Decoy Therapeutics Inc. (DCOY) Q4 2017 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Q4 2017 Flex Pharma, Inc. 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 is being recorded. I would like to introduce your host for today's conference, Ms. Elizabeth Woo, Senior Vice President of Investor Relations and Corporate Communications. Ma’am, you may begin.

Thank you, Bruce. Good morning and thank you for joining us to discuss Flex Pharma’s fourth quarter and full year 2017 financial results as well as our recent progress and outlook. Earlier today, we issued a press release announcing recent business highlights and detailing our fourth quarter and full year 2017 results. You can find these documents on our Web site at flexpharma.com. Today, we will be making certain forward-looking statements about future expectations, plans, events and circumstances, including statements about our strategy, future operations and the development of our consumer and drug product candidates, plans for future potential product candidates and studies and our expectations regarding our capital allocation and cash resources. These statements are based on our current expectations, and you should not place undue reliance on these statements. Actual results may differ materially due to our risks and uncertainties, including those detailed in the risk factors section of our 10-K filed with the SEC and other filings we make with the SEC from time-to-time. Flex Pharma disclaims any obligation to update information contained in these forward-looking statements, whether as a result of new information, future events or otherwise. We’ll provide a brief overview and then open it up for Q&A. And on the call today is CEO Bill McVicar; and Chief Medical Officer, Dr. Tom Wessel. I’ll now pass the call to CEO, Bill McVicar.

Thank you, Elizabeth. Good morning and thank you all for joining us on the call today. I’ll make a few brief remarks about the overall state of business and then turn the call over to Chief Medical Officer, Dr. Tom Wessel, to review the clinical design for our Australian MS trial with an upcoming data readout in about 50 patients later this month as well as a brief recap of the ongoing ALS and CMT Phase 2 trials in the U.S. 2017 was an important year with key accomplishments that moved our programs forward. Our IND for FLX-787 became effective in April allowing us to commence our U.S. Phase 2 ALS trial last summer. This Phase 2 randomized, controlled, double-blind, parallel design trial being conducted in the U.S. will include patients with motor neuron disease or MND focused on ALS. We refer to the trial as the COMMEND trial and it will evaluate FLX-787 in MND patients who suffer from painful, debilitating cramps. The company expects to report top line results from this study by early 2019. In July, the FDA granted Fast Track designation to the development of FLX-787 for the treatment of severe muscle cramps in patients with ALS. Currently, no anti-cramping drugs are approved in the U.S. for this or any other condition. Fast Track designation is intended to accelerate the clinical development and review of drugs to treat serious conditions that address an unmet medical need. Last year, we achieved an important milestone with a positive data set from a small ALS study which provided the first clinical evidence that FLX-787 is also active in patients with underlying neurological disease. The study was a randomized, double-blind, placebo-controlled, cross-over trial in Australian ALS patients with frequent muscle cramps. In eight patients who completed the trial per protocol, FLX-787 demonstrated a statistically significant p<0.05 percent reduction from baseline in both cramp-associated pain intensity and stiffness, relative to the placebo control. These analyses were based on daily patient assessments using a Numerical Rating Scale. Strong and consistent trends were demonstrated on multiple other endpoints, including a percent reduction in the number of cramps from baseline with a p of 0.08, an increase in cramp free days from baseline p 0.09, and improvements in both the patients and clinicians Global Impression of Change, both with p values of 0.06. As we’ve seen in our other trials, FLX-787 was generally well tolerated in this study with no treatment-related SAEs or dropouts. Last fall, we initiated a Phase 2 randomized, controlled, double-blind, parallel design trial in the U.S. in patients with Charcot-Marie-Tooth, referred to as the COMMIT trial. The COMMIT trial will evaluate FLX-787 in CMT patients who suffer from painful, debilitating cramps. Patients will be evaluated for changes in cramp frequency as the primary endpoint, with a number of secondary endpoints. The company expects to report top line data from this study in early 2019. In Q4 2017, we completed enrollment in our Phase 2 exploratory spasticity study in MS patients in Australia. This randomized, placebo-controlled, blinded, cross-over study is designed to evaluate the safety and efficacy of FLX-787 in patients who suffer from spasticity, cramps and spasms as a consequence of their MS. We expect to report top line results from this study by the end of this month. Tom will take you through the design of this trial shortly. With regard to our consumer business, for the year ended December 31, 2017, the company recorded approximately $1.3 million in total revenue for its consumer product, HOTSHOT, and approximately $283,000 for the fourth quarter of 2017. Year-over-year unit volume growth for the fourth quarter of 2017 was approximately 10%. In a recent In-Home use study, conducted among 288 endurance and non-endurance athletes who used HOTSHOT over a two-week period before or after a workout, the vast majority of athletes surveyed reported less muscle soreness and muscle pain when using the product. As a result, HOTSHOT now has the potential to expand its claimed benefits beyond just cramping to include lessening muscle soreness and pain. As you know, we engaged an investment bank to assist with the consideration of strategic alternatives for the HOTSHOT consumer business. In the next 12 months, there will be transformational for Flex as we expect to report results from a number of robust Phase 2 clinical trials, the first an exploratory spasticity study in MS in just a few weeks time, followed by two Phase 2 studies in ALS and Charcot-Marie-Tooth patients, and our current cash position supports our operating plans with funding to mid-2019. I will now turn over the call to our CMO, Dr. Tom Wessel, to update you on our clinical progress.

Thank you, Bill. Let me take a few moments to review the intent and design of our exploratory Phase 2 MS trial that we will be reporting on by the end of this month. When this trial was conceived, we did not nor do we now have any data regarding the effect of FLX-787 on spasticity. Hence, we designed this trial with several exploratory endpoints to gain an understanding of the potential effect of FLX-787 on spasticity, cramps and spasms. This randomized, blinded, placebo-controlled Phase 2 study enrolled approximately 50 patients with MS and spasticity of at least three months duration not relieved by current therapy. Patients were given 19 milligrams of FLX-787 or placebo-control in liquid formulations 2x daily. When we started this study, we did not have our current ODT formulation. The trial included a 14-day run-in period with no treatment to establish baseline characteristics followed by treatment periods during which patients received FLX-787 or placebo in the first 14-day treatment period before washing out and then crossing over to the other treatment for an additional 14-day treatment period. As an exploratory study, this trial did not have and does not have a predefined primary endpoint. This study was designed to evaluate a number of endpoints relating to spasticity, the frequency of cramping and spasms, cramp-associated pain and other symptoms as well as global impressions of change by clinician and patient, and measures of quality of life and sleep. If we were to see a separation between FLX-787 and control, especially on the spasticity endpoints, that positive outcome will guide future development efforts in MS. The magnitude of such an effect will inform the size and design of a subsequent definitive Phase 2 study. Now let me provide a quick update and review of our ongoing Phase 2 COMMEND and COMMIT clinical studies in the United States. The COMMEND trial is an ongoing Phase 2b clinical trial which is designed to evaluate FLX-787 in patients with motor neuron disease, primarily ALS who suffer from severe muscle cramps. The COMMIT study is an ongoing Phase 2b clinical trial designed to evaluate FLX-787 in patients with Charcot-Marie-Tooth neuropathy. These two studies have an identical design. They are randomized, controlled, double-blinded, parallel group studies with a 28-day run-in period to establish a baseline in cramp frequency. Both of these studies are being conducted solely in the United States and are under our FLX-787 IND for muscle cramping. After run-in, patients are randomized to 30 milligrams of FLX-787 administered 3x daily or a control for the 28 days of treatment. Patients will be evaluated for changes in cramp frequency as the primary endpoint with a number of secondary endpoints, including the PGIC, the CGIC, cramp-related pain and spasticity. Our target is to enroll about 100 patients in this study to have about 80 to 90 completers at the end of the study. We anticipate data from the ALS study by the first quarter of 2019 and from the CMT study in early 2019. Now, I’ll turn the call back to Elizabeth.

Thank you, Tom. Operator, we are ready to open up the call for the Q&A if you would like to give directions. And joining us for the Q&A portion of the call is our Chief Financial Officer, John McCabe. Bruce?

[Operator Instructions]. Our first question comes from the line of Jotin Marango from ROTH Capital. Your line is now open.

Thank you. Good morning team and congrats on the progress. The first question, I just like to get a little nerdy about neurons, so I’ll go directly to Tom. So in the Australian ALS study that you reported last year, you did see a trend improvement in spasticity I recall even though the study was pointed at cramping. So since we will see a spasticity study coming up, how much should we read into that trend from last year when thinking about the MS study? So do you see the drug engaging the nervous system in spasticity in the same way in both indications?

Well, we don’t really have a detailed understanding of the circuitry that were influencing in the spinal cord. But you’re quite right in pointing out that there were some hopeful signs in the small Australian study in ALS patients. I just want to underline that we don’t really have any reliable clinical assessments that would indicate an improvement in spasticity. We did not see a signal in these eight ALS patients in Australia in terms of any influence on the Modified Ashworth scale, for instance. So I think it remains an open question but we’re hopeful.

Okay, understood. Thank you. And then a question for Bill. With your other two ongoing programs in ALS and then CMT, your regulatory interactions last year have laid out what looks to me a nice development plan and path. What is the expectation in MS should you see a signal there? So I’m not asking about the clinical plan, of course, but what would be a reasonable timetable for the next step, or just the sequence of regulatory and development of them that would be fair to assume there? Thank you.

I think what we’re looking for in MS is a sign of activity of the drug and particularly for spasticity endpoints. We’ve obviously seen clear signals of activity in the anti-cramping area but this would be the first chance to look for that kind of signal. I would say that the bar is actually fairly low for the size of the signal that could be quite meaningful. And I’ll give you as an example when the cannabinoids were developed and they’re now approved in Europe for treating spasticity, in their pivotal trial they were able to improve a NRS spasticity score by about 0.84, so less than 1 point on a 10 point NRS and this was adequate for European approval. It’s still of course underdevelopment in the U.S. If we see, for example, an improvement in spasticity using for example and NRS reported score in the range of sort of 0.5 to 1 unit, I think we’ll be very encouraged to evaluate, discuss with the FDA if necessary and design a definitive Phase 2 spasticity trial that we believe will then produce a p value and lead into a Phase 3 program for a really important and very difficult symptom that’s very prevalent in MS.

Great. Thank you. And lastly from me, can you share any details or updates on how recruitment in the ALS and CMT studies is going? Thank you.

As you know, these are complex multi-factorial problems and we are putting every effort and it is the absolute highest priority of our organization to recruit those and complete those studies as planned. I have a great level of confidence in our clinical team. We have good expertise in that area, so I feel very confident about that. That said, I can give you just a little flavor there which is that one of the things that we’re using is contacts with various patient organizations that are helping to spread the news about our trial, including such outlets as the ALS Therapy Development Institute, the Muscular Dystrophy Association, the National Amyotrophic Lateral Sclerosis Registry and these are going to be helpful we think for helping bring the patients to the sites.

Let me just add. We are close to having 30 sites opened now for our motor neuron disease study and I think the study is really now gaining momentum.

Great. Thank you very much and I look forward to the MS data from Australia.

Thanks, Jotin.

Thanks.

Our next question comes from the line of Mara Goldstein from Cantor Fitzgerald. Your line is now open.

Thanks very much for taking the question. So just two questions and the first is can you remind us if there are opportunities for interim looks at these trials that you’re doing, number one, understanding that these are preliminary clinical work? And then the second is, are there any plans from a formulation perspective to try and change the dosing how 787 is dosed?

Thanks for those questions. No, we have no planned interim analyses and the reason for this is that as you know, you end up giving up quite a bit of power when you have those looks. We do feel that these trials are really very robust. With 80 to 90 completers, we should have very good power. And we want to make sure we get a clean and clear answer to those trials. With regard to the dosage form and the doses, we’re taking into both of those trials if you recall a dose of 30 milligrams 3x daily which is on the upper end of the dose response curve that we were able to develop using the electrically induced cramping model. So we’re confident that the activity of the drug in that model should give us the best chance of seeing an effect in both ALS and Charcot-Marie-Tooth.

Okay. And if I could just also ask just on a numbers perspective on HOTSHOT, did you have any product returns in the quarter? And given you’ve announced in January that you’ve engaged for strategic alternatives, is it safe to assume that we should just look at this as a discontinued operation at some point?

Well, maybe I’ll answer the second question first and then I’ll let John comment on returns. It’s true we have engaged an investment bank to help us look at our strategic alternatives. We can’t obviously comment any more on that until we have some definitive news for you and we will certainly communicate that when that is the case. John?

Yes, Mara, this is John. Our returns continue to be consistently low in about the 1% area, so there’s nothing unusual in the fourth quarter compared to other periods.

Okay. Thank you very much.

Welcome.

Our next question comes from the line of Michael Higgins from Ladenburg. Your line is now open.

Thanks, operator. Good morning, guys.

Hi, Michael.

A couple of questions for you. Hi, there. First off, seeing data early '19 from COMMEND, if you can give us some feedback on the identification of patients if that’s causing a delay in the top line results? Maybe it’s in screening. You mentioned close to 30 sites. Give us a bit more detail to what steps you’ve taken recently and if there’s any other steps you may take along the way to get the 200 patients into collectively these two trials? Thanks.

Thanks for that question, Michael. As I’ve mentioned, these are complex issues and we have a really experienced team with a record of success, so I feel confident in their abilities. That said, with regard to your question about access to patients, we did launch our ALS trial right on the heels of the approval of Radicava. And as only the second ALS drug ever approved in the U.S., it received understandable interest from ALS patients. So while Radicava is not excluded – its use is not excluded by our study, we have seen some impact of that new drug which requires 10 days of infusions per month on patient’s willingness to enroll simultaneously in another clinical trial. So that I think is just a portion of the patients that will have to recycle through that or figure out their way to find the time to participate in our trial. And I’ll just make a comment about CMT as well. This is really one of the few and earliest intervention trials. There’s a number of course descriptive trials and historical trials in CMT. And so these patients really are – and the investigators are getting up the learning curve with regard to sort of tricks of the trade for recruiting patients. And one of the issues we know is that when these patients are relatively stable, their visits to their physicians are relatively infrequent and can typically be less than once a year. So the strategy there then is to use a little more patient-centric outreach and then encourage those patients to sort of present themselves to the clinical sites for participation in the study.

Okay. That’s very helpful. I appreciate the feedback there. A couple of good questions I think have been asked, so let me ask on the timing for renal dialysis and dysphagia still planning to start in Q1, any updates on that one – on those two? Thanks.

Yes. Tom, would you like to comment on dysphagia.

Right. So this is an area of increased interest for us. We know that this is an enormous medical program where there are no approved drug therapies for dysphagia. And as you know, this can lead to aspiration pneumonia and a number of other complications especially in patients with motor neuron disease. But one of the largest populations, of course, is post-stroke and then in Parkinson's disease patients as well. So we’re reaching out to various investigators that have expertise in the assessment of swallowing function in these patients and also globally in the assessment of bulbar functions. So we will be reporting in our next cycle on some of the stage that we’re going to be starting to investigate this more thoroughly. I see this as a potentially very important area for development for FLX-787. Similarly, in renal dialysis, we are in the midst of collecting data now and setting up a more detailed observational study to understand the cramping patterns as they occur in dialysis patients during the dialysis sessions but also to understand the behavior of these patients between dialysis visits. So it’s our suspicion that this is a subset of patients that just have an increased cramping pattern and it will be important to learn a little bit more about the natural cramping patterns of these patients and how best to identify these patients. So the question becomes, is this a treatment that would be applied just during dialysis sessions or globally for the entire cohort on a more chronic basis.

Okay, very helpful. I’ll assume in the spring – in the Q1 update call you’ll have an update on these programs. Yes, the point’s taken. There’s certainly those that are more likely to cramp and those that are not even within neurological conditions. So we could learn more about those. I’ll jump back in the queue. Thanks, guys.

Thank you.

Thank you.

Thank you, Michael.

Our next question comes from the line of Matthew Andrews from Jefferies. Your line is now open.

Thank you. Thank you for taking the question. This is Roger for Matt. So my first question relates to COMMEND and COMMIT. So thank you for providing additional color on the slight delay on the timeline. So, Bill, how confident you are now you can meet the timeline early '19, particularly in light of your current kind of cash position? Thank you.

You’re welcome, Roger. We’re very confident. We have a very experienced team. We’re focusing top priority on the completion of this work. As you know, we’re weeks away from reporting out the MS study and then this will be the singular focus of the company. So I feel very confident about the new guidance. And I think that – we know that, for example, the FDA’s opinion about cramping and ALS and the designation of it as a Fast Track indication is encouraging and lets us know that there are adequate numbers of patients in a really medical need. So we just have to then execute and I feel we’re really very positioned to do that.

Great. Thank you. That’s very helpful. My next question relates to Australia ALS. So after this Australia ALS data in November, can you categorize the change of your strategic partner’s interest in licensing 787, if any? Thank you.

I would only say, Roger, that we were very encouraged by those data because they again were the first time we saw that act – that the drug was clearly active in patients with neurodegenerative disease. So it’s a big milestone for the company. But of course we wouldn’t be in a position to comment on any strategy beyond that.

Sure, understood. That’s it. Thank you.

You’re welcome.

Thanks, Roger.

Our next question comes from the line of [indiscernible] from Canaccord. Your line is now open.

He might be on mute.

Hi. Sorry about that. Good morning. Thanks for taking my questions. Could you give us an update on your intellectual property strategy around 787 in the U.S.? And specifically if 787 is approved, do you expect to receive new chemical entity or NCE exclusivity from the FDA on the product?

Well, we typically don’t go into those level of detail in these discussions, but I can tell you that we have an aggressive and continuing IP strategy to protect our assets. The strategy is based on method of use patents protecting use of these molecules to treat neurodegenerative disease and the symptoms like cramping and spasticity that we’re pursuing. Obviously, we will anticipate the typical data exclusivity benefits upon approval, five years of data exclusivity in addition to the protection from the Orange Book patents that were listed.

Got it. Thanks.

You’re welcome.

We have a question from the line of Jotin Marango from ROTH Capital.

Hi. Thanks for taking another – giving me another turn. Just a quick follow up to Mara’s question about HOTSHOT since I have used the product myself when I go running in New York. So given that you are exploring and you could potentially monetize this business segment in the near, medium term. The question is, is there any risk that once you lose control of it, the product would interfere with your pharmaceutical segment given that these are small operating populations, or is all the difference there in the pharmaceutical grade of the drug in the active ingredient so there’s nothing to worry about? Thanks.

Yes, so I think you’re really – I think you’re thinking about it the right way, Jotin. Clearly, there’s a big distinction between our single molecule TRPA1/V1 co-activator which we’re giving to treat severe cramping and spasticity and neurodegenerative diseases. That’s at a level, at a concentration, at a dose, if you will, that is not anywhere achievable by the consumer product. Then you can imagine that in our decisions, should we go down a path where we separate from the consumer business that we will take great care to preserve where we believe the real value of our company is and that is in the pharmaceutical business.

Understood. Thank you.

You’re welcome.

Thank you. At this time, I’m showing no further questions. I’ll now like to turn the call back over for any closing remarks.

Thank you everyone for joining us on our call this morning and we will speak to you towards the end of the quarter with our results from our MS spasticity exploratory study. Thank you.

Ladies and gentlemen, thank you for your participation in today’s conference. This does conclude the program. You may all disconnect. Everyone, have a great day.