Xeris Biopharma Holdings, Inc. (XERS) Q3 2017 Earnings Report, Transcript and Summary

Welcome to the Strongbridge Biopharma's Third Quarter 2017 Earnings Conference Call. [Operator Instructions]. As a reminder, this conference call is being recorded. I would now like to turn the conference over to Lindsay Rocco, Elixir Health Public Relations. Ma'am, you may begin.

Thank you, and good morning, everyone. We are pleased that you could join us today for Strongbridge Biopharma's Third Quarter 2017 Earnings Conference Call. Joining me from Strongbridge this morning are Matthew Pauls, President and Chief Executive Officer; Dr. Fred 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 third quarter 2017 earnings release, which has been furnished on Form 6-K. I will now turn the call over to Matthew Pauls, President and Chief Executive Officer of Strongbridge Biopharma.

Thank you, Lindsay. Good morning, everyone, and thank you for joining us. For today's call, I'll provide an update on KEVEYIS for the third quarter, including context around our performance and progress and key initiatives. I will remind everyone of the unmet need in Cushing's syndrome before turning the call over to Dr. Fred Cohen, our Chief Medical Officer to discuss the ongoing Phase III clinical development program for RECORLEV, along with updates on veldoreotide. Brian Davis, our Chief Financial Officer, will then discuss the company's third quarter 2017 financial results as well as our recent public equity offering. We will then open up the call for questions. With that, let me start by highlighting the key takeaways from the third quarter. Starting with KEVEYIS. I am very pleased to report interest and uptake remains strong during our second quarter launch. We achieved net product sales of $2.5 million for the third quarter, which is a 67% increase over second quarter's net product sales. Within the first two quarters of the KEVEYIS launch, we have cumulatively generated more than 80 new patients start forms or otherwise known as prescriptions. This number does not include the pre-existing KEVEYIS patients that were transitioned to Strongbridge's commercial supply and patient assistance programs during the second quarter. KEVEYIS continues to have broad and favorable payer coverage, as is evidenced by payer-approved U.S. prescription claims with commercial insurance plans and Medicare Part D plans. Among the current KEVEYIS patients, approximately 62% are commercially insured with another 24% 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. We mentioned on our last quarterly conference call that as a result of our early launch success, strong market demand for KEVEYIS and larger-than-anticipated diagnosed market size, we were evaluating a series of commercial growth activities to accelerate the revenue trajectory for KEVEYIS in 2018 and beyond. Recently, following our $23.4 million equity financing in October, we decided to proceed with commercial expansion activities. We have nearly completed recruitment to expand our experienced rare disease field-based team, including increasing from 12 to 21 sales representatives along with the addition of three regional business directors and, importantly, three patient access managers. We anticipate that any increased revenue from these additional hires will initially be reflected in our first quarter 2018 earnings as they are completing our onboarding and training programs are rolling basis in November and into December. A second key priority for us this quarter was to invest in and introduce a Primary Periodic Paralysis genetic testing program to aid physicians with the diagnosis and treatment of PPP and to help us better understand the undiagnosed patient population. Therefore, in September, we announced the launch of the Uncovering Periodic Paralysis genetic testing program, which builds upon our current suite of patient and physician services currently offered through Strongbridge CareConnection. The Uncovering Periodic Paralysis genetic testing program will help provide an early diagnostic testing measure for Primary Periodic Paralysis, which takes an average of almost 20 years to diagnose. This no-cost program offers genetic testing for those who qualify based on their symptoms or family history. Although genetic testing can confirm a suspected diagnosis, the absence of a genetic alteration does not preclude diagnosis of PPP. The periodic paralysis panel includes testing of the three genes that are most commonly associated with periodic paralysis. SCN4A, CACNA1S and KCNJ2. The test ordering process is easy and convenient. The physician orders the genetic test, online or via paper request form, and a blood or slide of specimen is collected. And the specimen is sent to the genetic testing lab, and results are sent back to the ordering physician within 2 to 3 weeks. This program has generated significant interest from health care professionals who diagnosed in three PPP as well as interest from patients, their families and the advocacy community. Within just six weeks of the launch, the program has generated over 50% more tests than the genetic testing lab generated in 2017 prior to our launch, great, great demand thus far. Moving on to our rare endocrine disease franchise. The Phase III program evaluating RECORLEV and endogenous Cushing's syndrome remains on track. With top line results from the SONICS study anticipated in the second quarter of 2018 and the top line results from the LOGICS study anticipated in the fourth quarter of 2018. As you may recall, Cushing's syndrome is a rare, but serious and potentially lethal endocrine disease caused by chronic elevated cortisol exposure. Too much cortisol can produce undesirable physical changes. However, the internal manifestations of the disease are potentially life-threatening. This include metabolic changes such as high blood sugar or diabetes, high blood pressure, high cholesterol, fragility of various tissues including blood vessels, skin, muscle and bone and psychological disturbances such as depression, anxiety and insomnia. The need for a safe and effective next-generation cortisol synthesis inhibitor such as RECORLEV and the treatment of Cushing's syndrome remains substantial. Current treatment options either have limited indications or are difficult to dose since they do not reduce cortisol, have significant negative side effects especially for women or are off-label and have never been rigorously studied in Cushing's. In our Phase III clinical development program for RECORLEV, we are evaluating both the external and many of the internal disease manifestations, which RECORLEV has the potential to improve. Before I turn the call over to Dr. Cohen, who will go into more detail under RECORLEV and veldoreotide clinical development programs, I want to touch on the company's recent financing effort, which further strengthened the company's financial position. On October 4 of this year, we announced the pricing of an underwritten public offering of 4 million ordinary shares at a price of the public of $6.25 per share. The offering closed on October 6 of this year, with total net proceeds of approximately $23.4 million. The net proceeds from the offering will enable the company to make significant investments in the commercial infrastructure for KEVEYIS and the development of both RECORLEV and veldoreotide. With that, I will now turn the call over to Dr. Fred Cohen, our Chief Medical Officer. Dr. Cohen, over to you.

Thanks, Matt, and good morning, everyone. During our last corporate update, I discussed the important role that educational initiatives would play during the launch of KEVEYIS. I am pleased with the progress we are making, rolling out educational initiatives on many fronts, I wanted to highlight a few. Just two quarters into the launch of KEVEYIS, our medical affairs team has met personally with more than 75 leaders in neuromuscular medicine in the United States. A subset of these physicians have joined us to form a standing publications committee, which has already directed the submission of abstract to a national medical congress and began work supplementing plan manuscripts that will address diagnostic and management challenges in periodic paralysis. Medical affairs has also identified and helped to train speakers who will lead peer-to-peer educational programs. The first of many such programs to come, which held at this year's meeting of the American Association of Neuromuscular & Electrodiagnostic Medicine. Moving to our pipeline programs, I will now provide an update on the RECORLEV Phase III program and Cushing's syndrome and then touch on veldoreotide, our novel somatostatin analog. The RECORLEV program has been designed with the needs and expectations of patients, providers, regulators and payers in mind. Our goals for the program are as follows,, first, rigorously demonstrate efficacy as measured by sustained cortisol normalization, our primary endpoint; second, demonstrate safe use over at least one year of treatment; third, provide flexible tailored dosing and demonstrate compliance with the study treatment regimen; and finally, demonstrate evidence of clinical benefit within a broadly inclusive study population that mirrors the real world population of patients with endogenous Cushing's syndrome, who require medications to control hypercortisolism. We are frequently asked what we mean by rigorous determination of efficacy in SONICS. By a rigorous determination, we are referring to two factors, the first is the strict enrollment criterion that limits entry to patients who must have significantly elevated urine free cortisol or UFC, at least 50% above the upper limit of normal. Such high UFC will not be expected to normalize spontaneously and remain normalized as required by the primary efficacy endpoint through the six months maintenance phase. The second factor is at the primary endpoint, a complete response to RECORLEV requires that a subject not increase his or her dose of drug during the maintenance phase in order to maintain normalization. Although rigorous in its determination of inefficacy response, we believe that the SONICS study is adequately sized to demonstrate that RECORLEV will provide a compelling treatment option. Regarding ongoing safety assessments, in October, the Data and Safety Monitoring Board or DSMB, performed its routine semiannual review of all relevant clinical data and has been the case throughout the study recommended that SONICS continue as planned. As previously stated, we expect to report top line SONICS efficacy and safety results through the maintenance phase in the second quarter of next year. As you know, we are also conducting the LOGICS Study, a multinational, double-blind, placebo-controlled, randomized withdrawal study of RECORLEV that is designed to supplement the long-term efficacy and safety information supplied by SONICS. Approximately 35 patients will be enrolled at LOGICS and we anticipate that at least half of patients will come from the SONICS study. As announced this morning, we now anticipate the enrollment of the first patient in the LOGICS Study in the fourth quarter of this year. We are in the process of activating study sites and expect a large number of the approximately 45 total sites to come online in early 2018. We will carefully manage the accrual and progress of subjects within the study. The company continues to anticipate reporting LOGICS we sold in the fourth quarter of next year. Switching gears to veldoreotide. Veldoreotide is a novel, investigational somatostatin analog or SSA, that possesses unique somatostatin receptor or SSTR, binding and activation characteristics as compared with currently marketed SSAs, including high-affinity SSTR for binding and balanced full agonism of SSTR2 and SSTR5. Prior studies of the immediate release formulation of veldoreotide suggested safety, tolerability and possible efficacy differentiation against veldoreotide and acromegaly. More recently, Strongbridge has identified and completed initial testing of a proprietary long-acting formulation technology for veldoreotide, that uses PLGA microspheres to provide the potential for weekly, subcutaneous injections via a small needle and an injector system that is suitable for self-administration. We have filed a patent application on this technology. Strongbridge is now initiating a series of preclinical studies that seek to determine additional differentiating features of veldoreotide in both endocrine and non-endocrine conditions. These studies will allow the company to focus any future investments in veldoreotide optimally and may also provide additional intellectual property protection. We look forward to providing future updates of veldoreotide as these studies read out. And with that, I will turn the call over to Brian Davis, our Chief Financial Officer for financial updates. Brian?

Thank you, Fred. Starting out with our financial results for the quarter, as Matt mentioned earlier, we achieved net product sales of $2.5 million for KEVEYIS during the third quarter of 2017. This is a 67% increase over the $1.5 million of net sales that we recorded from the second quarter of this year. Our cost of sales for the third quarter was $600,000, no revenue or cost of goods sold were recognized for the same period in 2016. Research and development expenses were $4.5 million, both for the third quarter of 2017 as well as in the third quarter of 2016. Selling, general and administrative expenses were $8.5 million for the third quarter compared to $3.1 million for the same period in 2016. The increase during the 2017 period was primarily due to costs incurred to support the ongoing commercialization of KEVEYIS. On a non-GAAP basis, our basic and diluted net loss attributable to ordinary shareholders was $13.1 million or $0.35 per share for the third quarter compared to $6.5 million or $0.31 per share for the same period of 2016. The increase during the 2017 period was primarily due to increased operating expenses associated with the commercialization of KEVEYIS, offset in part by net revenues recorded from KEVEYIS product sales. Additionally, as both Matt and Fred mentioned, Strongbridge is now initiating a series of preclinical studies of veldoreotide. As a result, we determined that it was appropriate to update our accounting valuation of the veldoreotide asset as of September 30. Pursuant to the updated valuation, which incorporates the impact of these studies to the veldoreotide development time line, Strongbridge recorded a noncash intangible asset impairment charge during the third quarter of 2017. We continue to maintain financial and strategic flexibility as a result of our strength in the balance sheet. We ended the third quarter with $44.4 million of cash and cash equivalents and after adjusting for the net proceeds of the public offering completed in October, Strongbridge had pro forma cash and cash equivalents of $67.8 million as of September 30. These resources provide sufficient cash under our current operating plan, which includes increased commercial investment in KEVEYIS and the potential of 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 launch phase with KEVEYIS, we will not be providing guidance at this time. However, with the benefit of an additional few months of experience, we anticipate providing revenue guidance to investors in early 2018. And operator, with that, we are now ready to open up the call for questions.

[Operator Instructions]. Our first question comes from Liisa Bayko with JMP Securities.

This is John on for Liisa. I was hoping to get some more color on inventory stocking? I was wondering, how much you had last quarter, if you've gone through that, then how much in the third quarter?

Yes. John, thanks for the question, I appreciate it. I'm going to have Brian Davis provide color on that. I will say upfront that this is a rare disease compound obviously, and so we go through a single specialty pharmacy so it's really more of an adjusting time inventory system, but I'll have Brian cover that too.

No, that's exactly right. So the specialty pharma does not stock inventory into the channel. They are, in our view, quarter inventory on an as-needed basis. For safer comparison, John, our inventory balance at the end of September was just a bit over $1 million, back in June, it was $1 million more.

Okay. And can you give us any granularity on kind of new patient add or discontinuations through third quarter? What's kind of driving the growth you see quarter-over-quarter?

Yes, so it's new patient adds I mean, as we mentioned, cumulatively since launch, we've generated over 80 new patient start forms. So it really is, it's new patient adds. And as we transitioned in the second quarter, the 80 patients that we inherited, those patients of course, were being transitioned over to our commercial supply and some, a small percentage over to our patient assistance program. Those patients actually, a large percentage of them had inventory so they had product on hand that they had to utilize before they got onto the commercial supply from Strongbridge. So we transitioned those folks over, in the third quarter they started to migrate over on to commercial supply from Strongbridge. And then, we have -- we've just had really good success on identifying new patients and getting them converted. That's exactly what it is.

Great. I guess, just two other short ones for me. Are you seeing any dose suggesting or what's the average dose? And I believe you mentioned, you saw the increase of 50% in the genetic testing, since you launched the program. Do you have any kind of absolute numbers or what percentage of those tests get -- we have positive? Or how should we think about testing to conversion? And I'll get back to the queue.

Yes. Thanks, again, John for the questions. Average dose right now is about 125 milligrams or so. And that's been pretty consistent. I think to be exact, it's a 124 milligrams, but it's been pretty consistent. So that answers your first question. And the second question is on the genetic screening. Just to clarify, our partner that we're working with, the genetic testing lab, the 50% number in six weeks, we have seen a substantial number of genetic tests submitted and samples submitted. And in fact, are quickly on track to surpass the total number of genetic tests that the same lab has had for PPP in all of 2017. They've been actually amazed with the amount of activity and genetic samples that have been submitted in just six weeks. We're not giving specific numbers right now, but we will, once we have a little better handle on the direction where it's going.

[Operator Instructions]. Our next question comes from Hartaj Singh with Oppenheimer.

I just had a couple of quick questions to follow up some other questions just from the previous gentleman. Now, Brian, what is the -- your start forms, is there a time -- what's the average time you're taking sort of to convert the starts into revenue-generating patients? And then, is there sort of confidence enrolling around that? And then, I just got a couple of quick housekeeping questions after that.

Yes, sure. Thanks, Hartaj, for the question. So Hartaj, as you know well, in some rare disease therapeutics, the cycle time, from start from generation to commercial supply can be months, that's not case with regard to PPP and KEVEYIS. A majority of start forms, the cycle time is within one month. So a majority of claims, they come in, and they're converted. And their converted to commercial supply or in a small percentage, it's the patient assistance program within a month. But for some cases, it could be in the six to eight week range. That's obviously, more of an exception, a large majority are within a month.

Great, that's fantastic. That is really good. Just in terms of the increase in your sales and business managers and especially the patient assistance folks, I don't want -- it's always a little dangerous to look too far to the future, Matt but -- and Brian, but is there a time in 2018, I know you're going have the OpEx showing up early next year. But when could you see an impact in terms of patients coming on board from those folks?

Again, thanks, Hartaj for the question. As we mentioned during the call, we think that once we get everybody up and running in the back end of this quarter. I think towards the end of the first quarter and then to the second quarter, we're going to start to see a real nice ramp. One of the things that the dynamics that has taken place here is -- each territory has a significant pipeline of patients. And given the geography of the territories, and having only 12 sales reps, there's trouble to double back to help really get patients converted over and so the demand is there. What we've realized is we needed to have more folks out there and really make the territory smaller, so they're more manageable, quite frankly. The great news is the patients are there and they need our help.

Yes. That's fantastic Brian, just one last question for you. The OpEx actually came in slightly less than what we expected. And for the full year, is the third quarter a reasonable way to think about it until the beginning part of next year when the new people come on board? Or just any thoughts there in terms of just your cash burn?

Sure, sure. And you'll notice that OpEx was actually down in Q3 compared to Q2. And Q2, we had a -- in the SGA side, we had a number of expenses that were associated with the launch of KEVEYIS or onetime or unique in nature. I would expect in Q4 to trend back upward again, as we've announced we are increasing our commercial investment to enable by the recent equity financing. So I don't expect people are necessarily to get up to the Q2 level but it's going to trend back up again.

Thank you. I'm showing no further questions in the queue at this time. I would like to turn the conference back over to Matthew Pauls, President and Chief Executive Officer, for closing remarks.

Thanks, everyone. In summary, the third quarter was a great quarter for Strongbridge Biopharma. I am extremely pleased with the continuing strong trends we're seeing with respect to our execution on numerous fronts. And I'm very excited to continue growing our business and serving these significant unmet needs of both the PPP and Cushing's syndrome communities. I'm very proud of the dedication and passion that our team has displayed. It's our commitment to patients with rare diseases that really drives Strongbridge's success and we look forward to updating you on our future progress. Thank you all for joining today's call and for your continued support.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes today's program. You may now disconnect. Everyone, have a great day.