Xeris Biopharma Holdings, Inc. (XERS) Q2 2017 Earnings Report, Transcript and Summary

Good day ladies and gentlemen, and welcome to Strongbridge Biopharma Q2 2017 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we'll have a question-and-answer session and instructions will be given at that time. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Lindsay Rocco of Elixir Health Public Relations. You may begin.

Thank you, and good morning, everyone. We're pleased that you could join us today for Strongbridge Biopharma's second quarter 2017 earnings conference call. Joining me from Strongbridge this morning are Matthew Pauls, President and Chief Executive Officer; Dr. Fredric Cohen, Chief Medical Officer; and Brian Davis, Chief Financial Officer. Before we begin, I would like to remind you that during this call, the company will be making forward-looking statements that are subject to risks and uncertainties that may cause actual results to differ from the results discussed in the forward-looking statements. Reference to these risks and uncertainties are made in today's press release and disclosed in detail in the company's periodic and current event filings with the U.S. Securities and Exchange Commission. In addition, this presentation includes non-GAAP financial measures. This presentation is not intended to be a substitute for financial results presented in conformity with generally accepted accounting principles in the U.S. Investors and potential investors are encouraged to review the reconciliation of the pro forma financial measures included in the company's earnings release. The most directly comparable GAAP information and a reconciliation between the non-GAAP and GAAP figures are included in the company's second quarter 2017 earnings release, which had been furnished on Form 6-K. I will now turn the call over to you Matthew Pauls, President and Chief Executive Officer of Strongbridge Biopharma.

Thank you, Lindsay. Good morning, everyone, and thank you for joining us. I'm very excited to walk you through our recent progress as we've achieved many significant milestones over the past few months. The focus of today's call is to review updates on the recent launch of KEVEYIS, clinical and business highlights, and our second quarter 2017 financial results, which were all outlined in the earnings press release issued earlier this morning. Before addressing the results of our commercial -- for our launch efforts with KEVEYIS, I will provide a brief history of Strongbridge's journey to becoming a commercial biopharmaceutical company focused on serving the unmet needs of patients with rare diseases. I would then turn the call over to Dr. Fred Cohen, our Chief Medical Officer to discuss our medical affairs support of KEVEYIS, along with the ongoing Phase 3 clinical development program for RECORLEV. Brian Davis, our Chief Financial Officer will follow Fred to discuss the company's second quarter 2017 financial results as well as our recent debt and equity financing. At that point, we will open the call up for questions. So, some of you may recall, three years ago, when I joined the company as President and CEO, the Board of Directors and I shared a vision to build RECORLEV, our next-generation cortisol synthesis inhibitor by establishing a commercial rare disease-focused company with multiple vertical therapeutically aligned franchises. We have and will continue to deliver upon this vision as evidenced by the execution of several strategic corporate and business development initiatives over the past few years including the transformational acquisition of KEVEYIS in December of 2016. When the opportunity to potentially acquire KEVEYIS was presented to us, there were several reasons we found it to be incredibly attractive. First of all, KEVEYIS would provide us the opportunity to be the leader in serving patients suffering from an ultra-rare Genetic Neuromuscular group of disorders known as Primary Periodic Paralysis or PPP, a condition characterized by temporary bouts of extreme muscle weakness or paralysis that often progresses to permanent limb weakness and significantly impacts quality of life. Second, and a very important factor for us, was the fact that KEVEYIS is the first and only FDA-approved treatment for all known variants of PPP that has a compelling clinical efficacy and side-effect profile, which was associated with a high proportion of patients remaining on KEVEYIS in the long-term pivotal clinical trial for a full year. And lastly, we believe that KEVEYIS was the ideal opportunity for Strongbridge to establish an initial commercial infrastructure that would be scalable and leveragable as we potentially bring RECORLEV to the market in the future and possibly acquire other assets. So, in December of last year, after acquiring the U.S. rights to KEVEYIS, we put into place a strategic rollout plan to position us for a strong commercial launch and this plan included the following key priorities. First, establishing a best-in-class, Patient Services' resource to provide PPP patients with dedicated case management and clinical pharmacist access, which includes a suite of patient support, adherence, and assistance programs. Another key priority was to start to build a world-class rare disease commercial organization and infrastructure and we've done just that. We hired two very seasoned and accomplished senior commercial leaders with rare disease expertise; Dave Bonnell, Senior Vice President of Sales & Marketing; and Scott Wilhoit, Senior Vice President of Patient Services and Patient Advocacy. And lastly, a key priority was to significantly invest in and introduce a multifaceted disease state educational program to raise awareness of PPP and improve diagnostic rates alongside a KEVEYIS brand awareness campaign directed toward healthcare professionals and the patient community. I am pleased to report we achieved $1.5 million in net product sales in the second quarter. We are very proud of the team's impressive results and our enthusiasm for KEVEYIS and our passion for helping PPP patients continues to grow. In early April, we initiated our launch by processing KEVEYIS prescription insurance claims for the 80 preexisting KEVEYIS patients. Given the normal timelines for obtaining payer coverage, when launching a rare disease therapy, we are extremely proud to have successfully transitioned more than 85% of those 80 preexisting KEVEYIS patients during the second quarter to our Strongbridge commercial supply and patient assistance program. Simultaneously, we focused on training our sales and field-based personnel so that they were ready to begin educating physicians about KEVEYIS on Monday, April 24th and within the first 10 weeks in the field, the sales team remarkably generated more than 30 new patients start forms. Now, I want to spend a few minutes discussing reimbursement as it is critical component to our success. From the start, KEVEYIS has had and continues to have broad and favorable payer coverage as evidenced by payer approved U.S. prescription claims with commercial insurance plans and Medicare Part D plans covering more than 200 million lives. Among current KEVEYIS patients, approximately 70% are commercially insured with another 20% or so insured through government-sponsored programs. The remainder have no or limited insurance coverage and may be eligible to receive KEVEYIS at no cost to them under our patient assistance program. Approximately one-third of payers to-date have not required a prior authorization and for those that are required of a prior authorization, we are finding the requirements to be very consistent with other products within the ultra-rare disease space. So, now switching gears to the topic of market size, we partnered with a leading provider of pharmaceutical data to analyze our longitudinal claims database, which covers more than 250 million lives in the U.S. to do some validation work on market size in order to better estimate the number of active diagnosed PPP patients based upon use of diagnosis codes and prescription history. The results of this recent robust analysis indicate that there are approximately 4,000 to 5,000 active diagnosed patients that are currently diagnosed with PPP or approximately double what we estimated earlier. So, great news there. So, given our confidence in the increased market size as well as the strong market demand and early performance trends that we are seeing for KEVEYIS, we are currently right now evaluating the near-term potential to increase our KEVEYIS commercial investment. For example, potentially increasing the size of our sales team by up to six sales representatives and the addition of two Sales Directors, and once again, potentially expanding upon our already planned genetic testing program, which will help us better understand the undiagnosed population and which we plan to launch in the third quarter. With that I will now turn the call over to Dr. Fred Cohen, our Chief Medical Officer. Fred, over to you.

Thanks, Matt. As you heard from Matt, it is an exciting time for Strongbridge. I had the distinct pleasure of overseeing our clinical and medical affairs efforts. And I will now provide an update on our progress in both of these areas. Since acquiring KEVEYIS, Strongbridge has built an in-house medical affairs function that is led by Dr. Stephen Moloney, a highly regarded medical affairs leader with significant Ultra-Rare disease experience including Neuromuscular disorders along with a Group of outstanding medical science liaisons or MSL’s. As Matt mentioned earlier, patients with PPP have historically been underserved. Published surveys of adults with PPP suggest that most patients begin to suffer debilitating attacks as children, yet are not correctly diagnosed until well into adulthood. One of the most important goals of our medical affairs efforts is to educate the medical community about PPP [ph]. We believe that effective education coupled with the company's focused initiatives in genetic testing and scientific research support may lead to earlier diagnosis and well informed evidence based treatment. Moving on to RECORLEV, I would like to provide some background on endogenous Cushing’s syndrome which is a rare serious and potentially lethal endocrine disease caused by chronic elevated cortisol exposure. Recently published research from leading academic centers in the United States demonstrates that despite the availability of currently approved therapies for Cushing's, a substantial number of patients do not achieve biochemical control. This research underscores the need for differentiated treatments that would be useful for a broad Cushing's syndrome population. The Phase 3 program for RECORLEV consists of SONICS and LOGICS. These two multinational studies are designed to evaluate the safety and efficacy of RECORLEV when used to treat endogenous Cushing’s syndrome. SONICS is a single-arm, open-label study conducted in three treatment phases. Patients titrate to a therapeutic dose in the first phase and are maintained at the therapeutic dose for six months in the second phase, the end of which marks the primary efficacy time point. A six-month extended evaluation is included for long-term safety evaluations. SONICS enrolled 94 patients as of mid-July and is now close to new patients. As we have previously stated, we expect to report topline SONICS results in the second quarter 2018. The LOGIC study importantly will supplement the long-term efficacy and safety data from SONICS because LOGICS uses a double-blind, randomized-withdrawal design that includes a nine week placebo controlled treatment phase. This trial design was selected based upon its established utility in supporting multiple drug approvals for other rare diseases. Specifically, approximately 35 patients with Cushing's syndrome will be randomized in LOGICS of which approximately one-half will have the previously completed SONICS. Together, the SONICS and LOGICS studies will include the participation of approximately 100 clinical research sites in over 20 countries in North America, Europe and the Middle East. LOGIC study initiation is on schedule to begin enrolling patients in the third quarter of 2017 and we anticipate topline data in the third quarter of 2018. Before I turn the call over to Brian to provide a financial update, I would like to take this opportunity to again thank our investigators and their clinical teams and most importantly all of the patients from many countries around the globe for their continued dedication and participation in the SONICS and LOGICS studies. Brian.

Thank you, Fred. Starting out with our financial results for the quarter. As Matt mentioned earlier, we’ve recognized $1.5 million in net product sales for KEVEYIS in less than a full quarter post launch. Our cost of sales for the second quarter were $377,000. Research and development expenses were $4.1 million for the second quarter compared to $4.6 million for the same period in 2016. Selling, general, and administrative expenses were $10.1 million for the second quarter compared to $4 million for the same period in 2016. The increase during the 2017 period was primarily due to costs incurred to establish the commercial and corporate infrastructure necessary to support the launch and ongoing commercialization of KEVEYIS. On a GAAP basis, basic and diluted net loss attributable to ordinary shareholders for the second quarter was $30.2 million or $0.86 per share compared to $12.8 million or $0.61 per share for the same period in 2016. The increase during the second quarter was primarily due to a non-cash unrealized loss of $15.2 million on the fair value of the company's warrant liability. On a non-GAAP basis, our basic and diluted net loss attributable to ordinary shareholders was $12.2 million or $0.34 per share for the second quarter compared to $7.4 million or $0.34 per share for the same period in 2016. The increase during the 2017 period was primarily due to increased operating expenses associated with the launch of KEVEYIS. Moving to our balance sheet, we ended the second quarter with $33.9 million of cash and cash equivalents. However, our cash position was significantly strengthened in July by the debt and equity financing that we completed with CRG, one of the premier healthcare-focused investment firms providing structured financing. As a reminder, we entered into a $50 million senior credit facility with CRG under which we borrowed $40 million at close. We have the option to buy the remaining $10 million upon the achievement of a certain revenue milestone on or prior to June 30, 2018. Concurrent with the initial borrowing, CRG purchased $3 million of our ordinary shares. After adjusting for the net proceeds of the CRG financing, including the full repayment of our preexisting debt, we had pro forma, cash, and cash equivalents of $53.3 million as of June 30. And we believe that this provides us with sufficient cash under our current operating plan which includes the potential U.S. regulatory approval and launch of RECORLEV to achieve consistent positive cash flows from operating activities. Finally, a note about revenue guidance. Given that we are still in the early stages of our KEVEYIS launch, we will not be providing guidance at this time. We will reevaluate this approach as we have more history and visibility into the future. And operator with that, we are now ready to open up the call for questions.

Thank you. [Operator Instructions] Our first question comes from the line of Annabel Samimy of Stifel. Your line is open.

Hi guys, thanks for taking my question. Just a few on KEVEYIS primarily. I guess, first, could you clarify what you see the average price is that you're realizing on the patients who've been converted? And I also noticed that you'd mentioned that you had 30 new patients start forms. Can you tell us if that's just forms and when that translates -- what the typical average time is until it translates into actual written prescripts or paying patients? And then finally in terms of the infrastructure building, eventually, you want to leverage your infrastructure into other rare diseases. I guess I'm a little bit curious about the actual infrastructure because this is more of a Neuromuscular Disorder and KEVEYIS is more of endocrinology. So, I guess you're just leveraging the actual patient support, just help us sort of understand that a little bit. Thanks.

Thanks for the question Annabel. Appreciate it. This is matt Pauls. So, I will take the three-part question, I'll take them in the order that you asked. First of all, the best way to answer a question one is that the average dose per patient right now is approximately 125 to 130 milligrams per. patient per day. So, that's the best way to answer that question, its early days, of course. The second would be with regard to the 30 new patients start forms. I think one way to look at -- the one way to look at it is the 80 patients that transition and we saw that we were able to convert 85% of them during the second quarter. It is -- it's a compendium, right, of when patients are converted. If there are about 30% of patients right now that have commercial insurance, don't have a prior authorization, so they're obviously converted pretty quickly. And then there are various time range for other remaining patients. So, we'll have a much better handle on that over time, but we have been very pleasantly -- or we've been very pleased with the conversion of the 80 preexisting patients and the conversion rate and the timing. And we anticipate over time that we'll see similar types of conversion rates for the patients that we're generating new patients start forms for. And then lastly with regard to the infrastructure and leveraging it, without question, building out the support across the organization to help support a commercial asset is very leveragable for any asset that we would bring in, whether it be launching RECORLEV and/or bringing an inorganic asset whether it be Neuromuscular or in rare endocrine or possibly in another area. So, we see that that there is a creative component to the infrastructure that we've built. So, thanks for those questions.

Can I ask one quick follow-up? On the prior authorizations, can you just help us understand what these patients need to establish as proof to be able to get this treatment?

Yes sure.

And what are the hurdles essentially?

Yes, thanks for that question. Well, so the hurdles are very standard for ultra-rare, rare disease therapies. So, we're not seeing anything out of the ordinary. And they range from just stay -- just a very low hurdle prior authorization to a small percentage who have some additional documentation that need to be provided. But I want to emphasize that payer coverage and access has been very favorable for Cabarrus KEVEYIS and continues to be. So, the prior off range is, again, standard and comparable to other ultra-rare and rare disease therapies.

Thank you. Our next question comes from the line of Liisa Bayko of JMP Securities. Your line is open.

Hi there, this is Amy for Liisa and so, first of all, congrats on the quarter. So, a few quick questions for us on KEVEYIS. So, I'm wondering how many patients are there total on therapy and how many of them are paying patients? And then, kind of, thinking about are there any inventory built in the channel? And if so, how much you're talking there? And lastly, what is the average gross-to-net so far for the quarter? Thank you.

Yes. Thanks again for the question. I appreciate it. So, again we've successfully transitioned more than 85% of the preexisting 80 patients in the second quarter. Also have generated over 30 new patients start forms in the second quarter. So, we're not commenting specifically on how many patients are currently on KEVEYIS. Again, it is very early, but I think it's safe to say that we are encouraged, especially given the fact that we are currently rapidly evaluating expanding our commercial investment. I'll have Brian comment on both inventory as well as gross-to-net.

Yes. So, with regard to inventory, no concerns with a buildup of inventory in the channel as it were under our model, we have a single specialty pharma who is fulfilling prescriptions and they order frequently from us, so that they're ordering only enough to fill prescriptions as they come in. On the gross-to-net experience, obviously, early days, but what we saw in the first quarter and you'll see this in our Form 6-K that we filed with a more detailed financial statements that our gross-to-net adjustment was 15% during the quarter.

Thank you.

Thank you, ladies and gentlemen. And I'm showing no further questions in the queue at this time. I'd like to turn the call back to Matt Pauls for closing remarks.

Thank you. The evolution and transformation of Strongbridge continues at a rapid pace and with great momentum. We delivered strong results and made significant progress during the second quarter and look forward to continuing to grow our business and to serve in significant unmet needs of both the PPP and Cushing's syndrome communities. Finally, it's very important to recognize the great people who work at Strongbridge Biopharma. Many of us have been personally affected by various rare diseases and I strongly believe it's undoubtedly one of the reasons that we believe that we're building a special company and we look forward to updating you on our future progress. Thanks a lot for joining today's call and for your continued support.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the call. You may now disconnect. Everyone have a wonderful day.