Xeris Biopharma Holdings, Inc. (XERS) Q3 2019 Earnings Report, Transcript and Summary

Good afternoon ladies and gentlemen, and welcome to the Strongbridge Biopharma plc Corporate Update and Third Quarter 2019 Earnings 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, Ms. Lindsay Rocco of Elixir Health Public Relations. Ma'am, please go ahead.

Thank you, and good morning, everyone. We are pleased that you could join us today for Strongbridge Biopharma's third quarter 2019 earnings conference call. Joining me from Strongbridge this morning are John Johnson, Executive Chairman, Scott Wilhoit, Chief Commercial Officer; Dr. Fred Cohen, Chief Medical Officer; and Rob Lutz, 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. I will now turn the call over to John Johnson.

Thanks Lindsay. Good morning, everyone, and thank you for joining us today. For today's call, I would first like to begin by welcoming Rob Lutz to his first quarterly earnings call following his promotion to Chief Financial Officer in September. As many of you know, Rob has been a key leader at Strongbridge for past several years, driving our product acquisition strategy in his previous role as Chief Business Officer. We also announced this quarter the appointment of Rich Kollender, who previously served on the Company's Board of Directors, to the newly created role of Chief Operating Officer. Additionally, on Tuesday, we announced that Matthew Pauls has stepped down as President, Chief Executive Officer and Director. Both he and the Board have mutually agreed that now is the right time to transition leadership of the company. The Board is actively seeking to hire a new CEO who will be able to take the organization to the next level for patients, healthcare providers, employees and our investors. In the interim, I'm stepping in to help lead the organization while the Board conducts the formal search. On behalf of the Board of Directors, I would like to thank Matt for his many contributions to the company over the years, and we wish him well in his future endeavors. I have served as Chairman of Strongbridge since 2015 and my confidence in the company's vision and ability to deliver better results for patients living with various diseases remains unchanged. My three initial priorities are first to identify a new Chief Executive Officer. Second, ensure a high quality new drug application submission for RECORLEV. And third, improve the company's financial performance through cost saving initiatives and growing KEVEYIS sales. KEVEYIS our first commercial product has performed well thus far in 2019 thanks to this team's dedication to serving the many unmet needs of the primary periodic paralysis community. KEVEYIS achieved 5.7 million in revenue in the third quarter of 2019 representing a 36% quarter-over-quarter increase from 4.2 million in net revenue for the third quarter of 2018. The company is on track to meet or exceed the top end of our full year KEVEYIS revenue guidance of 18 million to 20 million. Additionally, KEVEYIS reached an important milestone this quarter by turning contribution margin positive. We believe that KEVEYIS will continue to generate cash for the company moving forward, given the ability to leverage the associated operational expenses, and anticipated future growth. With regard to our clinical development program for RECORLEV been endogenous Cushing syndrome, on Tuesday we announced that enrollment in our Phase III LOGICS trial is approximately two-thirds complete. The company projects that based on current observations, all the patients required to complete enrollment have been identified with most moving through titration and maintenance phases and of course the remainder in screening. With that said, we also announced the delay in reporting topline results from the end of the first quarter of 2020 to the second or third quarter of 2020. What I would like to underscore here is that we're doing everything we can to get this important product to patients. And to do so, we need to get it done right so that we can sign an NDA that gives us the best chance to get this medicine to Cushing syndrome patients. Once completed, LOGICS will provide double blind randomized placebo controlled data, making our clinical development program for RECORLEV among the most comprehensive to-date endogenous Cushing syndrome. Later on the call, Fred will provide some detail on the reason for this delay, and why the rate of enrollment and time to top line results for LOGICS has been more difficult to predict than with our prior Phase III study SONICS. Before I turn the call over to Scott for a brief commercial update, I would like to discuss a recent agreement in principle that we have reached with Novo Nordisk. This agreement pertains to the transaction we entered into with Novo Nordisk in December 2018 for the use and funding of Strongbridge's 23 persons field team to promote MACRILEN in the U.S. for up to three years. Today, we announced that we have reached an agreement in principle to terminate this agreement effective December 1, 2019. Novo Nordisk will pay Strongbridge $6 million in connection with such termination. Given that we are no longer supporting Novo Nordisk endocrine business, we have decided to eliminate approximately 23 Strongbridge field based positions responsible for the MACRILEN sales efforts effective December 1, 2019. While eliminating physicians is unfortunate, and never an easy decision, this is a necessary step for the company at this time, in order to reduce costs and further extend our cash runway. We greatly appreciate the commitment and the efforts of our MACRILEN field team. These actions are in no way, a reflection of their dedication and hard work. With that, I will turn the call over to Scott.

Thank you, John. Good morning, everyone. And thanks for joining us. As John mentioned, we are pleased with KEVEYIS' performance in the third quarter and thus far in 2019. As discussed on our last earnings call, we believe that a few key refinements for the overall commercial model that were implemented early this year have been tribute to a steady flow of referrals from physicians that resulted in a new patient starts and improved retention rates across our entire active base of patients. These ongoing refinements positively impacted this quarter's performance. I would like to spend a few minutes highlighting important example of our commitment to serving patients, caregivers, and healthcare providers who are part ever serve the Primary Periodic Paralysis or PPP community that extends beyond the provision of KEVEYIS. Strongbridge is proud to have been the leading sponsor of the 2019 Periodic Paralysis Association Conference, which took place October 25, to the 27th in Orlando, Florida. Every year this event brings together many PPP stakeholders including patients, their caregivers and physicians, and is aimed at facilitating awareness, education and camaraderie among this tight knit community. This year for the first time Strongbridge hosted an event with approximately 60 attendees, predominantly patients focused on the power and importance of advocacy, education and support. The program featured four Strongbridge patient ambassadors to their caregivers who share their journeys living with and managing PPP. Additionally, Dr. Carolyn Jackson and Dr. Jeffrey Rosenfield neurologist who currently treat PPP patients were featured keynote speakers. We're delighted to be working closely with the Periodic Paralysis Association and look forward to further collaborating with them as we continue to support this underserved population with KEVEYIS. Before I turn the call over to Fred, who will provide a key updates around the clinical program for RECORLEV, I want to reiterate and emphasize that the overall commercial model and infrastructure that Strongbridge has built can be successful leverage across multiple rare disease franchises and markets. I do so because it has high relevance for the commercial potential for RECORLEV. We have established relationships with key Cushing's advocacy groups and a fully operational care connection patient services team that is well positioned to handle multiple products. We remain enthusiastic regarding the commercial potential for RECORLEV. Based on our initial market assessment, we know the Cushing syndrome market is validated by a significant unmet need, physician and patient demand is high for new and innovative products in this area, and the product profile for RECORLEV resonates well with the endocrinologist community. Finally, RECORLEV will have the benefit of an established pathway for pricing and reimbursement within the brand new Cushing syndrome therapeutics area. With that, I will now turn the call over to Fred.

Thank you, Scott. This morning we provided an update on the LOGICS Phase III study of RECORLEV for the treatment of endogenous Cushing syndrome. As a reminder, LOGICS is a double blind, placebo controlled randomize withdrawal study targeting approximately 46 to 54 subjects for enrollment that is intended to assess the efficacy and safety of RECORLEV. The primary endpoint is the proportion of subjects with a loss of therapeutic response to RECORLEV upon withdrawing to placebo, compared with the proportion of subjects with a loss of therapeutic response upon continuing treatment with RECORLEV. As designed, we have conservatively powered this study reflecting this we project that a minimum 35% difference in the loss of response proportions between the active and placebo groups will lead to a statistically significant entrance. Although we have made progress towards completing LOGICS, we now project that we will report topline results for the study in the second or third quarter of 2020 a delay from our most recent projection of topline results by the end of the first quarter of 2020. I would like to take a few moments to provide some context around the reasons for the delay, and explain why the projection for the time it will take to receive topline results spans two quarters. We naturally based our earlier projections for LOGICS enrollment largely on the completed SONICS study, as our prior Phase III study had nearly identical entry criteria as LOGICS, and employed many of the same investigators sites in the United States and Europe. Furthermore, we learned much from the SONICS experience that was anticipated to positively impact LOGICS enrollment such as how to provide optimal concierge level patient support services and investigator site support to remove barriers to enrollment. However, as we have learned more about LOGICS with time, particularly over the past nine months or so, we have come to appreciate how fundamental differences between SONICS and LOGICS in terms of design and procedural intensity of translating into differences and the willingness of potential participants to sign on to and remain in Logics to be specific. We now believe that the use of a placebo comparison in LOGICS which did not exist in SONICS it’s a prospect that some otherwise willing participants cannot bear even though immediate open label rescue therapy is available, should symptoms of Cushing syndrome RECORLEV. As for the intensity of LOGICS, there are twice as many visits and procedures in LOGICS as in SONICS per unit of time. And this also appears to be taking in toll on enrollment speed. Checking together, these factors have caused us to revisit our time to complete enrollment. I did want to comment on the fairly large window of time that we are allowing for reporting the topline results that spans the second and third quarters of next year. The design of LOGICS provides for variability in the time it takes a subject to complete each phase. LOGICS is comprised of four phases, screening, plus three therapeutic phases, let me walk you through those. Screening procedures are designed to determine eligibility for the trial. On average, it takes about four to six weeks to complete screening. The first therapeutic phase is an open label titration and maintenance phase. During this phase, patients receive increasing doses of RECORLEV as needed to achieve normalization of mean urinary free cortisol, or UFC and must maintain a stable dose for a minimum of four weeks before progressing to the next phase. The minimum time that each patient must spend in this phase is 14 weeks and we allow for up to approximately 19 weeks for completion routinely, with additional time allowed on an exceptional basis. So there is a range extending to over five weeks between the shortest and longest durations in the titration maintenance phase. Participants are then enrolled at their therapeutic dose into the randomize withdrawal phase. The study phase in which the primary endpoint is determined. In the randomize withdrawal phase, patients are randomly assigned to receive blinded study drug, which is either active drug at their established therapeutic dose, or an equivalent number of matching placebo tablets. Biochemical markers, including USC and patient symptoms are assessed approximately every 10 days during this phase to determine if the patient is continuing to respond well to therapy or of cortisol control is being lost. Patients who have documented loss of cortisol control can be rescued immediately with open label RECORLEV and be moved directly into the final study phase known as restoration. The need for early rescue is by protocol definition considered to be study completion for purposes of assessing the primary endpoint with the outcome assessed as your loss response. So an early rescue can occur after about two weeks into this phase. In contrast, patients who maintain their response to therapy and who do not require rescue therapy complete all the visits and randomize withdrawal, which occurs no sooner than eight weeks and up to approximately 91 half weeks following the date of randomization. Therefore, whether or not a patient requires early rescue therapy determines the duration of time that a patient will require to complete the randomize withdrawal phase. It represents cycle time variability of about seven weeks or about two months. Taking together the protocol specified variability in the time required to complete both the titration maintenance and randomize withdrawal phases is approximately 12 weeks or about three months, accounting for the range and timing to the receipt of topline results that we are reporting today. We should be able to provide a more precise estimate of the timing of topline results once the last participant has completed the titration maintenance phase and has been randomized next year. As it relates to NDA submission, we believe we can submit an NDA approximately six months after the topline LOGICS results are reported. As stated previously, we believe that if our NDA is accepted for review, we can expect a review cycle time of 10 months from the date of submission, which is the standard PDUFA cycle time for review of a new active substance via the 505 (b)(2), NDA pathway. I would like to highlight two other updates on RECORLEV first at the end of October, we held a routine by annual data and safety monitoring board meeting for LOGICS and based on their assessment of the benefits and risks of therapy. The DSMB recommended that the study continues as planned. Second in September, the SONICS pivotal Phase III study of RECORLEV including comprehensive results to the end of the maintenance phase were published online in The Lancet, Diabetes & Endocrinology. We are currently working on additional SONICS publications that we expect to be published in 2020. With that, I will turn the call over to Rob Lutz, our CFO who will review financial highlights from the third quarter before we open the call to questions. Rob?

Thank you, Fred. Our press release contains details of our financial results for the third quarter of 2019. Rather than read through all those details, my comments today will provide context on our cash spend and runway Strongbridge ended the quarter with approximately $80 million of cash and cash equivalents and no outstanding debt versus approximately $86 million and no outstanding debt at the end of Q2, a net cash use of $6 million in the quarter. As we mentioned previously, our cash spend can vary materially quarter-to-quarter. For example, in the third quarter our net cash used was favorably impacted by payments we received on our contract with Nova Nordisk from Q2 and Q3 services rendered, and by other positive working capital changes. With approximately $80 million in cash, plus the $6 million settlement with Novo Nordisk and with the anticipated KEVEYIS sales growth and product profitability, we are updating our cash runway guidance. We now forecast we can fund operations as currently planned through at least Q2 of 2021 which is beyond the projected timing for receipt of LOGICS topline results and the anticipated submission of a U.S. NDA for RECORLEV. This updated guidance is one quarter beyond we projected previously. And operator, with that we are ready for questions.

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

So just on the enrollment of LOGICS, are you using any new tools to speed up that enrollment, and is it difficult to find patients or is it just that they're hesitant? Especially in light of the fact that they have rescued because presumably the responses that you're seeing in a treatment phase are pretty quick and then also as a matter of communication with these patients where they don't really understand the whole rescue component of it. So just wondering if you're doing anything there or changing anything there in terms of trying to enroll these patients? And then just switching to the agreement of Novo Nordisk and remove all the sales force. Is there - was there any thought to transitioning some sales to boost KEVEYIS until the quarter is available just because there's potentially an opportunity to boost those sales or do you not see that opportunity or right-size for KEVEYIS and there will be no need for that. And where are you on Lifecycle Management and KEVEYIS any development there for extending the life of the drugs? Thanks.

This is Fred, your question was about tactics we've been using to enroll the study, I think what's important to keep in mind number one, is we believe that we can now identify all the patients necessary to complete the study. So I don't know that it's worth reviewing the enrollment tactics that we use at this point given the progress that we've made to date. And so I think I'll leave that there if you have a follow up question, I'll be happy to address that. Scott, I believe you want to address the question about the RECORLEV.

Yes, thanks for it. So regarding that question, we did evaluate that option among many. And so it's a good question. I think given the earlier comments regarding the timeline for RECORLEV, as well as the need to manage our cash situation, we decided to make the decision that we've announced today.

Okay, can I just follow up on that? Does that mean that you don't really have much opportunity for basic extension on KEVEYIS?

This is Rob Lutz. So we are continuing to pursue lifecycle opportunities. And as we've said previously will have detailed updates on that in the first half of 2012.

Your next question comes from the line of Roger Song from Jefferies. Your line is open.

So maybe a quick follow up for the enrollment. So, Fred, I understand that you say you can identify all the patient necessary for LOGICS. But just curious if you see kind of an expected drop-out during the titration and the maintenance phase seems so that you may need to kind of refine additional patients or that's another case so far.

Thank you, Roger. At this time, we believe we have identified all the subjects that we will need to complete the study. And that does take into account our projections based on what we've observed in terms of attrition. I'm not going to get into specifics about any observations that we've made, but what - we are standing by that protection.

Sure. And one question for John, for the Novo field force. So I understand your initial plan is to we can leverage those field force for detailing to endocrinologists in the field and the later we can leverage this them to launch quickly for RECORLEV. Now we kind of eliminate those kind of team, if that possible, we still can leverage their expertise or relationship established later when we launch the RECORLEV.

Great question, and into Annabel's earlier question, we feel like we have good coverage with our sales force today with KEVEYIS. So, adding more folks on to that from a financial standpoint when that made sense and we're very conscious of our burn rate. I think it's important to keep in mind while we had to make the very difficult decision to take those folks out, we continue to have MSL who hold the relationships with the top thought leaders in this field. Beyond that with KEVEYIS, what it really did for Strongbridge was it helped us build a commercial infrastructure. And that infrastructure goes across patient advocacy, reimbursement, how you handle the data, how you process sales, all the things that you need to do to be prepared. So when we go into the RECORLEV launch, we will have those relationships with a thought leaders and importantly we have already pieces in place to just plug RECORLEV event. In an ideal world, what I have liked to have those people calling on endocrinologist, up to the launch, of course but given where we're at, and you know, we've heard very clearly from our investors, that we have to manage our cash. We made this difficult decision. But while it sets us back a little bit, we think by and large given the experience with KEVEYIS and our MSLs will be fine.

Sure, maybe just one last question. Can you maybe comment on Tuesday's update, I think the stock reacted a pretty negatively and yesterday pull back a little bit? And then to what's your view of the driver of the star reaction? And just in general, if you can. Thank you.

I think it's difficult for us always to project but certainly the delay was something that we didn't anticipate and clearly, concerned posts, especially as it relates to our cash runway, which is why we took the steps around cash runway to help stretch that out, getting rid of field force as quickly as we did reaching settlement with Novo as quickly as it is versus litigation. We're all parts of the strategy to overcome, some of the concerns that we heard following Tuesday's announcement. What hasn't changed, though, I think is very important. And that is that RECORLEV remains a potentially very important options for patients with Cushing syndrome. But hasn't changed is investigators enthusiasm for the product and we remain very bullish on the prospects for that long-term. Will we want it sooner? Of course, but the profile continues to look good to continue to get very positive feedback on it. And we were very pleased to kind of got lost and everything was the KEVEYIS performance, which we were pleased and to have it turned contribution margin positive for us, it - that's six months ahead of what we had initially planned and so kudos to the team. While it's just marginally positive at this point, we believe that sets us up to spend more cash in a much more significant manner next year. And so we hope as the markets digest this, and understand some of the steps that we've taken here in the near-term, but most importantly, keep the long-term in mind that we will see the thought come back.

Your next question comes from the line of Justin Kim from Oppenheimer & Company. Your line is open.

Just maybe to touch on the timelines, our math kind of puts the whole process of about 25 to 30 weeks. So, if you think about putting those numbers, does that kind of imply that you would have to have patients entering those titration before the end of the year, for 2Q read out and or maybe even sort of late 1Q for 3Q read out. Is that the right way to think about it?

Hi, so again, just to reiterate dose titration halve is a minimum of 14 weeks. We allow five weeks or so play on - a long end there. And then the randomized withdrawal is up to 9.5 week. So you can do the math and then figure out when the last patient we need to come into randomization. We're allowing our ourselves approximately five weeks or so from the date that the last patient has completed, randomized withdrawal further receipt of the topline results. And of course, we would put those results as soon as we sorted through them and made sure that we understand them.

And maybe just with respect to the trial size, the 46 to 54 patient range, is that sort of driven by a function of just potential attrition that's sort of where you might lose patient in that number?

Yes. So attrition observations drive the target randomization. And basically, the way the trial design is that holding - we hold the power currently at 98%, which of course is very conservative, very high. And so we hold that constant and then the number that are needed to go into the study to afford us the number of completers, right, so that's what drives the completer rate is what drives the ultimate sample size, and that's why there's a range associated with that up to 54.

And then maybe just the last one on the P&L, with the recent MACRILEN update and for management transition, can we get just maybe a little bit of color, how we should think about OpEx for the remainder of the year. And whether you anticipate that the lumpiness - that there wouldn't be any lumpiness or that the reporting results are somewhat reflective of a go forward rate excluding nature of Novo payments?

Right good question. This is Rob Lutz. So I think like any company, we will have continued variability in our cash flow for the quarter and so the focus is on reaching the spending runway out through Q2 of 2021. We'll see some ups and downs in that. And so we're not going to comment further on individual quarterly cash flow projections.

I will point out that one of my priorities that I outlined earlier is to make sure that we're spending more efficiently. And we will be taking a very hard look at all of our costs. We're very conscious of that runway. And I think you can expect to hear more in the course ahead about our progress there and being good stewards of the investors' money.

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

Hi this is Jon for Liisa, thanks for taking the questions. Just one on RECORLEV, I know the plan was that some synergy between the macro and sales force. And when we look at the Cushing's opportunity and RECORLEV, can you discuss kind of what that sales force might look like? I'm not sure if it was just going to be the 23 or some additional. When you talk about wrapping up commercial for RECORLEV, how do you think about kind of besides that force?

Yes, good question. This is Scott. Yes, so we haven't done any detailed planning around sales force sizing. But, there are analogs in the market right now. And our current 23 that we had in place would have given us a good foundation. So I think from a range perspective, somewhere in the 25 to 30 is probably a good starting point. We'll have to do more work around that as we get closer. But that's probably the best current thinking.

And then with KEVEYIS, I remember you guys took a price increase around this time last year, I was wondering if you could discuss any kind of pricing strategy moving forward for KEVEYIS. Thanks.

Yes. No, we're not going to comment on any potential future actions or our strategy. Thanks.

I am showing no further questions at this time, I would now like to turn the conference back to John Johnson.

Thank you. And thanks again everyone for joining us. In summary, what I would say is that Strongbridge has made significant strides towards its mission of serving the unmet needs of the rare disease patient population. We are pleased with the growth of KEVEYIS on a year-over-year basis. Sales of KEVEYIS are trending nicely and the product has turned contribution margin positive. While LOGICS data are delayed, we are approaching the end of this critical trial. We believe that RECORLEV there is a potential important treatment option for the patients and want to thank the investigators and the patients in a LOGICS trial for helping us to deliver these important data. Finally, I want to thank our employees who continue to be extraordinarily dedicated to the patients we serve, and our mission. Thank you for joining today's call, and for your continued support.

Ladies and gentlemen, this concludes today's conference. Thank you for your participation, and have a wonderful day. You may all disconnect.