeling. We feel that we have a high level of comprehension. So, we plan to do the validation study later on in the year, which we believe will be the final study necessary to complete our human factors.

[Charles Duncan:]

Okay. Excellent. And then if I could just ask another question regarding the recent AAN, clearly migraine is a rapidly evolving therapeutic paradigm. And you mention the use of your Qtrypta in tough to treat types of migraines and then also I'm really intrigued with cluster headache. Wondering what you've seen what you've heard maybe gone from KOLs and AAN and that encourages you with regard to the unmet need for the difficult to treat evolving migraines treatment landscape?

[John Walker:]

Yes. Thanks. Thanks, Charles, and good to see you last week in Philadelphia as well that's quite a meeting. Yes. Again, a lot of anecdotes from a number of our KOLs are investigators and they seem to feel that the people who liked the patch really liked the patch, they liked the speed of onset and in again, I think our view is that the rate of delivery of the drug really have been important function in terms of how much efficacy you see. So, we think that you know in the paper that John mentioned, the difficult to treat publication which was published earlier this year, clearly shows it then people who have traditionally been difficult to treat, they seem to see really good efficacy with Qtrypta least at compared to placebo. So, we're pretty optimistic that this mode of treatment gets around the limitations of orals despite getting the drug in there rapidly.

[Charles Duncan:]

So, rapid onset, perhaps it's also not related to gastrointestinal motility or absorption?

[John Walker:]

Exactly. Yeah. Yeah. I think that's – that's a large part of it and just the rate of in which the drug comes in.

[Don Kellerman:]

So, Charles, if I can add just a little bit from that standpoint. Clearly, in terms of acute -- our therapies for the treatment of acute migraine attack as opposed to the prophylactic use of CGRP antagonist, what you see clearly a number of oral type administrations that are being developed whether they be the gPants or whether they be 5H21F inhibitor less methadone and in both of those you still got this oral route of delivery. And just as a quick antidote, when we talk about morning migraine, I was visiting a migraine patient actually over breakfast this morning. And that individual described that many people think of morning migraine is on awakening that you wake at your normal time and that you've got a migraine. What was described to me is what is the more common occurrence, which is waking at 3

[Charles Duncan:]

And it would seem to me, last question that that profile suits or sets Qtrypta up as a potential differentiation for use in cluster headache. Is there any other call it, organic reason that you believe that Qtrypta could be used in that setting, whereas many of the recent innovative drugs have failed or not been evaluated there?

[John Walker:]

Yeah I think it's speed of absorption. It's a pretty simple story that, the drug gets in really fast. If you look at our pharmacokinetics paper, that's our belief that this is much faster than any of the nasal sprays, at least that have been tested so far. So we're pretty optimistic about our chances with -- in cluster that's going to be a exciting program I think.

[Charles Duncan:]

Okay. Thanks for taking my questions. I'll hop back in the queue.

[John Walker:]

Thank you, Charles.

[Greg Kitchener:]

Thanks, Charles.

[Operator:]

Thank you. [Operator Instructions] Our next question comes from Bert Hazlett with BTIG. Your line is open.

[Bert Hazlett:]

Yes. Thanks for taking the questions. Thank you for those incremental comments. So as you think about the positioning of Qtrypta, relative to some of the comments that were just made. Do you have any revised thoughts with regard to pricing especially if you should be successful in cluster headache? Thanks.

[John Walker:]

Thank you very much for the question. At this point in time, our thinking regarding pricing has really been focused around the migraine opportunity, and I believe as you know, we feel based on surveys that we did with payers, approximately 10 payers that represent about 180 covered lives that they anticipate an average wholesale price for Qtrypta that would be between the nasal wholesale price and the auto injector wholesale price. And on that basis, we've provided guidance that for -- we anticipate net revenue per dose that would be roughly in the $100 per dose level, which translates to about 72 million in net annual revenue for each 1% of the triptan prescriptions that we would be able to achieve. So we feel that in order to get to the guidance, we provided of a 400 million or greater peak sales opportunity for Qtrypta that it only requires us to gain roughly 5% to 6% of the overall prescriptions for triptan. And based on how we feel that we can differentiate the product and the relative performance that's been demonstrated in independent clinical studies against these same endpoints feel that that will translate well. In regard to the cluster headache, there certainly will be an independent approval for our drug in that area and we really have not tried to address the pricing at this point in time as to whether or not because of the performance we may be able to achieve in cluster whether that would imply a different price point or potentially a different dosing level. So our intent in our clinical study is to try different doses. As you know, we're moving forward with a 3.8 mg dose for migraine, we intend to have two dosing levels in the cluster headache trial, 1.9 and 3.8 mg, we believe the primary endpoints for that study, we still – we’ll have some discussions with the FDA before finalizing these, but we anticipate will be pain relief at 15 minutes and durability of effect for one hour, which are important characteristics in regard to treating cluster headache as opposed to migraine. So the speed of onset [ph], we feel based on the data that we generated in our migraine studies, we believe we can achieve based on again durability effect that we have seen in migraine, we feel comfortable with that end point as well. And whether or not, we can achieve those end points with a 1.9 mg dose, which -- or the 3.8 mg does will be a determining factor eventually in our discussion on how a cluster headache therapy might be priced in the market.

[Bert Hazlett:]

Thank you for that color. Appreciate it.

[John Walker:]

Thanks for your time.

[Operator:]

Our next question comes from Anthony Vendetti with Maxim Group. Your line is open.

[Anthony Vendetti:]

Thank you. I wanted to just follow-up on Qtrypta. If the NDA is filed late fourth quarter of 2019, is it still likely that you'll get approval, if everything goes well, by end of 2020?

[Hayley Lewis:]

Yes.

[Anthony Vendetti:]

Okay. And then on the cluster headaches, you'll be initiating a Phase 2. Can you give a little bit of the timeline of -- when you initiate Phase 2 and how that plays out? If that date is positive, when would a Phase 3 start?

[Don Kellerman:]

Sure. Right now, we've been talking to investigators lining them up. We probably will commence an investigator meeting sometime in the third quarter. There hasn't been a lot of drug studies of cluster done in several years. So, this is -- again, there's a fair amount of excitement around the potential of introducing a new pharmacologic agent for cluster and then some device work, but not much in the way of drug. So, clusters studies are somewhat difficult to enroll. We anticipate a clinical phase of about 15 months. So, I think we would anticipate finishing this sometime towards the end of 2020, maybe early 2021. At this juncture, we think we'll need to do two trials to do the -- to get the product registered for clusters, so that presumably we would get results from that, see where we are at -- as John mentioned, we're testing two doses that we'll see where we're at on the dose response curve and then design an additional confirmatory trial first one is positive. But again, it's -- I think it fits very well with the migration program and we think it emphasizes the speed with which the drug gets absorbed.

[John Walker:]

I think it's important to point out that as you know there are 500 headache specialists in the U.S. roughly speaking and they certainly are very concerned regarding treating patients who have cluster, as well as those with more difficult to treat types of migraines. So, that's one of the reasons, Anthony, why we have felt that there's a great deal of synergy between the two different disease areas in terms of migraine, but clearly different disease in regard to cluster headache. As Don has indicated the injectable sumatriptan was really the last drug approved for cluster, that’s one of the reasons why we believe that we will be effective based on how we feel that our previous studies and migraine have compared relatively speaking to injectable sumatriptan, but it will be a more difficult to finish study only from the standpoint that cluster headaches are more episodic. And so even though you can get it enrolled fully in a relatively short period of time, the incidence in the number of clusters that you're actually able to treat is why we think it could take as much as 18 months to complete the study.

[Anthony Vendetti:]

Okay, great. That's helpful. Thanks very much.

[John Walker:]

Sure.

[Operator:]

Ladies and gentlemen, this concludes today's question-and-answer session. Thank you for participating in today's conference. This does conclude today's program and you may all disconnect. Everyone, have a wonderful day.