Zosano Pharma Corporation
Q2 2019 Earnings Call Transcript

Published: 14 Aug 2019

[Operator:]

Good day, ladies and gentlemen, and welcome to the Zosano Pharma Second Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] Later, we will conduct a question-and-answer session and instructions will follow at that time. As a reminder, today’s conference may be recorded.I’d 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 second quarter 2019 financial results and operational conference call. Today's call will focus on our financial results and the highlights of the quarter ended June 30, 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 3 hours after the call and available through September 14, 2019.Joining me on the call today with prepared remarks is John Walker, Chairman and Chief Executive Officer. Later, for the question-and-answer portion of the call, we will also be joined by Don Kellerman, VP of Clinical Development and Medical Affairs, and Hayley Lewis, Senior Vice President of Operations.Before we begin, let me remind you that today's call includes 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 our current expectations and projections relating to the anticipated progress of Qtrypta, also known as M207 and for C213, and the projected timelines for research and development activities and our other milestones, our ability to obtain FDA approval for Qtrypta and C213, our expectations regarding the relative benefit 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 C213, and our future 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 second quarter. Zosano reported a net loss of $9.4 million or $0.55 per share during the second quarter of 2019, which compares to a net loss of $8.8 million, or $0.75 per share during the second quarter of 2018. Total operating expenses for the second quarter of 2019 were $9.4 million, up about $0.6 million over last year.Research and development expenses of $6.6 million for the quarter compared to $6.5 million last year. This relatively small increase in R&D was mainly due to the scale up and technology transfer to our contract manufacturer, which was offset by decrease in costs associated with our long-term safety study.General and administrative expenses were $2.8 million during Q2 2019 compared to $2.3 million during Q2 of last year. The increase in G&A was primarily due to consulting and costs in preparation for commercialization. As of June 30th, we had cash, cash equivalents and marketable securities of $17.7 million.With that, I would now like to turn the call over to John Walker, our Chairman and Chief Executive Officer. John?

[John Walker:]

Thanks, Greg.For those of you who have followed the Company over the past two years, you're well aware that we have consistently executed and met our milestones in the development of Qtrypta as a promising new offering in the underserved migraine market. I use the term underserved, not based on the number of product offerings, but rather on the migraineurs’ own reporting of unmet therapeutic needs in regard to their desire for fast onset, high degree of pain relief, freedom from pain, durability of effect, and the reduction in drug-related side effects. It is our strong belief that Qtrypta will offer an answer to these unmet needs if approved by the FDA.The data that we have generated to date in both our pivotal efficacy study and in our recently completed long-term safety study, have demonstrated our clinical benefit in each of these categories. Regarding fast onset and degree of pain relief, our Phase 2/3 pivotal efficacy study showed that treatment with Qtrypta at the dose we intend to market resulted in 23% of patients having pain relief in the first 15 minutes, 46% of patients having pain relief at 30 minutes and 81% having pain relief at two hours. Regarding complete freedom from pain, one of the two required FDA endpoints, 41.5% of patients achieved pain-freedom at two hours while 70% of patients were pain-free at 24 hours post treatment.As we have reported previously, our long-term safety study confirmed the magnitude of these responses by delivering 81% pain relief at two hours and 44% pain-freedom at two hours, in the approximately 6,000 migraineurs that were treated in that study.Regarding durability of effect, 76% of patients who were pain-free at two hours, maintained that pain-freedom through 24 hours, and 65% maintained freedom from pain through 48 hours, which was the last time point monitored in our efficacy study. These results were even better in our long-term safety study, which we plan to present at the International Headache conference early next month. In that study, 85% of migraine attacks that reach pain-freedom at two hours did not have a recurrence of pain at 24 hours, and approximately 80% of those patients were still pain-free at 48 hours.The long-term safety study also confirmed our observation of a reduction in drug-related side effects in comparison to those which are reported in the packaging inserts of other acute migraine therapies. In our study, we saw that 0.3% of these patients reported fatigue, 1.5% reported dizziness, and 1.2% reported paresthesia. We believe these lower levels of reported side effects could be a differentiator with Qtrypta compared to other therapies available to patients.The combination of these factors was assessed by the Migraine-ACT survey, an assessment of the effectiveness of a migraine therapy. This survey was completed by each patient during their scheduled visits in our long-term safety study, and the results were presented at the recent American Headache Society meeting.After 48 weeks on treatment, 96% of these respondents said that Qtrypta worked in the majority of their attacks, 85% reported that the pain disappeared within two hours, 84% of patients reported the ability to function normally at two hours after taking Qtrypta to treat an acute migraine attack, and 94% reported that they were comfortable enough with Qtrypta to plan their daily activities.This strong set of results to the standardized questionnaire demonstrates the key deliverables to patients, fast, consistent pain relief, and the ability to return to their normal daily activities, whether that be work, family, care-giving or leisure.By the end of this year, we plan to file an NDA with the Food and Drug Administration to seek approval to bring this new therapy to market. Our pre-NDA meeting to review our preclinical and clinical data has been scheduled for mid-September, and we anticipate our pre-NDA meeting covering CMC or manufacturing will follow shortly thereafter, as we have announced the completion of site registration batches at our contract manufacturer and await the results of our 12-month stability study later this month.Over the last quarter, we have increased our focus on the market opportunity and positioning of Qtrypta. As most of you know, migraine affects 39 million people in the United States. As reported in the peer reviewed literature, it is a disease that is characterized by nausea in approximately 50% of attacks, where almost half of presenting migraines occur in the early morning between 4 and 9 am and where 90% of sufferers are unable to work or function normally during their migraine. In January of this year, Dr. Stewart Tepper of Dartmouth, published the study in Headache

[Operator:]

[Operator Instructions] Our first question comes from the line of Charles Duncan with Cantor Fitzgerald. Your line is now open.

[Charles Duncan:]

Hey. Good afternoon, John and Greg and team. Thanks for taking my question, and congrats on the progress in the quarter. I had a quick question regarding Qtrypta and the NDA. I appreciate the extra insights there being a pre-NDA meeting coming up. I guess I'm wondering, what are the other rate limiting steps to filing that document.

[John Walker:]

So, I'm going to, Charles, ask Hayley, who, as you know, has overall responsibility for operations in the Company, but importantly, as well our regulatory function. So, Hayley?

[Hayley Lewis:]

Hi, Charles. Yes. So, we need 12 months of registration backed stability, which we will be pulling by the end of this month that we need to coalesce. We still need to finish alternative human factors study, which is scheduled to start pretty soon. And once we've done that, we’ll prepare the CMC package, which we will have a separate meeting with the FDA about, because we believe that our system is complex and it being the first, we wanted to keep the discipline of the nonclinical and clinical review separate from the CMC. And we think it's better for us to spend that time basically familiarizing the FDA reserve sections of the NDA. So, right now, we're waiting for our stability data, which is all required by the regs as well as the human factor studies to be complete.

[Charles Duncan:]

Also, Hayley, could you provide a little bit more color on the human factors study? In the past, products have been challenged that had a device component. And I guess, what gives you confidence, perhaps even the clinical experience with Qtrypta thus far, that you'll be able to sail through those human factors studies on scale?

[Hayley Lewis:]

Sure. So, we've done formative studies, which are the kind of fact finding studies where you would see how these subjects interact with your labeling and your device, and you would then either modify [Technical Difficulty] or try and make it a little bit easier for them to understand. So, we've done several of those. And we then also submitted our protocol, which is also required under the reg for our study. And the FDA has a requisite amount of dates to review it and get back to you with any comments. So, we feel that we have an IFU, which is the labeling, that is adequate for us to go into these studies. And right now, we're just preparing the materials and getting our site ready for us to start that study.So, we have no concerns that we would not be successful in that. We certainly got all of the right consultants and all of the right parts of our human factors clearly identified. And also, having the experience that we have enough clinical trial and knowing that our patients who were able to stay in and stayed in it for a year and with the associated questionnaires that they filled out, we know that our device and our labeling is adequate for them to use.

[Charles Duncan:]

Okay. That's helpful. And that's what I figured. Moving on quickly to the cluster headache indication, really intrigued with that, because it seems like Qtrypta or a Qtrypta like approach could be quite valuable there. I guess, I’m wondering, how does 213 really differ from Qtrypta in terms of perhaps dosing or anything else that is different?

[John Walker:]

So, Charles, let me answer the first one real quickly. So, the reason we've numbered it C213, and to be clear about it, at the start, it is Qtrypta, but we are doing a dose ranging Phase 2/3 study, so as you would have seen in I think the announcement this morning. So, it's possible we end up with a different dose than Qtrypta as we look to the market, and there may be other differentiating factors as well. In addition to that, we have, as you know, with to Qtrypta, a provisional trade name with the agency, that is for migraine treatment. So, we want to be careful in our communication correspondence with the Food and Drug Administration, not to confuse the two, nor to do anything that might concern the agency in regard to our labeling of Qtrypta for the treatment of migraine.So, that's really the reason to differentiate it by number, C213. And it is possible that it could be a more highly differentiated product, based on the data we generate in this indication. But, to be clear about it, as we made the clinical trial material, which we have done so, was essentially product that was made, the same as Qtrypta, just at two different dosing levels, 1.9, and then the 3.8 mg for the study. And so that hopefully is responsive to that part of your question.And I'm going to Don simply to comment about why we believe that cluster is a good indication for our delivery of zolmitriptan is the activation.

[Don Kellerman:]

Sure. Yes. Charles, I share your excitement about this program. I think, in our discussions with many key opinion leaders in the headache community, they really -- they looked at our PK data going back some years now, first got our initial pharmacokinetic data and said, you should really think about that for cluster. And so, given that PK data and our results, as John highlighted in our efficacy study, we think there's really a good chance that this could be the first new therapeutic agent to be approved for cluster in some time. So we're excited to get started with that next month, we'll get our investigators together and started rolling surely thereafter

[Charles Duncan:]

And do you plan to announce first patient in and possibly give periodic updates on how that enrollment is going?

[Don Kellerman:]

Yes. I think that's right. And that's been our history to try and be transparent as we can about the progress we're making in the trial. The trial will be in both episodic and chronic clusters of patients. So, it’s stratified for that. And again, as John said, it's really two doses versus placebo based on these -- the anecdotal experience with SubQ zolmitriptan that lower doses may be effective in cluster and are required for migraine. So, again, looking forward to that one.

[John Walker:]

And as we indicated, Charles, the clinical endpoints for this study will be pain relief, not pain freedom, a pain relief at 15 minutes, and the durability of effect through one hour. So, it is different disease, as you know, and does present itself differently in terms of the patient population. And so, we know, based on our discussion with headache specialists, the clinicians that see these patients that this is a highly underserved market and that they welcome the opportunity to be involved in a new drug study, to serve these patients. In fact, at our recent advisory board meeting at the American Headache Society meeting, one of the folks really commented that this was very important work to do.And as we've discussed with you previously, we feel that during the next 12 to 18-month period of time, as we continue to move forward with filing the NDA for migraine and the period of time it will take for the FDA to review that application, that this will continue to keep us in front of the clinical community involved with the key opinion leaders and headache specialists because they truly recognize that this is an important undertaking on the part of any company to try to basically provide a new therapy for these unfortunate patients.

[Charles Duncan:]

John, given the possibility of viable alternatives for treating these patients, it would seem that this trial would enroll relatively quickly. I could imagine headache specialists have pretty good sense of well-characterized patients. So, I guess, I’m wondering what you would guesstimate the timeline to be fully enrolling that trial?

[Don Kellerman:]

I hope you are right. I mean, it's been a while since anybody did -- pharmacologic agent that has done a fair amount of device work over the years. And you are right, we are going to the headache specialists who see these sorts of folks and they all claim to have a list of them. I mean, historically, cluster trials have not been enrolled that quickly. But, we're hoping that sometime over the course we'll see, I guess, hasn't been any drug studies in a while in cluster so. But historically, they've not been fast to enroll, like migraine trials.

[Charles Duncan:]

Okay. Last couple of questions, I appreciate you taking all my questions. One is, regarding business development. You talked about provocative views of the ADAM technology platform with vaccines. And I guess, I'm wondering, if you're talking with any vaccine developers and if you have a goal of being able to sign a broader technology platform partnership in the next call it 12 months.

[John Walker:]

So, we do believe that vaccines represent a very unique opportunity for our technology. We're not the only ones to report on this type of intracutaneous delivery that as you know, Charles, takes advantage of the natural biology, the proliferation of antigen presenting cells within the dermis, the delivery into the dermis of the antigen that does result in the increased antibody levels and so on.And we know that the companies -- and we have started to have some discussions along this line, clearly see the opportunity and the application. And that's one of the reasons why we've made the decision, as I commented about in my prepared remarks, Charles, to really beef up our business development capability. I think, you'll see something from us in that regard in the next six weeks or so, really, with the idea of both following up on some discussions that have been initiated at this point in time but importantly to broaden the scope of interactions we have with vaccine developers. And within that context, I certainly feel that this is the type of application. And with the fact that as I commented about the -- our having scaled up the ADAM technology and manufacturing, puts us in a pretty good position to be able to initiate a partnership of some kind on the development of what I hope would be new and very-important new vaccine.So, we certainly recognize the opportunity in terms of cancer vaccines at this point, but as you know, there is also a great deal of effort being put into harnessing the immune system to treat other diseases. And our early discussions certainly indicate that the major players that are involved in vaccine discovery and development really have that same thought, and as I indicated, Charles, do at least initially recognize and see the value of this method of delivery as a preferential delivery over SubQ or IM injection. So, we feel comfortable that that should point us in the direction of being able to get some type of non-dilutive capital into the Company by way of that type of a deal or relationship. And it's obviously with that thought in mind that we are beefing up our business development function.

[Charles Duncan:]

That makes sense to me. Last question, perhaps, for Greg. Can you -- I'm not sure if I missed this, maybe you already stated it. Can you give some kind of sense to the quarterly cash burn for the rest of the year?

[Greg Kitchener:]

Sure, Charles. As you probably know, this year, we're undergoing a fair amount of manufacturing work, both in terms of getting our CMO, Patheon up to speed and transferring our technology to them, as well as the build out of our new manufacturing lines. And that will be used in the commercial scale. So, this year our cash burn is a little higher than it was last year. Last year was in the high single digits. And so far this year and we’d expect that trend to continue over the next couple quarters here. We expect our cash burn to be in the low double digits of millions of dollars over the next couple quarters at least here. We do think that after that we will probably return to more normal levels but of course need to evaluate different opportunities in the business and other business pipeline expansion opportunities as well kind of going forward. So far, at least the near term, cash burn in that low double digits of millions of dollars.

[Charles Duncan:]

Okay. Thanks for taking all the questions. And look forward to some news flow in the near term on cluster and the NDA for migraine. Thanks.

[John Walker:]

Thanks, Charles.

[Operator:]

[Operator Instructions] Our next question comes from a line of Anthony Vendetti with Maxim Group. Your line is now open.

[Anthony Vendetti:]

So, you said in the press release that you're on track for the submission of the NDA by the fourth quarter of this year. Is that most likely at the end of the fourth quarter in December or too hard to say at this point?

[John Walker:]

No. I think we certainly have clarity on timing, and it will be towards the end of the fourth quarter, as you indicated. Because, obviously, we have already written some of the sections for the submission and are in process of writing additional sections as we speak. So, we've got a pretty good look at the timeline, Anthony. And if we don't run into any unexpected hurdles, we are very comfortable in guiding to end of fourth quarter submission of the NDA.

[Anthony Vendetti:]

Okay. And prior to that, John, you mentioned there will be a pre-NDA meeting in September and that will further clarify the guidelines, is that right?

[John Walker:]

I'm going to ask Hayley to respond to that again. But the intent of these pre-NDA meetings is certainly to make sure that as you submit your documentation, and so on, that it’s presented in the way, number one, that the agency would like it, and certainly that we review with them the types of data that we have to some degree, so that when they receive the package, they will have some familiarity. But, Hayley, I'll ask you to respond further on the pre-NDA.

[Hayley Lewis:]

So, John commented quite accurately that that's what we would be doing. We will outline how we will be presenting our data sets and the review of all of our studies, whether they be development from a CMC standpoint or our technical studies as well and how we intend to position our NDA without clinical claims. And so, what the FDA would then do is just kind of give you guidance on what else they would like to see in terms of analysis, not any new additional analysis in trials but in terms of the statistics that we've already compiled. And then, we’ll go to the FDA with our CMC package as well. And that will have all of our registration data, the 12 months, like I said that you would need to file an NDA. And then, we made other batches at Patheon, so that we can qualify that site about commercial manufacturer. So, all that information will go in there, and all of the tests and methods that we've developed and validated, and the specifications that we’ll be setting will be discussed with the FDA, so that they know what they're getting when we do file the NDA. And then, their regulatory timeframe that they take to then review to see the acceptable to filing, they're certainly not surprised by anything we put in there.

[Anthony Vendetti:]

Okay. And then, just to follow-up on that. So, there will be no new trial, it’s just -- they’ll give you guidance on what are the type of analyses. And then, since you have a contract manufacturer, what do they have to sign off on to approve that contract manufacturer for the manufacturing of this drug?

[Hayley Lewis:]

The new contract manufacturer in the beginning stages, as we've identified, they now will put the data in there to show that we can manufacture the batches as we did here in California, the same way that we would do at Patheon, and we will obviously note where it's manufactured at a physical location. And then throughout the review of the NDA, the FDA would schedule inspections at all of your contract manufacturers or some of them, whichever they deem to be need to be inspected. And so, they would then go out there. And basically, just observe that what you said in your NDA is accurate and it does actually exist and that you are capable of manufacturing your commercial product.

[Anthony Vendetti:]

Okay. And then, could we -- based on all that, what do you think the timeline is for them to finish all the analysis of the data, assuming, nothing too different than what you presented, maybe a little more statistical analysis? Is this a year long process, is this a couple-month process? What do you think?

[Hayley Lewis:]

Do you mean the FDA, or do you mean us compiling the data in our NDA?

[Anthony Vendetti:]

Just compiling the data, what they need, and then inspection?

[Hayley Lewis:]

Okay. So, we have a requisite amount of data and the data sets that we have. So, we have a project management tool that will be dropping it in, which is why we've communicated that we will be able to file our NDA by the end of this year. And under the current PDUFA timelines, we're expecting a 12 months review for a first cycle review and approval by the FDA. And based on those timelines, within that 12 months review, the FDA has to do certain things in order to get to certain milestones within their review. So, PAIs can happen at our sites and from any time from 65 days after filing the NDA all the way out to about month 10 or 11. So, it's up to them to schedule based on their timelines and resources when they would go out there. But, we have to be ready in order to host those inspections and so do our contractors by the time we file our NDA.

[Anthony Vendetti:]

Okay. So, about a year out before they would potentially make a decision?

[Hayley Lewis:]

Yes, the review is 12 months. Yes.

[John Walker:]

Yes. To try to be crisp about that is that once we file the NDA, the FDA will assess the package, et cetera. As Haley indicated, they will, we believe, schedule a visit to our contract manufacturer. And because we made certain batches of clinical trial material and so on, they will also most likely inspect our facility here. So, to give you some sense of that, we've already started preparing our team here for what needs to be done in an inspection and preparation work for that. You should know that one of the reasons we selected Patheon as our contract manufacturer is they've received continuing clean bill of health from the FDA, because they're subject -- they manufacture other products, so, they have been subject to more routine inspections over time. And we're pleased to know that they had one recently and there are no issues with our contract manufacturer in regard to their capabilities and so on.So, the inspection will really focus on the quality control and quality assurance measures that are built into our manufacturing process. And obviously, it will allow the FDA to assess that we are providing the product that they would be approving through our manufacturing. That should all be done, we believe sometime in the early part of the third quarter of next year and then that would lead to on the cycle that Hayley's mentioned that is PDUFA directed. We would probably receive the results of the FDA's consideration which we certainly believe will be approval. We think we have a highly derisked asset here at the end of 2020. So, that would be the guideline I think in terms of the timeline, generally, post filing of the NDA.

[Anthony Vendetti:]

Okay. So, assuming no problems, then FDA clearance late 2020 is realistic?

[John Walker:]

Yes.

[Anthony Vendetti:]

Okay.

[John Walker:]

Absolutely. We would anticipate that based on our filling date.

[Operator:]

[Operator Instructions] We have a question from the line of Bert Hazlett with BTIG.

[Bert Hazlett:]

Yes. A lot has been asked, a lot has been answered. Just with regard to cluster, could you give us a sense of how much the Phase 2/3 study is going to cost? And then, secondly, do you need a second study for that indication? Thanks.

[John Walker:]

Thanks very much, Bert, we appreciate the question. I'll comment about cost here; and then, the second part of your question, I'll turn over to Don. But from a cost standpoint, we already have engaged a clinical research organization to assist us in the study. The direct cost of that is anticipated to be mid to low single digits, if you will, for the CRO, in terms of millions. And then, of course, you have our own cost associated with our clinical development work and activity and so on. So, I believe that the cost as we projected, over the next 18 months or potentially longer, depending on enrollment et cetera, will be in the mid-seven-figure category.

[Bert Hazlett:]

Terrific.

[Don Kellerman:]

So, regarding the second study, it is a new indication typically, there are -- two studies are required for any new indication. However, we will be looking at it after the first study. If we get a knockout p value, it's certainly possible that we could appeal under the single pivotal trial guidance. I think, we’ll wait and see and have it. I think, our goal is to do the study, see how the doses differentiate from placebo, and then, finally have a conversation with the FDA. But, I think you inferred that the most new indications require two pivotal trials. Zolmitriptan has never been approved for cluster headache.

[Bert Hazlett:]

Thank you for the additional color.

[John Walker:]

Thank you, Bert.

[Operator:]

And I'm showing no further questions in queue at this time. Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program, and you may now disconnect. Everyone, have a great day.