Zosano Pharma Corporation
Q3 2017 Earnings Call Transcript

Published: 10 Nov 2017

[Operator:]

Good day, ladies and gentlemen, and welcome to the Zosano Pharma Third Quarter 2017 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 is being recorded. I would now like to turn the conference over to Georgia Erbez, Chief Business Officer and Chief Financial Officer. Please begin.

[Georgia Erbez:]

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 of the quarter ended September 30, 2017, as well as important milestones achieved shortly after the quarter's close. Copies of our press release are available on the Investor Relations' Press Releases section of our Web-site at www.zosanopharma.com. Today's call is being recorded and a replay of our Webcast will be available on our Web-site approximately three hours after the call and available through November 30, 2017. Joining me on the call today from Zosano is John Walker, our Chief Executive Officer; Don Kellerman, our VP of Clinical Development and Medical Affairs; and Hayley Lewis, our Senior Vice President of Operations. Before we begin, let me remind you that today's call may include forward-looking statements regarding management's expectations and beliefs in future events. These statements are subjects to risks and uncertainties that are difficult to predict and actual outcomes may differ materially. Forward-looking statements give our current expectations and projections relating to the anticipated progress of M207 and the projected timelines for our research and development activities, 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 the Company's future financial results. These forward-looking statements do not constitute guarantees of future performance. These forward-looking statements involve assumptions that may never materialize or may prove to be incorrect. Actual results and the timing of events could differ materially from those anticipated in such forward-looking statements. We assume no obligation to update or revise any forward-looking statements contained herein to reflect any changes in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based, 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 1, 2016, as amended on March 6, 2017. I'll now turn the call over to John.

[John P. Walker:]

Thank you, Georgia, and thank you to those joining our call today. It's a privilege to share with you Zosano's recent accomplishments. From a 35,000 foot level, I want to emphasize that we are singularly focused on doing what needs to be done to file our NDA and ultimately commercialize M207, a product we believe will be an important addition to the treatment of acute migraines. We are delivering on our goals in both a timely and cost-efficient manner. We continue to focus on educating the clinical community regarding the data from the M207 clinical program. Our Phase I data was published in Pain Management in August and our pivotal efficacy study data was published in October by Cephalagia. Both are important peer-reviewed medical journals. Additionally, in September, our clinical team presented additional new data from our ZOTRIP efficacy study regarding duration of effect at 24 and 48 hours post dosing at the International Headache Society Meeting in Vancouver, British Columbia. There, in addition to previously reported data, Zosano reported that the 3.8mg dose showed durability of effect on pain freedom to 24 and 48 hours. These efforts are important in building awareness of M207 in the clinical community and we believe that the response has been very positive in understanding how M207 can address the clinical need for faster onset, durability of effect, and the ability to treat morning migraines and other migraines where treatment has been delayed. You are already aware, the results from the ZOTRIP trial demonstrated that the 3.8mg dose of M207 met both co-primary endpoints, achieving pain freedom and most bothersome symptom freedom at two hours, and reached statistical significance of pain freedom at 45 minutes and one hour. Additionally, M207 demonstrated a similar safety profile as other triptans with no serious adverse events reported in the trial. Importantly, throughout the Company, we are executing on our plans that will lead to our NDA submission in the second half of 2019. Yesterday we announced that our first patient enrolled in the long-term safety study evaluating repeat uses of M207 in migraine patients. The long-term safety study is the final major study that we need to complete prior to filing our NDA. With our CRO we selected 30 clinical sites, conducted our investigator meeting in September, completed our first site initiation visits in October, and now have our first patients enrolled the first week of November. The primary purpose of the safety trial is to observe and record any local irritation at the site of application of M207. In addition to safety, we'll be able to get a glimpse of how patients are using our drug in a real-life setting. We expect to gain further perspective on how the therapy will be used, which will help us as we move M207 towards regulatory approval and commercialization. Also, after the third quarter's close in October, Zosano entered into a common stock purchase agreement with Lincoln Park Capital Fund to sell them up to $35 million worth of shares over a 30 month period, subject to certain limitations. This is intended to be a standby facility to help manage our cash balances. To date, we have not taken down any of the funds available to us through this facility as we continue to explore partnering and strategic investments as the principal means by which we intend to provide capital for our operations. You may recall that last quarter we discussed with you the long-range planning process we completed to examine our path towards regulatory approval and launch of M207. As we have said before, manufacturing and commercial scale-up are central to our plan. We believe that we can ramp production volume at our current facility to meet anticipated demand for M207 during the first two to three years post-launch. We believe that the investment in manufacturing capability provides long-term value as well, enabling the development of a portfolio of new programs once M207 has been successfully launched. Also, in early fourth quarter, Zosano announced the appointment of Ken Greathouse to our Board of Directors. Mr. Greathouse is a seasoned pharmaceutical executive with many years of experience in sales, marketing, business development, and importantly, commercial operations. We are delighted to add him to our Board and we look forward to his contributions as we move M207 to the market. Our focus remains on the successful launch and commercialization of this important new approach for the treatment of acute migraine. We have initiated the long-term safety study, put into place a financial tool that provides us a backstop for our cash position, continued the dissemination of our clinical data, and are building our manufacturing capacity and operational effectiveness. I'll now ask Georgia to review our financial results for the third quarter ended September 30, 2017.

[Georgia Erbez:]

Thank you, John. Zosano reported a net loss for the third quarter of 2017 of $7.9 million, or $0.20 per share on a basic and diluted basis, compared with a net loss of $7.4 million, or $0.52 per share on a basic and diluted basis, for the same quarter in 2016. Research and development expenses for the third quarter of 2017 were $5.7 million, compared with $5.1 million for the same quarter in 2016. The change from period to period reflects increased expenses in the third quarter of 2017 related to the initiation of our long-term safety study, which were partially offset by a decrease in costs related to the completion of the ZOTRIP pivotal efficacy trial, which was completed in February 2017. General and administrative expenses for the third quarter of 2017 and 2016 were $2.0 million for each period. G&A expenses for the third quarter of 2017 and 2016 were unchanged, giving evidence of our efforts to control costs and focus our resources on the clinical development of M207. As of September 30, 2017, we had cash, cash equivalents and marketable securities of $19.8 million, and 39.2 million common shares outstanding. We reported a debt balance of $8.2 million, a decrease of $1.5 million over the previous quarter, reflecting our continued efforts to repay our outstanding term loan facility. Operator, at this time we have completed our prepared statements and please open the call to questions at this time.

[Operator:]

[Operator Instructions] The first question is from Charles Duncan of Piper Jaffray. Your line is now open.

[Charles C. Duncan:]

Thanks for taking the questions and congrats on the progress in the quarter. With regard to the long-term safety study, could you remind us a little bit about the kind of sizing and timelines of that and basics of that study?

[Donald Kellerman:]

Sure. This is Don Kellerman. It's nice to be underway. The study I think as we've stated a couple of times is designed to evaluate 50 subjects for a year and 150 for six months, again focused on the topical safety we see with the application of the M207. So, we are currently looking at, just started enrollment, it will probably continue into early 2018. A reminder that really the driver for that is 50 subjects for a year, so we hope to get that done either in the first or second quarter of next year. And again, it's a relatively straightforward study and open label study in, we're anticipating, about 30 sites. But again, I think first couple of patients who participated were subjects who also participated in the ZOTRIP trial. So I think that's a good sign in terms of uptake.

[John P. Walker:]

Charles, this is John Walker. I'll just add a couple of comments, if I can, and that is that we were pleased that of the 30 sites that we have selected, just a little over half of them were sites that had participated in our efficacy study. And secondly, we are also heartened to find out that at those sites that some of the patients that had participated in the efficacy study put their names on the list for consideration for inclusion in this study as well, and so we think that is reasonably positive sign. And so, we're hopeful based on our investigator meeting which we held in September that we will benefit from some enthusiasm around the study and hope for enrollment completed within the first quarter of 2018.

[Charles C. Duncan:]

Okay, that's helpful, Don and John, and I guess I'm wondering if you intend to provide any incremental updates either to enrollment, I guess that will be pretty quick, or persistence within the trial, because I would read that as satisfaction to some extent with the therapy?

[John P. Walker:]

Charles, we will certainly be discussing that on our future quarterly calls, and I think you know we are committed to continuing to conduct calls each quarter. And we will certainly be able to next year release our six-month data, because as you know that is one of the endpoints, the 150 patients completing six months. And we will do periodic updates during the year as we think appropriate. But we don't intend to send out releases every week or every month updating on enrollment. As you said, we do anticipate that that will take place in a relatively short fashion, and therefore think the update should be more around completing the six months of safety, and we will certainly give you some views as we have our quarterly calls onto how we feel that the subjects are doing on the study given the fact, as Don indicated earlier, it is an open label study.

[Charles C. Duncan:]

Yes, that makes sense. And perhaps one additional question for Georgia, or whoever wants to take it, is related to the let's say kind of transaction that you entered into with Lincoln Park. If you assume that all those shares are distributed and assuming the pricing, do you believe that you'll have a sufficient capital to get well into this long-term safety study or even perhaps complete it?

[Georgia Erbez:]

It certainly is possible, Charles. We really view this as a tool, not as the primary source of capital but as a tool to manage our cash balance going forward. It is a 30 month or 2.5 year life to the instrument. So it really depends on the price of the stock in the market and what our partnering discussions are going at, what the general conditions overall are, but it certainly is – the amount is certainly enough to get us to the completion of the study.

[Charles C. Duncan:]

And then final question and perhaps whacks philosophical here, but I was at the American Headache Society and my associate, one member of my team was actually at the International one, and frankly, we both observed that there is a fair amount of KOL interest in M207, but also it seemed to us Biz Dev types from strategic interest. And I'm just wondering if you – I know you can't say much, but have you had any inbound calls, does there appear to be interest in this product candidate in a broader migraine portfolio?

[John P. Walker:]

We have had inbound calls, to be very clear, Charles, the first of which really occurred after we announced the results of our FDA meeting back at the end of June, and certainly at the International Healthcare Conference up in Vancouver. I think that Don and his team did really a nice job because we did have a lot of additional interest expressed immediately thereafter. As a company and from a strategic standpoint, as I commented on our last call, our stock certainly has not performed as we would have hoped, and I wouldn't try to kid anyone by saying anything other than that. And it has become difficult I think for me to at least trying to keep the best interest of our current shareholders in mind. Being able to look towards the capital markets is the best way for us to provide our capital. And so, within that is the reason why we decided it was a good idea for us to, number one, put into place this equity line with Lincoln Park because it does, as Georgia indicated, serve as a backstop, and additionally, we made the decision as a Board to really pursue strategic discussions more aggressively. And so, we are involved in discussions at this point and we all hope that they offer us alternative capital formation strategies to simply go into the markets with our share price frankly well below what we think is the fair value of the asset.

[Charles C. Duncan:]

Yes, I frankly agree that the stock hasn't performed in the way that we would have thought either, and maybe it's because of us not despite us. So, I'll hop back in the queue. Congrats on the progress and thanks for taking the questions.

[Operator:]

There are no further questions in the queue. I'll turn the call back over to John Walker for closing remarks.

[John P. Walker:]

Thank you, operator, and again, thank you everyone for your questions and for taking the time to listen to our call. As we've indicated, we do believe that Zosano has delivered on several key inflection points this year. One only needs to reflect back that it was in 2017 that we did announce our pivotal efficacy results back in February. We did a follow-on offering that provided capital at least to move us into the initiation and start of our long-term safety study back in March of this year. We had a very fruitful meeting with the Food and Drug Administration and certainly very proud and pleased that they agreed that our efficacy data was sufficient for filing and that our long-term safety protocol was sufficient. We also, I think as we have mentioned on prior calls, know that we have some additional preclinical studies, and in addition have made a commitment to do a normal volunteer study to further test sensitization in a way that we believe that the dermal division of the Food and Drug Administration would prefer to see that type of data. And so, we are moving forward aggressively in terms of completing what we believe is important and necessary to file our NDA. And the momentum that we have seen in regard to, and appreciate Charles' comments, the positive response that we've gotten from the clinical community does lead us to believe that we have a very attractive product in M207 and one that will address some needs on the part of the patients and the clinical community that are not fully addressed at this point in time by other available therapies. So, with that, we'll say thank you again and we appreciate your interest in Zosano and we'll continue to update you on our progress as we move forward. Thank you.

[Operator:]

Thank you. Ladies and gentlemen, this concludes today's conference. You may now disconnect. Good day, everyone.