Zosano Pharma Corporation
Q3 2015 Earnings Call Transcript

Published: 10 Nov 2015

[Operator:]

Good day, ladies and gentlemen and welcome to the Zosano Pharma Third Quarter 2015 Financial Results Conference Call. At this time, all participants are in a listen only mode. Later, we will host the question-and-answer session and instructions will follow at that time. [Operator Instructions] I would now like to turn the call over to Patti Bank of Westwicke Partners. Ma'am, you may begin.

[Patti Bank:]

Thank you, Tricia. Good afternoon on behalf of the team of Zosano Pharm, welcome to Zosano’s conference call to discuss third quarter 2015 financial results and given an update on company’s progress. For anyone who has not had the chance to review our results, we issued a press release after the close of market today outlining today’s announcement which is available under the Investor tab of our Web site at www.zosanopharma.com. You can also listen to this conference call via webcast on our Web site. It will be archived there for 30 days beginning approximately two hours after this call is completed. Before we begin, let me remind you that today’s call may include forward-looking statements regarding management’s expectations, and beliefs and future events. These statements are subject to risks and uncertainties that are difficult to predict and actual outcomes may differ materially. For more information regarding these risks please refer to the company’s filings with the SEC which are available on the company Web site at zosanopharma.com Now, I’d like to turn the call over to Mr. Vikram Lamba, the company’s Chief Executive Officer. Vikram?

[Vikram Lamba:]

Thanks, Patti. Good afternoon everyone and thanks to all those of have dialed into the call today. We are pleased to be able to provide you with this third quarter update today. Just as a reminder, we are at Zosano using our proprietary transdermal microneedle patch system to deliver drug formulations through the skin for a variety of indications. Our microneedle patch system offers rapid onset, consistent drug delivery, improved ease of use and room-temperature stability, benefits that the company believes often are unavailable using oral formulations or injections. I will begin by providing you a business update. Zosano continues to make progress on the clinical objectives in our development programs for a various product candidates. First I would like to talk about our most recent program. Most recently in November we announced positive Phase 1 clinical trial results for our ZP-Triptan program for treatment of migraine. The ZP-Triptan patch was well tolerated and achieved rapid absorption, which is expected to translate to fast pain relief for migraine patients. Additionally, in October, we announced positive Phase 2 clinical trial results for ZP-Glucagon program for treatment of severe hypoglycemia, representing a potentially superior therapeutic delivery option for patients with Type 1 diabetes. During the third quarter, we also continue to build our organization with multiple key hires. In September, we appointed Konstantinos Alataris, as President and Chief Operating Officer to broaden our leadership base as our pipeline of drug candidates advances into later-stage clinical development. Last of all, although we received positive feedback from the FDA. In September this year, we discontinued development of the daily ZP-PTH program for treatment of severe osteoporosis and terminated our agreement with Lilly. We believe that committing significant capital to this program was not a prudent investment at this time. Turning to the financial results for the third quarter ended September 30, 2015. Zosano had a net loss of $8.6 million or $0.72 a share on a basic and diluted basis, compared to a net loss of $3.7 million or $0.72 per share on a basic and diluted basis for the third quarter of 2014. During the third quarter, Zosano recognized no revenue compared with $0.4 million of revenue in the third quarter of 2014. The decrease was primarily due to the completion of feasibility work and conclusion of the study under our collaboration agreement with Novo Nordisk. Research and development expenses were at $6.6 million for the third quarter of 2015, compared to $2.6 million for the same period in 2014. The increase was due primarily to higher clinical and manufacturing costs for our various programs. General and administrative expenses for the third quarter of 2015 totaled $1.7 million, as compared to $0.9 million for the same period in 2014. The increase in G&A was primarily related to additional general and administrative personnel costs in support of our expanded operations and expenses associated with being a public company. As of September 30th, this year, Zosano had cash, cash equivalents and marketable securities of $43.9 million. Total debt as of September 30th, was $15.2 million. As you can see, we have had a very eventful third quarter with updates on all of our programs. We are particularly pleased with our progress in building the depth and breadth of our organization and our clinical development progress. We had a successful completion of our Phase 2 clinical trial on ZP-Glucagon with efficacy data demonstrating the patch rapid onset of action. We also reported positive Phase 1 clinical trial data on ZP-Triptan showing good safety performance and achieving rapid absorption consistently across multiple doses of our patch. With these successes, we have repeatedly demonstrated the ability of our technology to deliver products with a fast onset. We continue to strive to maximize our optionality with our pipeline while balancing our cash needs. We look forward to providing you further updates as we move forward towards later stage development of our key assets. With that, I’ll turn the call back to the operator so that we can take questions. Operator?

[Operator:]

Thank you. [Operator Instructions] Our first question comes from the line of Scott Henry with ROTH Capital Partners. Your line is now open.

[Scott Henry:]

Thank you. Good afternoon, Vikram. I am going to start with the income statement, to license fee revenues in collaborative development are those zero out at this point now that really is out of the picture?

[Vikram Lamba:]

Yes, that is correct.

[Scott Henry:]

And then R&D how should we think about that going forward into 2016 based on the recent development? And I guess we could use relative to a 5 million quarterly R&D rate that we’ve kind of seen in 2015, should I think that will be flat in 2016 up or down?

[Vikram Lamba:]

So just like I mentioned that we have had good clinical data on both Glucagon and Triptan programs and we are at this point finalizing our budget for the calendar year 2016. Now of course what you see as mentioned in the line under operating expenses which is research and development that is a mix of the base line R&D costs as well as the costs related to the clinical programs which is the cost expenses in the CROs and so forth. So going forward the baseline is probably will be in the same ballpark as now, but the actual cost of clinical trials will depend on the exact details that we are working on. So I think that it's hard for me to put a number on absolute dollars on the R&D work for 2016, but once we do finalize our clinical trial protocols we will be able to share what latter stage development costs or external expenses are likely going to be.

[Scott Henry:]

That’s helpful. And when I think about like the pipeline model for Zosano, how do I think about weekly PTH, I mean what are your current plans for that program?

[Vikram Lamba:]

Sure. So Scott you know that history of the company that we have in the entire year been building optionality for ourselves. We obviously have programs like PTH which are a big market but a long-term development kind of programs. And then we have programs like Glucagon which are relatively near-term but associated with a different market size. And then migraine which is also a fast development program and associated with a big market. So we have now created optionality that we’ve got three clinical programs with beautifully demonstrated data and we also have seen where we stand with our cash balance that I just announced is $43.9 million. So we are at this stage trying to balance our need to manage the cash that we have versus the priority of the programs weekly PTH being one of them. So we are in the process of making decisions which program to prioritize for ’16 and which program to prioritize for partnerships. So all those discussions are underway, I don’t want to misspeak, but I think we are in the decision making mode weekly PTH is one of the three programs which decisions are being made for.

[Scott Henry:]

And just final question, what I am thinking about catalyst over the next 12 months, should I still be looking for Phase 2 Glucagon data maybe in second quarter ’16 and I also have Phase 3 Triptan data in third quarter ’16. Are those reasonable thoughts at this point in time?

[Vikram Lamba:]

So, I think the -- because for us we have been generating data almost at the rate of one program per month almost. So we made a decision on the Lilly program in September and at that time we did not have the data about the other molecules. In October, we had news about Phase 2 of Glucagon and we did not have the migraine. Just a few weeks ago we announced the migraine data. So the takeaway from this is like I said, I mean at $43.9 million cash, we are making a decisions are we better off spreading ourselves a little bit tend but pursuing all options or are we better off diverting our cash to a focus program and do the partnership for others. All you can take away is in terms of the catalyst that you expect to see for the calendar year 2016 is that there will be a program for which we will finish a significant clinical milestone that we will announce and we will be coming back that you probably in the next multiple months to say these are the programs we are prioritizing and these are the milestones you’ll be able to see. So you got to give a little bit more time so that we can come back to you very sickeningly which program takes high priority, we are lucky to have options, but we still need to make decisions on how to prioritize.

[Scott Henry:]

Thank you, Vikram for taking the questions.

[Operator:]

Thank you. And our next question comes from the line of Matt Kaplan with Ladenburg Thalmann. Your line is now open.

[Matt Kaplan:]

Hey, Vikram. How are you? A couple of follow-up question from Scott, I guess first in terms of your non-cash charges during the quarter you elaborate what those were in terms of get net loss of the $0.6, how much of that was non-cash?

[Vikram Lamba:]

So maybe Winnie are you on the call? Maybe Winnie has not dialed in as the leader. But I do have to believe that most of the expenses that we are showing on our income statement are close to cash expenses with the exception of depreciation. I think I will need to have Winnie on the call to be able to answer that question, but based on the look, I think that there is some component of that captured as depreciation, but don’t have the exact number in front of me right now.

[Matt Kaplan:]

You can follow-up with me later on that regard, in terms of any stock options or related expenses as well for your stock options. And then in terms of your decision making that you went to in terms of the weekly PTH and your decision to terminate the daily program, could you give us a little bit more sense in terms of how you went through that and what are your decision at those points were?

[Vikram Lamba:]

Are you specifically asking about the decision making for PTH?

[Matt Kaplan:]

Yes, in terms of -- yes, you initial decision not to continue the daily program and tours weekly?

[Vikram Lamba:]

Yes and just as a reminder, you know the way the deal was structured with Lilly for development of daily PTH the deal required Zosano to finance the entire clinical development of the program. And as a part of the agreement, if we were to achieve approval of daily PTH in U.S. and Japan by a certain time point, defining time point in 2019, Lilly would be obligated to pay its first milestone of $300 million. So we sign the deal with Lilly with the expectation of doing our clinical development in a certain fashion. During the year, we went to FDA as well as the PMDA, the Japanese authorities with our clinical trial design and overall clinical development plan. And we got very positive feedback from the FDA. And in discussions with PMDA, they highlighted certain adjustments to the clinical development program which would have taken an extra nine months to a year for us to get the approval. So when we overlay that kind of approval timeline for Japan versus what was in the agreement, we felt that we were running a risk where we would have spent all their requisite amount of money in clinical development, not -- and also to include the cost of financing the base line burden of the company and there was a risk to achievement of some significant part of the first milestone. So we look at that situation and we method Lilly and then we decided that there was too much risk for us to put in that money and invested money has high cost of capital. So we decided that we had better options instead of wait a multiple years putting a whole lot of money at our risk and we’re taking a chance with the milestone approval date. We have our own programs Glucagon, migraine and a whole lot of others where we could better deploy the precious capital and not run the same kind of risk. So we made a decision not to put a whole lot of our money behind the clinical development of daily ZP-PTH.

[Matt Kaplan:]

And then in terms of your goals over the next six to 12 months, can you talk a little bit about those in terms of company goals?

[Vikram Lamba:]

Yes, so we are in the process of discussing our corporate goals with our Board towards the end of the year as a part of a typical process. But of course I expect that those goals will definitely include specific development goals for the program. We would obviously have like I mentioned to Scott, we need to prioritize how best to utilize the $43.9 million on the balance sheet, which programs do we develop ourselves, which programs there is inbound interest always on very program as we make announcements on the clinical data. So we have to make decisions amongst ourselves to say which program is best if it is partnered, which program is best if it's taken by ourselves to the meaningful endpoint or the next milestone. And so that development goals for the program as well as the partnering goals would be part of the corporate goals that I expect the goal to give us. Managing cash is always a big part of our strategy because we want to be very prudent with the use of our resources. So I do expect that there will be -- that it will be a significant part of our objectives and last but not the least, you have seen the demonstrated track record that we have brought in multiple programs one after another to create a position and it doesn’t stop with what we have. I do expect that you will expect us to bring out more programs in our pipeline in accordance with the prioritization that we make on the portfolio. So I think those are some of the examples of corporate goals that you can expect to see come out for 2016 relating to current product development, cash conservation and pipeline development.

[Matt Kaplan:]

Thank you. And then so I guess…

[Winnie Tso:]

Hi, Matt. This is Winnie. Operator put me on mute. To answer your question regarding non-cash expenses, we primarily made up of stock-based compensation and depreciation and amortization. Depreciation and amortization account for about $200,000 a month through the extent of about $600,000 a quarter and stock-based compensation account for about 150,000 a quarter.

[Matt Kaplan:]

That’s very helpful. Thank you, Winnie. Vikram, thank you for taking my questions and thanks for the added detail.

[Operator:]

Thank you. Ladies and gentlemen, Thank you for participating in today’s conference. This concludes the program. And you may all disconnect.