Zosano Pharma Corporation
Q3 2018 Earnings Call Transcript

Published: 14 Nov 2018

[Operator:]

Good day, ladies and gentlemen, and welcome to the Zosano Third Quarter 2018 Earnings Conference Call. [Operator Instructions] As a reminder today’s program is being recorded. And now, I'd like to introduce your host for today's program Greg Kitchener, Chief Financial Officer. Please go ahead.

[Greg Kitchener:]

Thank you, Jonathan. Good afternoon and welcome to Zosano's third quarter financial results and operational update conference call. Today's call will focus on our financial results and highlights for the quarter ended September 30, 2018, 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 December 14, 2018. Joining me on the call today is John Walker, Chairman and Chief Executive Officer. 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 reflect our current expectations and projections relating to the anticipated progress of M207 and the projected timelines for our research and development activities and other milestones. Our ability to obtain FDA approval of M207, 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 M207, 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 Form 10-K filed with the SEC on March 12, 2018, and in our most recent Form 10-Q filed with the SEC today, November 14, 2018. Before I turn the call over to John, let me spend a few minutes discussing our financial results for third quarter. Zosano reported a net loss of $8.2 million or $0.68 per share during the third quarter of 2018 which compares to a net loss of $7.9 million or $0.20 per share during the third quarter of 2017. Total operating expenses for the third quarter of 2018 were $8.3 million up about $500,000 over last year. This includes research and development expenses of $5.9 million for the quarter compared to $5.7 million last year. The increase in R&D was mainly due to an increase in clinical trial results related to our M207 ADAM long-term safety study. General and administrative expenses were $2.4 million during Q3 2018 compared to $2.0 million during Q3 of last year. The increase in G&A was primarily due to the implementation of our ERP system, and increase in stock compensation and other general corporate activities. As of September 30, 2018 we had cash, cash equivalents and marketable securities of $29.5 million. We had just under 12 million weighted shares outstanding during the quarter. Toward the end of the quarter we signed a capital equipment agreement with Trinity Capital Investment. This is a $14 million equipment line of credit that we were used to fund the purchase and installation of an automated coding process at our contract manufacturer, Patheon. This important piece of automated machinery is critical as the company prepares for the commercialization of M207. During Q3 we drew down the first $5 million from this line and used $2 million of this to pay off the outstanding balance of the debt facility we had with Hercules Capital. While the machinery is being manufactured, any money we draw down will show up as an equipment line of credit on our balance sheet. At the end of Q3 this amount was $4.6 million which we broke out between the current and the long-term portion. However once this machinery is put in place which we expect will be in early 2020, title will transfer and this will be reclassified in our financial statements as a lease with Trinity. With that, I will now turn the call over to John Walker, our Chairman and Chief Executive Officer. John?

[John Walker:]

Thanks Greg. And we appreciate all of you have taken the time to learn more about Zosano and our progress. Since our last call, the company has continued to execute against our stated goals in moving M207 toward an NDA filing in the fourth quarter of next year. Under the guidance of Don Kellerman, Vice President of Clinical Development, our long-term safety study completed enrollment in May and we have now treated over 4500 migraines. The efficacy data observed in these subjects of more than 43% achieving pain freedom in two hours and in excess of 81% achieving pain relief for two hours is in keeping with the 41.5% and 81% responder rates we saw on our pivotal study published last November in Cephalagia. Additionally, the reported freedom for most bothersome symptom score which along with pain freedom was a co-primary endpoint in the pivotal study is consistent with the response of 68%. Last month we announced an important milestone in the study as we completed the first required data set for our Phase 3 safety study having 150 subjects complete six months of therapy with an average of two treatments per month. This puts us in a strong position to complete the study in the first quarter of next year with 50 patients completing one year of therapy using M207 at least two times per month on average. Both data sets will form the basis of our submission to the FDA for approval. Importantly the open label study has had no reported drug-related serious adverse events. The number, type and severity of adverse events reported is very much within our anticipated ranges with a significant majority of reported site-related events cleared within a short period of time post administration. One of the key objectives of the company at the start of the year was to increase the exposure of our M207 program within the clinical community. That effort continues with the publication of our most bothersome symptoms data in the peer-reviewed publication Headache in May. Additionally, we were well represented in various clinical meetings throughout the year. Dr. Alan Rapoport of UCLA presented at the American Headache Society meeting in late June on his observations regarding the fast onset high rate of pain relief and low incidence of recurrence reported in our clinical data. At that same meeting, Graeme Martin presented on the receptor occupancy of zolmitriptan in comparison to sumatriptan reporting that zolmitriptan has a higher affinity for both of 5-HT1D and 5-HT1B receptors than the sumatriptan and that the receptor occupancy for both receptors was longer for sumatriptan. This further amplifies the company's decision to use sumatriptan for delivery using our ADAM platform as that decision was based on the potency reported to be 10 times that of sumatriptan, fact that zolmitriptan crosses the blood brain barrier and has been demonstrated to be well-tolerated and importantly has not today been developed as an injectable or parenteral administration prior to our novel microneedle ADAM approach. In September, Dr. Stewart Tepper of Dartmouth presented at the Migraine Trust International Symposium in London on the efficacy of ADAM zolmitriptan which he appropriately referred to as intracutaneous sumatriptan for the acute treatment of difficult to treat migraine, where he reported data on the efficacy in those migraines that presented with nausea and vomiting, that presented on awakening with severe pain and where the time to treatment exceeded two hours post onset. In each instance M207 demonstrated superior efficacy to placebo reaching statistical significant in each of these subgroups for both pain freedom and freedom for most bothersome symptoms. The only exception was the pain freedom endpoint in those migraines presented with severe pain, where the difference was trending but did not reach statistical significance due to the low number of treated subjects in this subgroup which was in end of 39. We plan to continue our efforts to report on the clinical results from our studies. By the time we conclude our long-term safety study, we will have treated over 6,000 migraines with additional data on the treatment effects of M207. We are continuing to plan for success in the launch of M207 by the end of the 2020 pending the FDA's approval. With the completion of our registration batches in August, and the signing of contract manufacturing agreements with Patheon and others, we plan to have capacity to produce 1.5 million doses at launch. This accomplishment of scaling up our manufacturing and the completion of our registration batches has taken one of the biggest risk factors that I had heard from investors a year ago when I first started in my position and reduced it to a very manageable execution objective. This effort is a result of the hard work of Hayley Lewis, Senior Vice President of Operations and her entire team. Also as Greg mentioned earlier, in September we executed an equipment financing agreement with Trinity Capital. We appreciate their support and with that financing we're able to secure an nonequity approach to funding the capital equipment needed to establish launch capacity at our contract manufacturer. The decision to use an outside manufacturer was driven in part by our overall company strategy to expand our portfolio proprietary assets. We are now able to use the manufacturing line we have in-house to facilitate the development and feasibility studies needed to nominate new programs and to provide clinical trial material that will be needed as those scrubs moved through the clinic. The breadth of the ADAM Technology is considerable at it has been demonstrated to work well with large molecules, vaccines and with small molecules. We anticipate that we will have one or two new programs based on the ADAM delivery technology introduced next year. While it is premature to announce either at this time, we believe that this will enable us to undertake partnering discussions on M207 as our lead program. As we have significantly reduced the risk in the NDA filing and potential approval by the FDA, we have concurrently increased the value of this program such that we believe it would be attractive to companies participating in the pain migraine our specialty market areas. Our clinical data speaks for itself in demonstrating subject to the FDA concurrence of efficacy that extends across the full spectrum of an acute migraine attack and that will be safe and well tolerated by the patient who is in need of such relief. Entering into any partnership will depend on the economics of such a relationship as we and our own hands continue the planning and implementation of launching M207 on our own. This includes meetings with payors, implementation of a third-party logistics strategy, completion of packaging concepts for our human factor study, trade name, and other marketing related activities. We will have more to discuss on this partnering activity as we move into 2019 and expand on our proprietary portfolio. Lastly I would like to welcome Greg Kitchener to the management team. He brings an exceptional background in finance but more importantly he is a consummate team player and has an outward looking presence that I believe will work very well with our investors and partners. With that, I will open up the call to any questions. Operator, please go ahead.

[Operator:]

[Operator Instructions] Our first question comes from the line of Bert Hazlett from BTIG. Your question please.

[Robert Hazlett:]

Thank you for the updates both of you. First question is just in the context of some of the landscape in the treatment of migraine, John how do you see the acute use therapeutics evolving in the context of the CGRP's that are being recently introduced for - with chronic use. I’d love to hear your thoughts in general about how M207 fits in that treatment landscape?

[John Walker:]

Thanks very much Bert. First and foremost as you know the CGRP's have certainly made an impact in the overall market but I think as everyone has commented, these are as you already pointed out for the prevention of acute migraines and on average the overall reduction was in the neighborhood of two to three headaches per month. We recognize that some patients and it's important to note have responded more favorably to the CGRP antagonist but as I said overall the reduction in migraines is relatively modest on an average basis. This certainly points to the fact that they will continue to be number of acute migraines and at our recent KOLs luncheon that we held in New York at the end of October both of the KOLs who spoke indicated that and their belief the acute need for treatment will increase as more chronic sufferers come back into the market. It was their belief that a number of patients have really dropped out of seeking therapy at this point because their issues have not been appropriately addressed, and it was their commentary that indicates that there would be potentially an increase in the number of acute and therefore the number of prescriptions written for triptans overall as the CGRP effect is fully felt within the market. So from our perspective we continue to see a robust opportunity for acute therapies and importantly we'll look forward to see how the growth in prescriptions for triptans which is certainly the class that we are participating in although we have pretty good data we believe relative to our - or in relation to new mechanisms of action that are being developed, that we will continue to have a very large market opportunity to address.

[Robert Hazlett:]

And then just quick one on R&D spend, how should we think about the pushes and pulls in spend - from quarter-to-quarter given where you are with the safety study just for modeling purposes. In the first quarter its 5.8, second quarter its 6.5 roughly, and now 5.9. Should that trend slightly lower the way it has in this quarter and could you just give us some insights as to the - the pushes and pulls on that line specifically. Thank you.

[John Walker:]

Sure Bert, happy to do so. As you mentioned, we are in the final stages of our long term safety study with the second and final milestone expected to read-out in the first part of next year. So we would expect the R&D spend on that line item to sort of generally hold to this level and maybe potentially ramp down as the wraps up. Of course we'll be bringing our new products potentially early next year which we will be speaking about in the future which could potentially offset part of that reduction in R&D but we’ll provide more guidance around what those programs are and what the financial impact of those are at a later point in time. But for now let's say that our R&D spending should remain at around this level for the near term here.

[Robert Hazlett:]

And I - since that we'll get update on partnering discussions and potential additional program sometime in 2019, if any additional color you can shed there would be helpful.

[John Walker:]

We will continue to update our investors on our progress on both fronts. Clearly in regard to the new products those efforts are underway at the company and I would anticipate that certainly within the first two quarters of next year, we will be announcing at least the first of those programs. When we announce them we want to make sure that we've got a pretty clear proof-of-concept feasibility study in hand demonstrating PK data which is you know is a significant and important data for moving any program forward with a delivery systems such as ADAM. And that as far as the partnering discussions, we are hoping that we will be fully engaged in those discussions early on in the first quarter as a result of the JPMorgan conference and ensuing activities.

[Operator:]

[Operator Instructions] And this does conclude the question-and-answer session of today's program. I'd like to hand the program back to Management for any further remarks.

[John Walker:]

Great. This is John Walker again. I just wanted to thank everyone who participated on the call. We continue to appreciate your interest in Zosano. As most investors that I've had the opportunity to speak with directly have commented, the company has made significant progress in executing against all of our goals for 2018, and I simply want to make sure that investors know we will continue to keep our eye on the ball and execute in a timely and effective manner, and everything that needs to take place to file our NDA on schedule in the fourth quarter of 2019. And at the same time, we believe we do now have the capacity as I've indicated in my comments to begin to look at adding additional proprietary programs to our portfolio and I think you'll see that Zosano will begin to present itself as a more robust and fully defined company as we move through 2019. Thank you very much for your time and attention.

[Operator:]

Thank you ladies and gentlemen for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.