ZGNX (2019 - Q1)

Greetings, and welcome to the Zogenix Incorporated First Quarter 2019 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation [Operator Instructions]. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Brian Ritchie. Please go ahead. Brian Ri

Thank you, operator, and thank you all for joining us this afternoon. With me on today's call are Chief Executive Officer, Dr. Stephen Farr and Chief Financial Officer, Michael Smith. In addition, Dr. Gail Farfel, Chief Development Officer and Ashish Sagrolikar, Chief Commercial Officer will also be available during the Q&A session. This afternoon, Zogenix issued a news release announcing financial results and providing a business update for the three months ended March 31, 2019. Please note that certain information discussed on the call today is covered under the Safe Harbor provision of the Private Securities Litigation Reform Act. We caution listeners that during this call, Zogenix management will be making forward-looking statements. Actual results could differ materially from those stated or implied by these forward-looking statements due to risks and uncertainties associated with the company's business. These forward-looking statements are qualified by the cautionary statements contained in Zogenix's news releases and SEC filings, including in the annual report on Form 10-K and subsequent filings. This conference call also contains time-sensitive information that is accurate only as of the date of this live broadcast, May 8, 2019. Zogenix undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this conference call. Now, I’d like to turn the call over to Steve. Steve?

Thank you, Brian, and good afternoon to everyone who is joining us on today's call. As you know, very last month we received the Refusal To File letter or RTF from the FDA regarding our NDA submitted in February for FINTEPLA for the treatment of seizures associated with Dravet syndrome. As we noted in a separate [ph] conference call last month the FDA provided two reasons for the RTF decision. First, certain non-clinical studies were not submitted to assess toxicity following the chronic administration of fenfluramine. As we said at the time we announce receipt of the RTF letter, we did not believe these studies were required for the NDA submission, based on our assessment of prior verbal and written interactions with the agency. Second, our submitted NDA application contained an incorrect version of a clinical dataset which prevented the completion of the review process that is necessary to support the filing of the NDA. This error does not impact the clinical results reported in the NDA and will be appropriately ractify for the NDA resubmission. We remained highly confident about the clinical profile for FINTEPLA established in the completed Phase 3 program. I would like to emphasize that in the RTF letter the FDA did not request additional clinical studies all way considering about the safety of FINTEPLA observed on our Dravet clinical program. The RTF letter has no impact on the continuation of our long term open label extension study Dravet syndrome, also study 1601 are ongoing Phase 3 trial in Lennox-Gastaut syndrome or LGS. Collectively these studies now involve the participation of more than 500 patients. We recently requested a Type A Meeting with the FDA to allow us to reach an agreement on the pathway for resubmission and acceptance of the NDA. We would expect this meeting will take place by early June and through the guidelines the official written minutes from the meeting should be available within 30 days thereafter. In advance of this Type A Meeting we submitted briefing materials to the FDA outlining our position that are requirement for additional chronic toxicity studies is inconsistent with prior agency feedback on written [Indiscernible] minutes. Further, we believe that these non-clinical studies are unlikely to identify important new safety information considering the large volume of clinical data available for FINTEPLA from our Phase 3 program on the substantial published literature on the clinical use of fenfluramine. We anticipate that the discussions and outcome from this Type A meeting will help frame the expected timeline for our resubmission of the NDA to the FDA. As we continue to work with the FDA patients enrolled in Dravet syndrome and LGS clinical trials will continue to receive ZX008 or FINTEPLA. In addition, our Dravet syndrome Expanded Access Program will continue to plan and accept new patients for evaluation anticipating this program. In Europe our Marketing Authorization Application or MAA for FINTEPLA for the treatment associated with Dravet syndrome was expected for review by the European Medicine Agency or EMA not occurred in the first quarter. We now expect to receive the first set of review question surrounding submission from the EMA midyear. I’d like now to move on to Lennox-Gastaut syndrome or LGS, another difficult to treat severe childhood-onset epileptic through which new more effect treatments are greatly needed. As a remainder, our Phase 3 trial study 1601 is an ongoing global double blind placebo control three-arm trial in subjects between two and 35 years of age. We have seen very impressive patient enrollment at the new initiative European sites during the first part of 2019. I am pleased to report that we are on track to complete full study enrollment, full study 1601 in the second half of 2019. In line with it, we continue to anticipate the top line data from 1601 will be available in the first quarter of 2020. Beyond the progression of our global development program for FINTEPLA, I would like to take a moment to highlight the key strategic partnership we entered into in March with a leading Japanese pharmaceutical company Nippon Shinyaku to support the commercialization of FINTEPLA in Japan. Nippon Shinyaku is an ideal partner for FINTEPLA given its established expertise and commitment to rare diseases and the successful track record in collaborating U.S. pharmaceutical company around highly differentiated therapies in targeted patient and physician community in Japan. Under the trade of our partnership agreement, Nippon Shinyaku will receive exclusive distribution rights to FINTEPLA in Japan. In exchange, Zogenix will receive near term payments $20 million and a major portion of which was too exciting from the roads of the remainder which will be paid over the next two years. Zogenix will also be eligible to receive further regulatory and sales-based milestone payments worth up to an additional $108.5 million. In addition, Zogenix will supply product to Nippon Shinyaku and receive a tiered price for providing product of up to a high-double digit percentage of annual net sales of FINTEPLA in Japan. We are excited to have established the key partnership and look forward to working with Nippon Shinyaku and the appropriate healthcare authorities in Japan to bring FINTEPLA to physicians, patients and their families back as soon as possible. Looking ahead to the remainder of the year we are now preparing for upcoming Type A meeting with the FDA. I want to reiterate that we remain full committed to advancing FINTEPLA as potential new treatment option for Dravet syndrome patients and their families. And so working with the FDA to address the open issues and to identify a path enable us to successfully resubmit our NDA as quickly as possible. I look forward to updating you further following the Type A meeting with new development. Beyond Dravet syndrome we remain on track with our LGS program and anticipate the completion of enrollment Study 1601 during the second half of 2019 where topline results expected in the first quarter of next year. With that, I’ll turn the call over to Mike and his review of the financials. Mike.

Thanks, Steve. I will begin by reviewing our three-month financials for the quarter end March 31, 2019 as compared the corresponding period in 2018. Research and development expenses for the first quarter totaled $24.4 million, up slightly from $23 million in the first quarter in 2018. R&D expenses are substantially driven by our ongoing global Phase 3 development program of FINTEPLA and LGS and cost related to our ongoing open label extension for our Dravet syndrome program. It has been highly enrolled and experienced the high level of attention. Conversely, clinical trial activities and associated cost related to our Phase 3 development program of FINTEPLA in Dravet syndrome, Study 1 and Study 1504 closed in 2018 and payment are winding down during this past quarter. SG&A expenses for the first quarter and in March 31, 2019 totaled $10.9 million and this compares with $8.1 million in the first quarter of the prior year. The increase in SG&A cost reflects our continued investment and preparation potentially launch FINTEPLA for the treatment of Dravet syndrome in U.S. and various countries in Europe in the coming years. We reported a net loss for the first quarter ended March 31, of $35.2 million or $0.83 per share and this compares to the net loss of $30.2 million or $0.87 per share in the prior year period. We ended the first quarter with cash and cash equivalents and marketable securities totaled $480.7 million as compared to $514.2 million at the end of 2018. With this continued strong balance sheet we remain well positioned to execute our strategic plan and bring FINTEPLA for the market potential to treatment option for Dravet syndrome and LGS patients and their families around the globe. We remain focused on advancing our commercial plans for FINTEPLA the treatment option procedures associated with Dravet syndrome and look forward to our upcoming Type A meeting with the FDA. Simultaneously, we are nearing the end of our enrollment period for Study 1601 for patients in our global Phase 3 program for FINTEPLA and LGS and look forward to completing that enrollment in the second half of this year and potentially reading out the study in Q1 of 2021. I'll now turn the call over to the operator to begin the Q&A session. Operator, could you please provide the instruction.

Thank you. We will now be conducting a question and answer session. [Operator Instructions] Our first question comes from Paul Matteis with Stifel. Please go ahead.

Hey, thanks for taking the question. This is Nate on for Paul. I guess just very first definitively ruled out using the old preclinical data. And then in case you have -- have you gotten under way with the preclinical studies in case you can’t use them?

Nate, this is Steve, no, we have not ruled out potential for referencing the old clinical chronic toxicology studies. Footprints will remain on addressing the second question, yes, we have started preparations for repeating those studies if necessary.

Got it. And then just one on the models themselves, do these models, the FDA is asking for, did they actually elucidate drug induced Dravet syndrome?

You mean the chronic toxicology studies they’ve requested?

Right. Yes. They’re good for like seeing these valve changes?

Yes. It's quite consistent what we did in the chronic toxicity studies we've conducted examples you've known toxicity, as well as the cost that we are doing – cost initiatives that we’re doing that post market require study, we will look at heart valves as part of those studies.

Got you. All right. Thanks for answering the questions.

Our next question comes from Marc Goodman with SVB Leerink. Please go ahead.

Yes. Hi. Two things. One, I was curious if you could give us your feedback on what you're hearing out there in the community from the GW Epidiolex on so far. And second, can you just remind us of what the players in Europe, the strategy for building out commercialization infrastructure and how we should think about that spending rollout this year and next year? Thanks.

Thanks Marc. I’ll ask Ashish to address that question -- all those questions for you.

Thanks Steve. Your first question, I think we have had a very short time to assess the Epidiolex’s first quarter sales information, but the impression is that the physician and caregiver interest is very solid and that actually is a good thing because that is a huge unmet need. And then, we believe that both the community and the physicians are looking forward to having not only the current therapy but also the new therapies in the market. In terms of Europe, our plan stays the same in terms of once approved we will be looking to launch in a sequential fashion based on how we will get -- how we will apply for reimbursement. And our intention as we mentioned earlier is we will start with Germany first and we will be adding countries as we file for reimbursement. One important thing to note is we have already started work and have a team in place in Europe to work in all the major countries for the reimbursement submission and negotiation and lot of modeling work and the initial meetings have already started. So we feel very confident that when approved, we will be ready to launch in those countries.

Can you give us a sense of the number of people you're talking about? How many you have over there today? How many you'll have in six months and 12 months?

At this point in time we have eight people on the ground and most of them as you can imagine are in the reimbursement and access function along with marketing and the launch preparedness. And once approved we will be hiring people in major countries where we will be -- the footprint will be similar to what you will see in the rare diseases. A equal portion of both medical as well as commercial and based on the number of physicians and the patients what we are looking at is anywhere between six to eight people in countries depending on the population and the scope. Hope that helps.

Thanks.

Thank you, Marc.

Our next question comes from Danielle Brill with Piper Jaffray. Please go ahead.

Hi everyone. This is [Indiscernible] on for Danielle Brill. I just had a couple questions. The first question I was wondering was even though the Type A meeting hasn't occurred yet. Have you utilized your breakthrough designation to have initial conversations on the issue so far?

No, we have not. The reason for that is that the Type A meeting process takes care appropriately over next steps. And we expect the people file it. It is the most important meeting you can have with the FDA that occurs in a very short timeframe. So, we look forward that have that meeting, very true.

I see. And how are you looking at the launch of EU versus U.S. with this RTF letter backdrop. Do you see it launching at the same time and both?

It really depends right now on the outcomes from a Type A meeting, so it's too early to sort of speculate on that and obviously we'll have more clarity once we have a plan and the timeline for the NDA resubmission.

I see. Great. And I guess my final question would be if these ICAH [ph] studies were to go -- if they weren't needed would you still consider filing the LGS data along with the refiling of the NDA just because of the delay in the timeline?

No, we would not. If the chronic toxicity studies are not required for resubmission we believe we can move that forward very quickly. Following the Type A meeting which will be at the time where we're still finalizing the enrollment of the LGS trial. So we would certainly move forward with an NDA for Dravet syndrome drugs [ph].

I see. Thank you very much. I really appreciate you taking my questions.

Thank you.

Our next question comes from Jason Butler with GMP Securities. Please go ahead.

Hi. Thanks for taking the questions. Just two; first, of all, have you had any interaction with EMA since the RTF have to confirm their position on the historical toxicology data or do you have to wait for the 120-day questions? And then obviously assuming there's not a lot can you say, can you give us any color on what your arguments are in the briefing package you submitted as to why you think the historical data are the right way to go? Thanks.

Thanks Jason. I’ll ask Gail to address questions for your.

Sure. Hi, Jason. The EMA validated our package which is the gateway to reviewing the package in preparation for the questions that come at day 120. So that validation in effect was the agreements that the data they were given were sufficient to start the review. Regarding our contents of the briefing package, I think Steve mentioned in his comments our physicians said, these studies were not needed based on our interpretation review of back and forth we have had with the agency in 2015. And that's really all that we can say at this time. We'll have more understanding after the Type A meeting.

Okay, great. Thanks for taking my questions.

[Operator Instructions] Our next question comes from the Difei Yang with Mizuho Securities. Please go ahead.

Hi. Good afternoon and thanks for taking my question. Just a couple quick ones. So before the Type A meeting do you plan to rectify the clinical file and put seekers best on like easy fix? And then secondarily the worst case scenario if the preclinical toxicology study needs to be done in that scenario there will be a delay and could you comment on the cash runway in that situation?

Thanks, Difei. Regarding to your second question around the preclinical, the potential delay if we had to conduct those studies as we said I think on our conference call around this subject a month or so ago was around 12 to 15 months. We don't have any concerns around our cash burn and cash position. We have more than adequate cash to accomplish delay, it’s still successfully launch FINTEPLA. Could you repeat your first question for me please?

Yes. The first question is that, but there in the Refuse To File the letter; there are two inadequacies; one of which is related to the clinical file not being correct and that's one you like to see easy issue to correct. Do you plan to correct that before the Type A meeting or wait?

It's really ongoing right now. So obviously once you see an error like that it's appropriate you do a root cause analysis and I’m sure you have corrective actions in place, make sure it doesn't happen again. And that work is ongoing with our CEO right now.

Thank you for taking my questions.

Thank you.

Our next question comes from Yatin Suneja with Guggenheim Partners. Please go ahead.

Hey guys thanks for taking my question. Just a couple of questions. In terms of the communication to us, would you wait for the minutes or would you sort of communicate to us right after the meeting sometime in June?

Our normal practice is to wait until the official FDA meeting minute, which we anticipate will be end of the June, beginning of July.

Got it. And then you mentioned that you have not ruled out referencing the chronic tox data. So where are these data? Are they with the FDA or do you have access to them. And didn't you reference everything in the filing already, every preclinical data that was out there?

Hi. This is Gail. Because the -- when the drugs on the market, previously we pulled from the market, the NDA is no longer active. So, the process for referencing anything in a non active NDA is not the same. We're not entitled to reference it as we could, if the NDA were still active and that's why we are pursuing all options to be able to provide the data that the agency has requested.

Got it. And then these data that you might use are they available in the six or nine month format that you'll be able to sort of make them fit the way FDA wants?

Yatin, the publish data does exceed six to nine months for both rat and dog species.

Got it. And then may few question for Mike on the on the P&L side. Can you maybe help us understand how should we model the expenses? Any change given the timeline is now in the G&A or the R&D, one should go up or down, can you just help just model that please?

Sure. Well, for the coming year, I can give you kind of the impact of the change to this, given that uncertainty regarding what the horizon maybe for our shift. I think that's probably the most appropriate period. We'll continue to have R&Ds expenses that are similar to Q1 for the balance of the year. We have robust retention in our open label extension studies in our patients following in or into those space for both LGS, so remaining Dravet program. And so we will – we’ll continue to have cost as they won’t increase most likely, SG&A will be similar, maybe for another month from last year little bit as we prepare, but then that will start to ramp towards the second half of this year.

Great. Thank you so much.

You’re welcome.

We have the follow-up question from Paul Matteis with Stifel. Please go ahead.

Hi. Thanks for the follow-up. This is Nate again. I just want to elaborate real quick of my last question. So I understand you’ll be monitoring for valve changes in the chronic tox studies. But we did some reading and I think it had suggested that the valve changes seen in humans and with some of maybe just in the past aren't necessarily recapitulated in some of these animal models. Now I just want to understand if you agree with that stance or no?

We agree. Which is why we need a comprehensive perspective, cardiac launching program and Phase 3 program which we think is they quite please to do those studies.

Excellent. Thank you very much.

Thank you.

We have a follow-up from Difei Yang from Mizuho Securities. Please go ahead.

Thanks. So very quickly with regards to the preclinical toxicology study or the data, is it available in the public domain or does it require you to negotiate with the third party to access that data?

The data aren’t published in the peer review which is the fact. Obviously the full study reports are not in the literature, but the findings for older chronic toxic studies are in the literature.

Okay. So does that mean you can just reference to the literature and that will be good enough or you think the FDA historically the one is the data to be in certain ways?

We would obviously prefer to reference the literature data and to show the totality of evidence to respect to the safety of fenfluramine that we’ve also established in our Phase 3 program. And as you might imagine that would be a key area of discussion at the Type A meeting. So we’ll now move on to the meeting.

Yes. Thanks Steve.

Thank you again.

I would now like to turn the floor over to Dr. Farr for closing comments.

Well, thank you operator. We look forward to providing overview with a further update as appropriate following on Type A meeting with the FDA. We would remain very excited by the significant potential in our last stage develop program that is focused on multiple high values with indications. Moreover our business is supported by a strong balance sheet that allows us to be optimistic on business development drugs. So with that I thank you for joining us today. Enjoy the rest of the day. Bye-bye.

This concludes today’s conference. Thank you for your participation.