Travere Therapeutics, Inc. (TVTX) Q4 2017 Earnings Report, Transcript and Summary

Good afternoon, ladies and gentlemen, and welcome to the Retrophin, Inc. Fourth Quarter and Full Year 2017 Financial Results and Corporate Update Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Mr. Cline, Vice President of Investor Relations. You may begin your conference.

Great. Thank you, Charles. Good afternoon, everyone and thank you for joining Retrophin's Fourth Quarter and Full Year 2017 Financial Results and Corporate Update Call. 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 earlier 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, February 27, 2018, and Retrophin specifically disclaims any obligation to update such statements to reflect future information, events or circumstances. With that, let me now turn the call over to Steve. Steve?

Thanks, Chris. Good afternoon everyone. Thank you for joining us today. 2017 was a remarkable year for Retrophin. Through expansion of our pipeline and further execution of our strategic initiatives we have positioned the organization to become a permanent member in the rare disease community. Most notably in 2017, we added seasoned team members that strengthened our ability to execute on our clinical and commercial priorities. We grew our base business with efficiency and we advanced each product candidate in our development pipeline closer to commercialization. First regarding our pipeline. I'm very pleased to update you on our most recent progress with sparsentan. Last week we met with the FDA to review the protocol for a planned Phase 3 trial of sparsentan in FSGS. Several important items were clarified in the agency’s written response prior to the meeting and confirmed in our live discussion. Specifically, the FDA concurred that our statistical model supporting the link between modified partial remission of proteinuria and a change in the slope of eGFR in our study population is supportive of proceeding with our planned Phase 3 pivotal trial on the Subpart H pathway. Bill will go into a bit more detail shortly, but this is obviously a key achievement for our FSGS program. We are rapidly finalizing our Phase 3 FSGS study initiation activities with the expectation of having the first patient dosed in the second quarter of this year. Sparsentan is also moving ahead in IgA nephropathy. During the fourth quarter, we continued our preparations to enter the clinic, and we will continue to engage regulators to establish our path for initiating a clinical trial later in 2018. The prospects of studies running in parallel for these two rare kidney disorders significantly increases sparsentan’s value proposition and we look forward to sharing more detail about them later this year. During the quarter, we also advanced our fosmetpantotenate program, which is in Phase 3 development for PKAN. The pivotal fourth study continues to enrol adult patients. We expect to open this study to pediatric enrolment in the second quarter but the target of completing enrolment of all patients around year-end 2018. The last enrolment program I would like to highlight is our collaboration with Censa Pharmaceuticals to develop CNSA-001 for PKU. This was announced at the beginning of the year. We are extremely pleased with this arrangement. It has the potential to materially strengthen Retrophin’s pipeline. The collaboration gives us exclusive access to a development candidate with promising preclinical data, the prospect of advancing quickly through the clinic and the potential to fill a significant unmet need for PKU patients. The coordination with the Censa team has been exceptional as they work to complete the dosing studies before moving into a Phase 2 proof of concept study around mid-year. By early 2019 then the proof of concept study reads out, we should have a good understanding of how efficacious CNSA-001 can be, and if our hypothesis is correct we look to advance very quickly into a pivotal study. Operationally, we ended the year with a strong performance across the whole commercial portfolio and we look forward to those products continuing to grow organically and reach our guided range of $170 million to $180 million in 2018. Let me now turn the call over to Bill to go over our pipeline progress in more detail. Bill?

Thanks, Steve. Our number one priority remains advancing our pipeline of promising lead programs for PKAN, FSGS, IgA nephropathy and PKU, all rare diseases with significant unmet needs with few or new FDA approved therapies. During the fourth quarter of 2017, and at the outset of this year we continued to make progress across all of our candidates, which sets us up very well for an impactful 2018 in the clinic. Let me start with sparsentan, our dual mechanism development candidate advancing for the treatment of both FSGS and IgA nephropathy. Together, these rare kidney disorders affect at least 200,000 people in the United States and greater numbers in Europe and Asia. As Steve mentioned, we are very pleased with our recent meeting with the agency, where we gained alignment with the FDA on our proposed Phase 3 trial design to support a Subpart H accelerated approval pathway in FSGS. Specifically, the FDA concurred that the statistical modeling for our proposed study population supports the link between proteinuria and estimated glomerular filtration rate or eGFR. As a result, we are moving ahead with our previously discussed trial design, which has an interim assessment of modified partial remission of proteinuria, and a confirmatory endpoint evaluating changes in slope of eGFR over time. We have minor alterations to make to our protocol after our meeting with the agency before addressing the trial design in more depth. But we are moving full speed ahead with trial initiation activities, and anticipate having the first patient dosed in this study during the second quarter. We believe this is a great outcome. We are also very eager to begin clinical development with sparsentan in IgA nephropathy. The data we have found today are highly supportive of both sparsentan potential intervention in the disease cascade and its differentiation compared to current treatment practices, which are similar to FSGS. Most importantly, the data show very clear association between early change in proteinuria, and improved clinical outcomes across multiple intervention. As a result, we have been able to put together a strong package for discussion with regulators on our path forward. We are currently in the process of finalizing our proposed protocol for IgA nephropathy, and expect to gain final feedback from regulatory agencies around midyear 2018. In anticipation of successful regulatory discussions, we have initiated trial preparation activities in parallel. Our CRO has been selected and we are building enthusiasm amongst investigators to participate in our study with the expectation of beginning our IgA nephropathy study in the second half of 2018. We look forward to providing more information on both of these programs as they progress throughout the year. I've now move to our fosmetpantotenate program. We continue to be very excited about fosmetpantotenate’s potential to be a first-in-class therapy for PKAN patients, who are currently living without effective treatment options. In the fourth quarter, we furthered our efforts to boost enrolment in our pivotal FORT. We initiated additional US sites in key areas central to PKAN families, and we recently commenced our UK and first European sites. As many of you know, our study protocol calls for us to enrol a small number of adult patients and follow them for a short period of time to enable data safely monitoring board read-out prior to initiation of pediatric enrolment. We expect to have that component of adult PKAN patients enrolled by the end of this quarter, which would enable pediatric enrolment sometime in the second quarter of this year. We do anticipate enrolment accelerating once we open the pediatric cohort given the larger portion of PKAN patients under the age of 18. As such, we expect the FORT study to complete enrolment around year-end, which would enable top line data readout in the second half of 2019. In parallel to the FORT study, four patients continue to receive fosmetpantotenate in physician initiated studies outside the United States. All four patients have been receiving open, non-controlled treatment for more than three years, and their findings continue to be helpful in evolving our knowledge of fosmetpantotenate’s potential in PKAN. Looking ahead, our focus for fosmetpantotenate will be getting additional study sites opened, and reaching our enrolment goal of 82 adult and pediatric patients. Finally, I would like to touch on our collaboration around CNSA-001 for the treatment of phenylketonuria or PKU. PKU is a rare genetic, metabolic condition in which the body can't break down phenylalanine due to a missing or defective phenylalanine hydroxylase enzyme. High levels of phenylalanine caused by PKU can lead to neurological and behavioral impairment. It is estimated that there are up to 50,000 people in the addressable PKU population, and a large proportion of patients who have initiated treatment with the current standard of care have failed to respond to therapy. There is clearly a significant unmet need in this population. That is where we believe CNSA-001 can offer a potential benefit to PKU patients. CNSA-001 is an orally bioavailable proprietary form of sepiapterin, a natural precursor to tetrahydrobiopterin or BH4 that is converted by an endogenous enzymatic pathway to BH4. Preclinical data generated to date by our partners leads us to believe that CNSA-001 can be more effective in increasing intracellular BH4, including in the liver and brain, and therefore induce greater reduction of phenylalanine compared to the current standard of care. The data also suggests CNSA-001 crosses the blood brain barrier, which could offer greater potential given the cognitive decline these patients experience. These early data combined with a well defined regulatory pathway should enable us to advance CNSA-001 quickly, fuel our excitement about the opportunity to make a difference for PKU patients in the not too distant future. Censa is currently conducting single and multiple ascending dose studies, with a Phase 2 proof-of-concept study in PKU patients expected to begin mid-year 2018. We expect the results from the proof of concept study to become available in early 2019. As Steve mentioned earlier, if the data are positive we will then look to advance CNSA-001 into a pivotal study in 2019. Based on this outline, you can see that we have a very busy and exciting year ahead for our product candidates in development. We expect to progress these four programs, including multiple Phase 3 study with first-in-class potential by remaining focused on reaching our key development milestones as quickly as possible to meet the significant unmet needs in the rare disease community. Now let me turn the call over to Neil for his operational update. Neil?

Thanks, Bill. I would like to start by reiterating Steve’s introductory comments in saying that 2017 was a tremendous year for Retrophin in terms of executing our strategies and advancing our leadership in delivering life-changing therapies to people living with rare diseases. We continue to operate efficiently while simultaneously progressing our pipeline and growing our current commercial portfolio. From a commercial perspective, we posted another strong quarter with growth across all three products. Our $42 million of net product sales in the fourth quarter marked the 10th consecutive quarter of year-over-year double-digit growth. Our strong fourth quarter resulted in $155 million in net sales for the full year, which achieved our 2017 guidance of $150 million to $160 million. Thiola demand remained steady in the fourth quarter as we saw patients continuing to initiate therapy. We remain focused on our strategy of utilizing multiple data sources to identify physicians and patients who continue to treat and pass stones or require surgery due to suboptimal treatment. Another part of this strategy is education on dose optimization. Does is dependent on each individual’s cystine output. We believe we can continue to make a difference by raising awareness that optimal cystine levels can lead to a reduction or elimination of cystine stones. We are confident that our dedicated Thiola team will deliver on both components of our strategy to maintain growth of the brand in 2018. I'm also pleased with the work being done with our partners on the new, more patient friendly formation of Thiola. Importantly, we remain on track to have an NDA filed in 2018. Regarding Cholbam, we saw encouraging momentum in the fourth quarter. Our team’s focused efforts appear to be making a meaningful difference in Cholbam’s uptick. Comprehensive use of the symptom-based genetic screening panel and our sponsored atypical bile acid testing programs are core to our strategy for Cholbam, and use of both testing methodologies continues to grow and identify patients. The use of these tools remains an efficient way for physicians treating people living with bile acid synthesis and Zellweger spectrum disorders to obtain and [intrepid] diagnostic testing results in a timely manner, and more easily understand whether Cholbam can contribute to better therapeutic outcomes. While we have seen some recent momentum, we are still in the early stages with efforts to raise awareness of these tools to identify patients. So we are eager to see further progress in our strategy over the course of 2018. We also continue to see new patients initiate Chenodal therapy. Perhaps most importantly, we remain encouraged by the evolving knowledge we have gained from our prevalent study and the increasing awareness of CTX. Lastly I will touch on business development. As Steve and Bill mentioned earlier, we are pleased about our latest transaction with Censa. This type of structure with an upfront consideration and option to acquire the asset after key milestones are reached is very attractive as it allows us to materially derisk the program before committing additional financial and human capital. We continue to be active in looking for both clinical and commercial assets that can add value to our organization. I will now turn the call over to Laura to walk through the financials. Laura?

Thanks, Neil. Net product sales from our commercial portfolio were $42.2 million for the fourth quarter and $154.9 million for the full year 2017. We reported a GAAP net loss of $17.6 million for the fourth quarter and a net loss of $59.7 million for the full year 2017. After adjusting for non-cash expenses, we reported a non-GAAP net income of $2.9 million for the fourth quarter and $10.2 million for the full year 2017 respectively. Significant non-cash adjustments for the fourth quarter included $18.4 million of non-GAAP operating loss adjustments and income tax expense of $6.6 million, and a $4.4 million adjustment related to the company's warrant derivative liability resulting from changes in our share price. On a GAAP basis, R&D expenses were $19.6 million for the fourth quarter, a minimal change compared to the same period last year, and $78.2 million for the full year 2017. The year-over-year increase for the full year 2017 is primarily due to the higher expenses related to clinical and non-clinical activities associated with the company's development program. On an adjusted basis, R&D expenses were $17.7 million for the fourth quarter and $68.9 million for the full year 2017. Relevant non-cash expenses for the fourth quarter included $1.9 million of stock-based compensation and amortization. Selling, general and administrative expenses were $26.7 million in the fourth quarter, a minimal change compared to the same period last year and $101.3 million for the full year 2017. The year-over-year increase for the full year 2017 is primarily due to higher expenses related to operational growth and an increase in sales force headcount and marketing initiatives to support Cholbam and Thiola. Also of note, SG&A incurred a $3 million benefit for the full year 2016 when compared to 2017 due to a legal settlement. On an adjusted basis, non-GAAP SG&A expenses were $18.5 million for the fourth quarter and $65.9 million for the full year 2017. Significant non-cash adjustments for the quarter consisted of $8.1 million related to stock-based compensation and depreciation and amortization. As of December 31, 2017, we had $300.6 million in cash and cash equivalents and marketable securities. We enter 2018 with a strong balance sheet to fund our promising product candidates. With four programs expected to advance in the clinic during 2018, we do expect our expenses to increase and result in a net use of cash from operations for the year. We also anticipate some non-operational uses of cash in early 2018, which includes a $10 million upfront payment related to the Censa collaboration, and $9 million cumulative sales milestone for Cholbam, and a payment we anticipate making related to sparsentan’s advancement. I will now turn the call back over to Steve for his closing comments. Steve?

Thank you, Laura. This is a very exciting time for Retrophin. Thanks to the hard work of our teammembers we made considerable progress in 2017, and moved into the New Year with a strengthened pipeline and the potential for the most robust clinical activity in our history. We plan to leverage our deep expertise to further the growth of our commercial business, while remaining focused on advancing our pipeline so that we made 2018 an exceptional year of value creation for both patients and our shareholders. Let we now turn the call back over to Chris to open the line for questions. Chris?

Thank you, Steve. Charles, can we go ahead and open up the lines for Q&A please.

[Operator Instructions] Your first question comes from the line of Joseph Schwartz from Leerink Partners. Joseph, your line is open.

Thanks very much, and congrats on all the progress. I was wondering if you can provide us with a broad stroke general description of your proposed Phase 3 trial design for sparsentan and FSGS, in terms of things like the number of patients, duration of treatment, when the primary endpoint will be evaluated, presumably it is not eight weeks as it was before, and the dose or doses that will be used in the study?

Hi, Joe. This is Bill. I will take a first crank at that. We are making some final adjustments to the protocol, and when we get that finalized we will be out in public with greater detail on a lot of the things that you just asked about. You are correct that the interim analysis is going to be at a point later than eight weeks. That is too short. The size of the study is going to be larger than what we did with DUET. But I don't want to be more specific now and we will clarify that as soon as we have a final protocol.

Okay. And how did your latest statistical model compare to the data which you presented recently or [indiscernible], and will you publish your statistical model or present it to us illustrating the relationship between proteinuria and eGFR so we can evaluate the probability of success here?

Certainly. I think that it is an ongoing internal discussion, but I do believe that eventually that modeling work will be published. You asked about comparison to what was presented at ASN; it is a little different than that. What we modeled in that analysis was looking at longitudinal data from the [Neptune] database and others where we looked at patient histories with and without treatment, looking at changes in proteinuria over time and how that was able to predict the change in eGFR in the future for those patients both on an individual level and as a population. And that model was then used by the agency to look at our protocol and assess the ability with a given reduction in proteinuria. So if we saw in the pivotal study a similar treatment effect that we saw in DUET, then you could use the model to project what would be the difference in slopes in eGFR between the treatment in a controlled group. That will allow the agency to assess A, the robustness of the endpoint. Is there a reliable predictor of future eGFR changes, which is really the confirmatory endpoint, and gave them the confidence that allowing us to go forward and this strategy doesn't put them at great risk of having a study where they have approved us on an interim, and then we would fail on a confirmatory.

Okay. And then – so then when you buttress the model with some more data, did it merely confirm that relationship that you presented around ASN or did it strengthen the actual predictability or the [size] I guess on eGFR?

I think it confirmed what we already felt we had seen. We had put together a similar model, and submitted it to the agency and as you recall, we learnt when we got correspondence back in November that they weren’t happy with the way that one was constructed. We revised it and put it together in a single model as opposed to a multipart model. The answer was the same that with the reduction like we see in DUET, in proteinuria you do get a clinically relevant and clinically meaningful protection in the detriment in eGFR over time.

Okay, great. Thanks for the color and congrats again.

Sure. Thank you.

Your next question comes from the line of Tim Lugo from William Blair. Tim your line is open?

Thanks for taking my question and congratulations on the progress as well. For CNSA-001, the proof of concept, is this going to be included in non-responders or patients with some experience with Kuvan, or are they are going to be [patients], could you give us some idea around that POC study?

I can give you some color around that, and Tim it is a good question. This is Steve. Censa will be doing that study. I think you are aware that they are responsible for operating the clinical trials until we pull the trigger on an acquisition if that happens around the end of the year. It will be a direct comparison to Kuvan. It will be a crossover design at multiple doses. It will not select for Kuvan non-responders. We would rather look for patients and assess the relative effectiveness of sepiapterin versus Kuvan in the same patients.

Interesting. And that is – that isn’t for the single ascending dose study? This is for the proof of concept, correct?

Correct. The single ascending dose just completed, we hope to see data from that within the next month or so. The multiple ascending dose is just getting started now. We anticipate the POC study will start sometime around midyear, and have results by the end of the year, sometime around the end of the year.

Okay, fantastic. And for sparsentan and IgA nephropathy, are you expecting to do additional dose finding work in that patient population, or maybe given the experience with the molecule could you go into a Phase 3?

Well, certainly our intention is to make the argument that given 500 patients experience in the hypertension world, 100 patients in DUET that the experience is adequate and sufficient from a safety standpoint for the drug across a range of doses. The IgA nephropathy population is not that different than those that we are going to see – that we have been working with in FSGS and the primary dose titration is based on blood pressure. So I struggle to see where there would be value gained in a dose ranging study. We still have to make that argument and convince regulators that that is indeed the case, but that is our perspective.

And is it safe to say if we fast forward to Q4 of this year, we are looking at potentially three Phase 3 studies ongoing at the company as well as the proof of concept from the Censa program?

That is absolutely correct.

All right. Congratulations. Thanks for the questions.

Thank you.

Thanks Tim.

Thank you.

Your next question comes from the line of Do Kim from BMO Capital Markets. Do your line is open.

Hi, this is [indiscernible] for Do. Thanks for taking my question. I wanted to know for the REO 24 studying did the adult and [indiscernible] go as expected and were there any hurdle that were seen for the [Romans] and also after the [Romans] open up the pediatric population, are there going to be additional [indiscernible] in the adult population.

Yes. Good question. The adult population frankly got a little bit slower than we anticipated. There are several barriers with adults don't exist with children, most of which this is a very limited population of adults. This is a [indiscernible] disease and many patients do not live to adulthood so that ability to get adult and get them in quickly has been a challenge for us. We are making progress on that. And we do feel like we will have the adult [indiscernible] by the end of the Q1 and upper for pediatrics in Q2 but it's going a little bit slower than we thought it would in terms of additional adult patients yes we will have adult patients coming into the remainder of the trial and from the patient mapping we have done today we feel like as more the European center open up there seem to be more adults in Europe and that should aid enrollment of the older patients as soon as we get up and running.

Okay. Thanks. On the novel formation of [indiscernible] can you provide more detail on the formulation of self and how it addresses shortcoming of [indiscernible] on it if it helped the or address dietary restriction.

Yes, we haven't gotten specific other than to say that when we took kind of an objective step back and look at the what’s good about that and what can be improved about [indiscernible] we follow four different aspects of the formulation that can be improved on. Patients have a significant [indiscernible] and they take a lot of pills. They take the more than empty stomach. It has kind of a funky relatively old fashioned sugar coating that can crack and when it cracks it kind of sulphur smell that particularly appealing and then they also have to take on an empty stomach. So lot of pills three times a day empty stomach sugar coating we felt like any of those four that we could improve on would be a step in the right direction to make the more patient friendly formulation and we feel like working with our partners [indiscernible] who have done a great job working on this program that we have addressed three of those four issues and we will be more specific on exactly what the formulation looks like after we file which should happen later this year.

Okay. Good to know. Thanks and congrats on good quarter.

Thank you.

Your next question comes from the line of Liisa Bayko from JMP Securities. Liisa your line is open.

Hi, thanks for taking the questions. Just a few on sparsentan specifically. When do you anticipate taking a look at the confirmatory end point the EGFR how far do you think you pushed that.

Well, I think that that's going to be dependent on a, final trial design and final trial design and enrollment. So it's difficult to say right now.

What I mean by that actually is are you planning on looking evaluating that let’s say from an individual patient basis after year one, year two, or three kind of how when is the best point in time after patient started therapy to evaluate that. I know because you talked about this flow from changing, are you going to be looking multiple points I mean I am just trying to understand when you will be measuring that roughly.

Okay. I think I understand a little better. It will be measured throughout the study at each visit. You have an EGFR measurement even at the interim we will be looking at that. And it will be part of the overall read down that's submitted and there is sub part in each application. It's unlikely that you are going to have enough of delta at the point in time at the interim, the regional length of the trial is longer for the confirmatory but there is multiple spots along the way so you do have submission of data along the way.

Okay. When do you expect to start to [indiscernible] the difference I guess or do you keep just going until you see that I mean is there a point in time in which you anticipate the trial be over and that’s when you are going to be the analysis on the EGFR --

Yes. No, there is a specific time where the study will end and we just haven't released [indiscernible].

Okay. Got it. And then you mentioned actually a payment due for sparsentan when can you just kind of clarify that and that's my final question. Thanks.

Yes. We expect that approximately in Q1. We don't have a specific.

How much?

4.6 million is the milestone payment [indiscernible] on the initiation of registration trial.

Thank you.

Liisa maybe to your previous question too we will just elaborating a little bit and I think you know historically we have been hesitant to talk about specifics on any of our programs after interaction with the agency until we get written maths and that's one of the reasons why we aren’t saying a lot about the specifics going back to the question you asked about timing and looking at EGFR we made an exception on the communication we got relative to primary as an acceptable end point and slip of EGFR as an acceptable confirmatory point because we actually got that confirmation in writing from the agency prior to the meeting. We submitted our briefing book and the response we got to the briefing book confirm that. So we felt that with the written confirmation we were comfortable sharing that information now. Other details on the protocol we are going to share with you after we get the minutes where we have written confirmation that we are on board with the agency there too.

Right. That's really helpful. Thank you.

Sure.

I am showing no further questions at this time. I would now like to turn the conference back over to Mr. Cline for closing remarks.

Thank you Gerald and thank you everybody for joining us today. This concludes our call. We look forward to updating you on our progress in the coming quarters.

This concludes today's conference call. You may now disconnect.