Travere Therapeutics, Inc. (TVTX) Q3 2017 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Retrophin Third Quarter 2017 Financial Results and Corporate Update. [Operator Instructions] As a reminder, this call may be recorded. I would now like to introduce your host for today's conference, Chris Cline. Please go ahead.

Thank you, Tiana. Good afternoon, everyone and thank you for joining Retrophin's Third Quarter 2017 Financial Results and Corporate Update Call. A brief note before we begin. Our press release provider is having some technical difficulties, so please refer to our 8-K filed with the SEC about 10 minutes ago. Joining me on the call today are Steve Aselage, Chief Executive Officer; Neil McFarlane, Chief Operating Officer; Laura Clague, Chief Financial Officer; and Dr. Bill Rote, Senior Vice President and Head of Research and Development. Before we begin, I would like to remind everyone that statements made during this call regarding matters that are not historical facts, are forward-looking statements within the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not guarantees of performance. They involve known and unknown risks, uncertainties and assumptions that may cause actual results, performance and achievements to differ materially from those expressed or implied by the statement. Please see the forward-looking statement disclaimer on the company's press release issued today, as well as the Risk Factors section in our Form 10-K filed with the SEC. In addition, any forward-looking statements represent our views only as of the date such statements are made, November 7, 2017, and Retrophin specifically disclaims any obligation to update such statements to reflect future information, events or circumstances. With that, I'll now turn the call over to Steve. Steve?

Thanks, Chris. Good afternoon. Thank you all for joining us on the call today. Our third quarter was marked by fundamental progress that has positioned Retrophin to make a meaningful impact in the rare disease community and to accelerate our growth. We continue to make the development of our pipeline the top priority, and I'm pleased with the strides we made during the quarter. Perhaps the most notable development for the pipeline in the third quarter was the initiation of dosing in our Phase III FORT study in fosmetpantotenate and PKAN. We've gone from preclinical developments of Phase III in a remarkably short period of time, and the commencement of dosing was perhaps the most significant milestone to-date, as it marks the beginning of our clinical trial that could ultimately lead to marketing approval. We are continuing to enroll patients in the study, and remain on track for completion of enrollment in the second half of 2018. I'm also pleased with the recent publication of data that are highly supportive of our clinical efforts with fosmetpantotenate. The data from physician-initiated treatment with fosmetpantotenate of a PKAN patient at the CNS Annual Meeting in October continued to be consistent with the beneficial effects we have seen in the four patients treated thus far. We also continued the advancement of sparsentan in FSGS. Bill will go into more detail shortly, but just last night, we received feedback from the FDA on the protocol we submitted for our planned Phase III trial in FSGS. The agency has requested more statistical work to support our surrogate endpoint for Subpart H approval upon a positive interim readout. Our plan is to get the requested analysis back to FDA as quickly as possible and continue our trial startup activities in parallel. I am very pleased with the preparation we've made with the sites in anticipation of initiating our study. Additionally, the sparsentan open-label extension data just presented at ASN Kidney Week a few days ago, were positive and supportive of potential long-term use of sparsentan. These data strengthen our resolve that sparsentan has first-in-class potential and may be able to significantly help patients with FSGS. Elsewhere in the pipeline, we were very pleased to enter into a research collaboration with NCATS, a division of the NIH and the NGLY1.org Patient Foundation. This is an important advancement for the NGLY1 community, and a great example of how we can work together with public research and patient advocates to enhance our understanding and put meaningful efforts toward discovering potential therapeutics for rare diseases, such as NGLY1 deficiency. While the work there is early, we are all looking forward to the developments we expect will come out of these efforts in the future. Operationally, we had another strong quarter, and I remain pleased with our execution. The commercial team's focus and effort contributed to growth across all three products, and we remain on track to reach our 2017 revenue guidance and build upon our momentum in 2018. Let me now turn the call over to Bill to walk through a number of updates with the pipeline. Bill?

Thanks, Steve. During the third quarter, we continued to make progress with our two Phase III development programs. Both fosmetpantotenate and sparsentan have the potential to be first-in-class therapies for PKAN and FSGS respectively. These patient communities are currently facing serious unmet needs and are dependent upon us to deliver the first approved therapies for these conditions. As such, we're working diligently to move them both along as quickly as possible. Regarding our fosmetpantotenate program for PKAN, we are very pleased to reach the milestone of initiating dosing in the FORT study during the quarter, and we have since increased efforts to open additional clinical sites and accelerate our enrollment. Our goal is to have more than 20 sites participating in the study, and we made further progress initiating additional sites in the US, and preparing sites for initiation in Europe during the quarter. Per our study protocol, we are enrolling adult patients to enable a data safety monitoring board readout that would allow for pediatric enrollment to commence. We expect to reach that readout after some adult PKAN patients have been observed over a relatively short period of time. As Steve mentioned earlier, we remain on pace to complete enrollment during the second half of 2018. In addition to the FORT study, four patients continue to receive fosmetpantotenate and physician-initiated studies outside the United States. All four of these patients have been receiving fosmetpantotenate for more than two years, and remain stable on therapy. Recently, an update of one of these patients' experience was described in a presentation at the Child Neurology Society's annual meeting in Kansas City. The new data from months 15 to 30, of treatment with fosmetpantotenate, showed improvement in all clinical parameters. Specifically, the treatment was associated with a persistent improvement in the patient's functioning, as evidenced by the converging outcomes on functional scales, such as Part 2 of the UPDRS, and Euroqol 5-dimensional 3-level scale. The persistent benefit exhibited on Part 2 of the UPDRS is especially encouraging to us, as Part 2 of the UPDRS served as the basis for the development of our novel PKAN-ADL or PKAN activities of daily living scale. The PKAN-ADL is being utilized under a special protocol assessment agreement for the primary efficacy endpoint in our pivotal FORT study. Gait, and thus functional independence also reportedly improved and remains stable. Also encouraging is that the data presented most recently remained consistent with the reported outcomes from the other non-controlled physician-initiated studies. As you can see, there is a lot of positive momentum behind the fosmetpantotenate program, and we look forward to furthering our advancement of this potential first-in-class treatment for PKAN. I'll now move on to sparsentan, our investigational candidate for FSGS. We worked diligently during the quarter to submit protocol for our proposed Phase III trial to the FDA for review, and as Steve mentioned, we just received feedback from the agency last night. In a constructive response, the agency requested some additional quantitative modeling in order to qualify our surrogate endpoint to be considered for Subpart H accelerated approval. This is not a unique request given the higher standards set to gain approval via the Subpart H pathway. We've already begun pulling together the next steps to obtain the necessary analyses, and in parallel, we'll continue our clinical site preparation activities with our CRO in anticipation of engaging the agency again in early 2018, and initiating the trial thereafter. I'm pleased with the progress we're seeing in their preparation and look forward to an efficient trial start. We also just returned from ASN Kidney Week where we had a great engagement with the nephrology community and presented new data from our open-label extension in the Phase II DUET study. Regarding the presentation of new data, we were very encouraged to see a progressive reduction in proteinuria combined with stable eGFR during the open-label period to date. We were also pleased to see that sparsentan remained generally safe and well tolerated. Perhaps the greatest testament to the perceived benefit amongst both patients and physicians, is that we still have 74 patients participating in the extension today. Overall, at Kidney Week, we heard consistent enthusiasm for sparsentan from the community of physicians who treat FSGS, as well as other kidney diseases. As you all know, since the positive readout of DUET, we have been doing a considerable amount of work to understand where sparsentan and its unique dual mechanism of action may have utility in the treatment of additional orphan nephrology indications. While those efforts began with evaluation of many indications, the science continuously drove us towards a significant potential of IgA nephropathy. Mechanistically, the anti-proteinuric properties of sparsentan appeared to translate very well to IgA nephropathy, and we have had access to high-quality data to develop foundational work more quickly than we originally anticipated. Key to that has been an analysis of data covering the use of endothelin antagonism with IGAN, which are highly supportive of our premise that sparsentan may have utility across multiple glomerular nephropathies. We also did validation work with external advisers and key opinion leaders, who see a great opportunity for a non-immunosuppressive agent in this disease, that like FSGS, has few treatment options for physicians and patients. So we're looking forward to advancing sparsentan in IgA nephropathy alongside of FSGS. Our development strategy is being established and we plan on providing more details related to IgA nephropathy in the clinic in 2018. Finally, as Steve mentioned earlier, we are excited about the cooperative research and development agreement with NCATS of the National Institute of Health, and a Patient Advocacy Foundation, NGLY1.org, that was announced during the quarter. The cradle will focus on the development of assays for small molecule, high throughput screening in an effort to better understand the biology of NGLY1 deficiency and identify potential small molecules to be developed as therapeutics patients. Overall, we took meaningful steps this quarter to advance and expand our pipeline, and we look forward to sharing our many milestone ahead in 2018. Let me now turn the call over to Neil for his operational update. Neil?

Thanks, Bill. Operationally, we turned in another strong quarter, and we remain pleased with the progression of our business and capabilities to deliver life-changing therapies to people living with rare diseases. All three products in our commercial portfolio continued to grow, resulting in $40.3 million of net product sales in the third quarter. This 19% year-over-year growth keeps us on track to meet our guidance of $150 million to $160 million for the full year of 2017. As we have talked about recently, we've made some changes to enhance the footprint of our commercial team. We believe we are now starting to see some of the early benefits of the two focused teams, one supporting Thiola and one supporting Cholbam. Regarding Thiola, demand remains strong. The team continues to find cystinuria patients, and compliance remains high for those who are on therapy. We also just entered into an extension of our original licensing agreement with Mission Pharmacal, the manufacturers of Thiola, which takes our exclusive marketing rights in the U.S. and Canada out to 2029. This extension represents our confidence as well as our partners' confidence that we can continue to grow the Thiola brand for the foreseeable future by reaching more patients and helping them have a chance at becoming stone-free. We also made headway on our endeavor to develop a new formulation of Thiola. As we stated previously, we look forward to sharing more on that as we get closer to filing an NDA next year. I'll now shift over to Cholbam, our bile acid replacement therapy for two potentially fatal hepatic diseases, bile acid synthesis and Zellweger spectrum disorders. I mentioned earlier that we're seeing some benefit from the expanded and dedicated teams, and a significant amount of that impact has been with Cholbam. We continue to see growth in the use of the symptom-based genetic screening panel, and have benefited already from our sponsored atypical bile acid testing program that can further clarify genetic results and indicate that a patient may be a candidate for Cholbam. This comprehensive testing strategy has helped efficiently screen cholestatic patients, leading to a great number of patients starting therapy. Regarding Chenodal, we continue to enroll patients in our prevalent study of individuals with idiopathic bilateral cataracts. This effort remains a valuable tool for gathering new information related to CTX and raising awareness for earlier diagnosis. Finally, business development remains core to our strategy to diversify the business, and we continue to find opportunities to engage. We look forward to updating you if and when one or more of these cross the finish line. Let me turn the call over to Laura to walk you through the financials.

Thanks, Neil. During the third quarter, net product sales from our commercial portfolio grew 19% year-over-year to $40.3 million. We reported a GAAP net loss of $17.8 million for the third quarter of 2017. After adjusting for noncash expenses, we reported a non-GAAP net income of $5.9 million. Significant noncash adjustments for the quarter included $16 million of non-GAAP operating loss adjustments and $8.9 million adjustment related to the company's derivative liability resulting from changes in share price and income tax benefit of $1.2 million. R&D expenses on a GAAP basis were $19.6 million for the third quarter of 2017. The year-over-year increase is primarily due to the higher clinical and nonclinical expense related to fosmetpantotenate and sparsentan. On an adjusted basis, R&D expenses for the third quarter were $17.5 million. Relevant noncash expenses for the third quarter included $2.1 million of stock-based compensation and amortization. Selling, general and administrative expenses were $24.9 million on a GAAP basis in the third quarter of 2017. The change over the same period last year is due to an increase in headcount to support the company's commercial and operational growth. On an adjusted basis, non-GAAP SG&A expense for the third quarter was $15.4 million. Significant noncash adjustments for the quarter consisted of $9.5 million related to stock-based compensation and depreciation and amortization. As of September 30, 2017, we had $303.9 million in cash and cash equivalents and marketable securities. We approach year-end with a strong balance sheet and are well positioned to fund our pipeline products as they progress through the clinic. As we have stated in the past, we do expect our operating expenses to rise over time, predominantly in R&D, as we initiate an advanced enrollment in our Phase III trials. I'll now turn the call back over to Steve for his closing comments. Steve?

Thank you, Laura. As you can tell from the team's remarks, we made some clear strides in the third quarter. Our base business remains disciplined and strong. We continue to have a positive outlook on the growth that can provide in the years ahead. As importantly, we remain focused on our priorities to advance and maximize the potential of our pipeline in PKAN, FSGS and now, IgA nephropathy. As we close the year and move into 2018, we are well positioned, both operationally and financially, to reach the key milestones that will advance our first-in-class therapies to patients in need, while simultaneously diversifying our business and creating long-term durable growth. I'm going to turn the call back over to Chris now and open up the lines for questions.

Thanks, Steve. Tiana, can we now open up the lines for questions?

[Operator Instructions] And our first question comes from Joseph Schwartz from Leerink Partners.

This is Dae Gon dialing in for Joe. I just had one quick question and then a follow-up and then I'll hop back in the queue. So looking at the commercial sales for your three products, I just noticed that over the years that first quarter tends to be affected by some sort of a seasonality that somehow rebounds in 2Q going into 4Q. So can you maybe talk a little bit about that pattern? And you talked about your two commercial teams. How do you think that new strategy might impact this trend going forward? And then the second question, either for Steve or Bill. Just wanted to get a little more color on this update on sparsentan Phase III trial design. What exactly was the FDA requesting? And I guess, looking forward to your guidance, you said initiating in 2018, can you maybe put a little more of a narrow window within the 2018 at all?

Neil, you want to start with the Q1.

Sure. So I mean, I'll start with the commercial teams. The question was in regards to the separation of the teams, is that what the question was? So yes, we found that both of the teams - previously, there wasn't enough dedication between an 80/20 split in terms of the sales forces and where were. 20% doesn't necessarily get you much in terms of effort. The dedicated sales forces along with the tools that they've been provided with in terms of EGL testing as well as ICD-10 codes, have allowed them to focus and deliver on the sales programs. And in terms of Q1 versus Q4, there is a gross-to-net change in insurances co-pays and what have you in Q1 that allow you to see that change from Q4 to Q1.

Sure. This is Steve. Let me step in on the second part of your question, and then I'll ask Bill to add anything he would like to after my comments. We got the feedback from the FDA just last night, so we haven't had a lot of time to work through that. But I think you're well aware that our efforts over the last really six months have been to put together data from available bases, registries, anywhere we can access FSGS patient data to tie proteinuria improvements to long-term renal outcomes in a way that would make the FDA comfortable that approval on the proteinuria interim assessment, if you will, would make them comfortable in their ability to forecast when on the eGFR confirmatory endpoint. The data has been sparse. We have put together, I think, a fair amount of information attempting to tie those two together. FDA has come back and asked for some different type of modeling. We are going to assess whether we can do that ourselves, or whether we're going to need some outside help with that. And as we sort through that effort, we should have over the course of the next weeks or months, some handle on exactly how long that's going to take. Right now, the request is very, very new, we've had it for less than 24 hours. So bear with us a little bit as we want to make sure that before we comment too much further, that we have our arms around what we're going to need to do to be able to respond effectively and hopefully, quickly. Bill, is there anything you want to add on that?

No, I think that was a comprehensive answer. Thanks.

And our next question comes from Do Kim from BMO Capital Markets.

Just a follow-up on what the FDA is requesting. At first look, do you think that you'll be able to do the analysis with the databases that you've collected regarding FSGS? Or do think you'll have to find more literature and studies in order to accommodate what the FDA requests?

I think we're going to take a little bit of time before we can really answer that. As I said, we literally have had less than 24 hours with the request, and have spent a good bit of that 24 hours adjusting our press release and our comments on this call to make sure that we are providing you with accurate information. So if you would give us a little bit of time so we can make sure that what we tell you is accurate.

And are you going to wait until you get confirmatory feedback from the FDA after resubmitting the design to disclose what the design is to us?

I think we will attempt to keep you updated as things progress. And until it's clear how they're going to progress, it's hard for me to project exactly when we're going to communicate further. We will try to be as transparent as possible and keep you updated to the extent that we can.

And a question on RE-024. Should we be able to see changes to iron accumulation in the brain during this treatment period for the FORT study? And will you be taking MRI scans to observe that?

This is Bill. We aren't going to be taking MRI scans in the FORT study. The deposition of iron in that eye-of-a-tiger diagnostic sign is one of the hallmarks of PKAN patients, but it's unclear at this point whether that's causative or simply something that is occurring in parallel with the disease. We don't think that our mechanism necessarily is going to impact that, and we have data that suggests that, absent imaging, there's other ways that we can easily measure positive effects on the function of these patients. And that we won't be looking at imaging.

[Operator Instructions] And our next question comes from Liisa Bayko from JMP Securities.

So just to confirm does any new analysis the FDA want. Do you still feel comfortable that eGFR will be a confirmatory endpoint? Does that make sense of the context of your request?

I don't see anything changing from the confirmatory endpoint standpoint. That's pretty standard.

And eGFR as a confirmatory endpoint?

Yes.

And then in terms of how you think about measuring eGFR. Just can you explain to me, do you - because I know it's sort of slow to move ad maybe it's more of a stabilization. Do you anticipate having a role of crossover component to it? Or how should we think about being able to distinguish changes in or stability in eGFR for the longer-term [indiscernible]?

Well, there is variability in any of the eGFR measurements. And I think you get around that with longer duration studies and repeated measures. Beyond that, I'm not going to get into specifics around the design of the study at this stage.

I was just trying to understand how you show that it's stable versus - would it be compared to historical control? Or would you have an ongoing placebo arm, would that reasonable for long periods of time, that's what I was asking about.

No, there would likely be an active control arm. If you look at DUET, we were controlled with irbesartan and that gives you a good surrogate.

We would have - there won't be a crossover of the control arm for a longer period of time.

Correct.

And then, I mean, can you maybe qualify how onerous is the FDA request [indiscernible]? Just trying to get some parameters around what kind of a delay we might be taking at this point.

Yes, Liisa, I think it's a little bit too early to say right now. I think what they've asked for seems reasonable. We want to sort that out and really work through how long it's going to take us to pull that together, quality control and get it back to the agency. And in the less than 24 hours we've had, I don't feel comfortable giving you an estimate on that at this point. We will work on it as quick as we can and Bill's team is already tearing that apart. And yes, I feel confident that we've got a good team. We'll work on it, we'll move as fast as we can. We've spent some time here with the guys who have some knowledge of the area already. We'll build on what we've already learned and hopefully be able to respond pretty quickly. But until we get into it deeper, it's hard for me to say exactly.

And then can you just maybe go through some of the evidence for the IgA nephropathies?

The question with sparsentan across glomerulonephropathy is really where is the mechanism applicable. And it's not so much in prevention of the injury, but in the kidney's response to injury is where sparsentan's mechanism shows its value in reducing the inflammatory response in the expansion of that pathology. So we've looked at databases - study databases and actually there is a paper by Anchor from the Tufts Group that outlined a pretty clear relationship between reduction in proteinuria directly linked to extension in time to end-stage renal disease. So we've been looking at that data. We've been looking at some of the trial databases and we think that there is a strong rationale for going in there.

If I could maybe add one thing to what Bill said. I think you've seen us work really hard to tie the relationship between proteinuria long-term outcomes with FSGS because there aren't huge numbers of patients in accessible databases. One of the attractions of IgA is the fact that there are large numbers of patients, there are accessible databases. And it's much easier to tie those two parameters together, the proteinuria and the long-term benefit.

And our next question comes from Tim Lugo from William Blair.

This is Ashiq Mubarack on for Tim. Just to switch it up a little bit. I was wondering about the Thiola, a new formulation you mentioned, and I was wondering if you could remind us about the differences between the new formulation and the old formulation and what your expectations for that time line were and how you plan on integrating that commercially. What the switch might be like with your existing patients. And then just generally on ASN, what's the - what specific questions are you hearing from physicians particularly related to the sparsentan data set?

We got a couple different people are going to answer, Ashiq. I'm going to talk to you a little bit about what we've talked about before in regards to Thiola and our new formulation. We've basically just said that this going to be a patient-friendly formulation. We haven't gone into any depth in regards to what it is at this point. What I'll do also is reiterate that we've extended our agreement with Mission Pharmacal for an additional five years to get us out to 2029 at this point of the game. So that gives us some confidence that development of our new formulation as well as Thiola today will be able to represent these patients moving forward. I'll hand it over to Bill to add to answer the other questions.

So I think the question was, what were some of the remarks at ASN regarding the sparsentan data. I think there was interest in the duration of the study. I think there were remarks about the durability of the effect that's seen out to 48 months and the fact that there is continuous reduction in proteinuria that's seen both in the patients that were on sparsentan in a double-blind period and remain on that in the open-label as well as what we see in those that were on the comparator irbesartan and then crossed over to sparsentan in the open-label period. GFR was flat, which is encouraging. It's only a small number of patients, but certainly - going certainly in the direction that you want it to go. Also, what was remarkable with that data set is the number of patients that are remaining in the study. The normal expectation with a long-term open-label extension, even in the best of cases, you have trial fatigue with repeated visits and the rigors that are associated with participating in a trial. We still have 74 patients in the study and the numbers are remaining pretty solid. So that's very encouraging to us.

Okay, that's make a lot of sense. Regarding specific, did you hear a lot of questions about the relationship with proteinuria and chronic endpoints? And what was the physician feedback regarding your response to them?

Well I think that the relationship between proteinuria and end-stage renal disease is becoming firmly established within the nephrology community and we're not hearing challenge across that. One of the things that we do hear when we talk to investigators, there is a lot of activity in the renal space these days and there's a lot of trial work going on. But sparsentan is distinguished in that it's not an immunosuppressant. And that's very attractive to the treating physicians because while the immunosuppressants are very powerful, they also come with a very specific side effect profile. And some of them, quite frankly, are renotoxic. So to have a potential agent on the horizon that has a safety profile that's more benign, one that has adverse events that are easily managed and they know how to work with. I had one physician comment that this is no different than what I deal with, with amlodipine, use that every day. So they are encouraged to have a tool that operates in this space that can be used chronically with a much higher degree of safety.

And I would now like to turn the call back to Chris Cline for any further remarks.

Thank you, Tiana. This concludes our quarter call. Thank you all for joining us today, and we look forward to updating you on our progress in the near future.