Q3 2019 Earnings Call
Ladies and gentlemen, please continue to hold your conference call will begin momentarily.
Good afternoon, ladies and gentlemen, and welcome to the flexion Therapeutics third quarter 2019 financial results Conference call. My name is the women I'll be or coordinator today at this time all participants are in listen only mode.
We'll be facilitating a question and answer session at the end of today's call. If at any time during the call you require assistance. Please press star followed by zero coordinator would be happy to assist you.
I'll now turn the call over to the company.
Good afternoon. This is Scott Young Vice President corporate Communications and Investor Relations before we begin I would call your attention to the metric slide that we will discuss in todays presentation.
Slides can be viewed directly via the webcast in the 8-K, we issued this afternoon under the investors tab on collection Therapeutics Dotcom.
In addition, our Q3 earnings press release and an archive of this conference call can be found there.
Today's call will be led by Flexions, Chief Executive Officer, Dr., Michael Chlamydia, and he's joined by David Archuleta, Flexions Chief Financial Officer.
On today's call, we will be making forward looking statements that include commercial financial clinical and regulatory projection.
Statements relating to future financial or business performance conditions or strategies or other business matters, including expectations regarding net sales operating expenses cash utilization clinical regulatory and commercial developments and anticipated milestones are forward looking statements.
Then the meaning of the private Securities Litigation Reform Act.
Flexion cautions that these forward looking statements are subject to various assumptions risks and uncertainties, which change over time.
Additional information on the factors and risks that could affect flexions business financial conditions and results of operations are contained inflections Form 10-Q for the quarter ended September Thirtyth 29 team filed with the FCC today and other filings, which are available at www Dot FCC Dot Gov.
As well as flexing website. These forward looking statements speak only as of the date of this call inflection assumes no duty to update such statements.
I will now turn the call over to flex and CEO My climate.
Thanks, Scott and thank you all for joining the call.
It's my pleasure to provide an update on Flexions third quarter business performance today ill discuss the red as progress in the market recap, our recent regulatory clinical and business development achievements, and then turn it over to David for deeper review of our commercial metrics and a summary of our financial performance after that.
We will open the line and take questions.
To begin as we announced in the press release. This afternoon, we recorded Zilretta net sales up $21.8 million in the third quarter, which represents growth of 29% over the second quarter.
Throughout the course of 2019, we have seen increased traction with existing accounts as well as strong penetration into new accounts.
As we've discussed previously we believe this momentum can be attributed to several key factors, including the overwhelmingly positive feedback patients are sharing with their physicians. The reliable an expeditious reimbursement that has resulted from zilretta dedicated J code.
Changes, we've made in our commercial organization throughout the year and more recently activities focused on enhancing the value proposition to purchasers and providers.
Including G.P.O. contracting and the volume based health care provider rebate program that we implemented in the third quarter.
Based on Zilretta strong and consistent sales growth throughout the year, we're tightening our revenue guidance for the full year to $70 million to $75 million.
Regarding our pending supplemental in D.A. related to repeat administration, we had expected a decision by our PDUFA date of October 14th, but as we previously announced the F.D. informed us that this date would be missed while the F.D. His decision is still ahead of us and I can't speculate about the outcome.
I can report that we are having ongoing discussions with the agency and we continue to believe that the totality of the data support an improvement is already has label. We are hopeful that their review of the S.N.D.A. will conclude shortly and we will certainly provide an update as soon as possible.
With respect to other clinical development activities. We recently initiated a phase two trial to investigate the safety and efficacy of Zilretta ensure older osteoarthritis and it he's of Capsulitis, which is also known as frozen shoulder syndrome.
We believe these two conditions present, an opportunity assuming ultimate approval to expand the use of zilretta with the subset of Orthopedists, who primarily focus on sports medicine, and commonly treat these conditions would steer writing injections.
Of note, while approximately 20% of away patients have diabetes the prevalence in patients with adhesive capsulitis is almost double that the potential for zilretta to limit the incidence or magnitude of hyperglycemia following injection, maybe particularly relevant in this population.
We anticipate that data from these trials will be available in the first half of 2021.
As for our phase three trial investigating zilretta in hip away on our last call. We mentioned that we paused enrollment due to a non safety issue related to the inability to deliver a full dose in a small number of trial participants. We subsequently conducted an exploratory study designed to resolve the issue.
That study was unsuccessful and as a result, we are discontinuing the phase three trial in hip away.
To provide some additional color behind our decision. We initially observed this issue during or PK study in shoulder in hip also known as ship.
During that study we had one site experience difficulty administering the product in a few hip OA patients.
And at that time, we believe the issue was related to dose prep, where the administration technique employed by the investigator importantly, we did not observe anything similar in shoulder and we believe that this product administration issue is related to the specific architecture of the hip joint.
Clearly, we hope that the hip trial would be successful, but our decision to discontinue it was driven by our commitment to placing our efforts in resources on the opportunities, which present us with the greatest potential for success patient benefit and value for context fewer than 500000 injections are administered.
For hip Oh, a annually as compared to approximately 1 million injections for shoulder away and adhesive capsulitis combined and nearly 8 million injections administered for anyway.
Regarding our pipeline, we made excellent progress in the third quarter with the I, Indeed clearance for FX to a one and the addition of FX Threeo one.
With respect to FX to a one our R&D acceptance was supported by robust preclinical data, which established a potentially safe and efficacious starting dose for our phase one single ascending dose study.
We remain on track to treat the first patient before the end of the year and the trial is expected to enroll approximately 15 to 24 patients who will be followed for 104 weeks with initial read out in 2021.
We will present compelling nonclinical data that was included in the FX to a one eye in D. submission at the upcoming American College of Rheumatology or HCR annual meeting.
Additionally, as we announced last week, we have assembled a blue ribbon scientific advisory board to provide ongoing tactical and strategic guidance as the program advances.
As for FX Courier, one in September we signed an agreement with xenon pharmaceuticals for the global rights to develop and commercialize their NAV 1.7 inhibitor then for owed to which we are formulating with any thermo sensitive hydrogels for administration as a peripheral nerve block for control.
Post operative pain.
FX Threeo, one is a natural fit for reflection as it leverages, our deep understanding of muscular skeletal pain and our demonstrated formulation expertise.
Unlike typical local anesthetics, we believe the selective pharmacology of FX Breo, one has the potential to deliver effective pain relief, while preserving motor function, which could enable ambulation rapid discharge and early rehabilitation following muscular skeletal surgery.
We anticipate that FX Rio one will enter the clinic in 2021.
As for other scientific publications and presentations in October the result from our phase two way study evaluating the safety and systemic exposure of concurrent injections of Zilretta in patients with bilateral neo way, where publishing the peer reviewed journal therapeutic advances in muscular skeletal disease.
We initially presented these findings at the 2018 easy our annual meeting and they showed that concurrent bilateral administration of his zilretta appeared safe and well tolerated, resulting in reduced systemic exposure and substantially lower plasma concentrations of triamcinolone acetonide compared.
To immediate release try and similar to see denied in crystal in suspension.
In addition to our FX to a one data next week at HCR, We will present the results from a study which evaluated the potential of artificial intelligence to measure in predict Oh, a disease progression.
The study used to machine learning to evaluate MRI data from the osteoarthritis initiative to develop a three dimensional owe a bone shape model of disease progression.
It looked at nearly 48000 MRF rise of more than 9000 knees taken at various time points over an eight year period with the aim of establishing a relationship between structure and clinical outcomes.
Finally regarding our search worry chief commercial officer, those efforts are ongoing and we will keep you apprised as developments warrant.
I'll now turn it over to David to walk through the commercial metrics and summarize our third quarter financials.
Thank you, Mike I'll start by walking through our commercial metrics, which as Scott mentioned can be found on our website and in the 8-K, we issued today.
I'll begin with slide two which includes several key metrics that provide important context on the progress of red as launch.
As Mike mentioned, we recorded net sales of 21.8 million in the third quarter representing growth of 29% over the second quarter.
We called nearly all of our 4600 target accounts.
Our continued strong quarter over quarter sales growth. We believe is attributable to a number of key factors, including ongoing and very positive patient and physician feedback the permanent J code enhancements to our commercial organization and steps we've taken to address economic considerations.
Associated with the adoption of Zilretta, such as the volume based healthcare provider rebate program, we introduced in the third quarter.
As we discussed on previous calls we expect the number of target accounts to grow as our sales reps broaden their reach.
At the ended the third quarter.
30, 130 accounts had purchased Zilretta, which is an increase of approximately 400 purchasing accounts.
Compared to 20 733 accounts that had purchased product as of the ended the second quarter.
With respect to Reorders, we have seen our reorder rate tick up over the last three quarters.
As of the end of the first and second quarters, the reorder rates were 71% and 73% respectively and as of September 30, We had 20 344 accounts or 75% of purchasing accounts place at least one reorder for Zilretta and this increase is off of a growth.
In customer base.
Moving to slide three here you can see a graph of our quarterly sales since launch including to 21.8 million in net sales we recorded in the third quarter.
Paints, a very clear picture of the red as growth in the market and as Mike stated earlier. This provides us with the confidence to tighten our full year 2019, net sales guidance range to 70 to 75 million.
Now on slide four this slide and the remaining two slides reflect purchases of the rata by accounts, which represent physician practices clinics and hospitals of various sizes and purchasing potential.
As we look at the distribution of accounts that have purchased the rather since launch we stayed with the same groupings that we shared in the second quarter accounts that have purchased one to 10 units purchased 11 to 50 units or purchased more than 50 units.
We continue to see a significant number of accounts with purchases of one to 10 units and as of September 30, roughly 1500 accounts had made purchases in this range.
As I mentioned before we have continued to expand the customer base and new accounts generally place initial orders in this range with the frequency and size of their purchases often growing over time as they receive patient feedback on the benefits of zilretta, an experienced consistent and reliable reimbursement.
As of the end of the third quarter more than 900 accounts had purchased 11 to 50 units.
In addition, 670 accounts had purchased more than 50 units, representing 45% growth over the period from launch through June 32019, we continue to be very pleased with its progress. However for these highest utilizing accounts we consider early adopters.
There is still meaningful opportunity to more fully incorporate zilretta into their practices.
Moving to slide five you can clearly see the significance of these early adopting accounts on the total purchases of Zilretta to date.
While the total number of accounts that have purchased more than 50 units is 670, which is about 21% of the total purchasing accounts.
These accounts purchased approximately 109000 units were roughly 79% of all purchases since launch.
As we have mentioned previously accounts generally move along this so rather utilization continuum from one to 10 units to 11 to 50 units and then to more than 50 units, which highlights the potential for significant sales from our current customer base of approximately 3100 purchasing accounts.
Looking at slide six you can see how the zilretta purchasing breaks out by new and existing accounts as I mentioned previously while we expect overtime to see a slowing the number of new accounts coming onboard each quarter.
The continued addition of new accounts gives us tremendous confidence in the red as long term potential.
So now let me briefly walk through the third quarter financial results.
Which we included in the press release issued this afternoon and in our 10-Q.
We reported net sales of the rata for the third quarter of 2019 of 21.8 million compared to net sales of 7 million for the third quarter of 2018.
Cost of sales was 2.9 million and 1.6 million for the third quarter of 2019 and 2018, respectively.
Net loss was 38.2 million or one dollar per share for the third quarter of 2019 compared to a net loss of 43.6 million or $1.15 per share for the same period of 2018.
The third quarter 2019, net sales reflect a gross to net reduction of 14% gross to net reduction is primarily comprised of distributor in service fees returns reserve.
Healthcare provider rebates and mandatory government discounts and rebates such as Medicaid 340 be institutions and veterans administration and department of defense.
As we previously mentioned in the third quarter, we started offering rebates to eligible healthcare providers that are variable based on the volume of product purchase.
These provider rebates contributed 6% of the third quarter total gross to net reduction a 14%.
Research and development expenses were 20.9 million and 13.6 million for the three months ended September 32019, and 2018, respectively. The increase in research and development expenses of 7.4 million was primarily due to a $3 million upfront payment to xenon pharmaceutical.
Goals for the global rights Suzanne for about two and 3.8 million for increased development expenses for Zilretta clinical trial costs related to shoulder and hip and other lifecycle management activities.
Selling general and administrative expenses were 32.1 million and 32.8 million for the three months ended September 32019, and 2018, respectively.
Selling expenses were 23.9 million and 23.7 million for the three months ended September 32019, and 2018, respectively.
General and administrative expenses were 8.2 million and 9.1 million for the three months ended September 32019, and 2018, respectively, which represents a decrease of point 9 million.
Interest income was point 7 million and 1.2 million for the three months ended September 32019, and 2018, respectively.
Interest expense was 4.7 million and 3.9 billion for the three months ended Septemberthirty 2019 and 2018.
We expect that our operating expenses will continue to increase primarily driven by commercial activities in support of Zilretta line extension clinical trials for Zilretta continued development of FX to a one and FX threeo, one and development activities associated with future additions to the pipeline.
As of September 32019, we had approximately 175.8 million in cash cash equivalents and marketable securities compared with 258.8 million as of December 31, 2018, we believe that our current cash balance with the expected future sales of Zilretta.
And the ongoing prudent management of our expenses will bring us to profitability.
That said it is important to add that as always we will be opportunistic as it relates to potential funding decisions and we will do what we believe is in the best long term interest inflection and our shareholders.
At this point I would ask the operator, please open the line for questions.
Thank you Sir as a reminder to ask a question you would need to press star one on your telephone.
Your your question press the pound cake, please standby will come.
Sure.
Sure first question comes from Randall Stanicky from RBC capital markets. Please go ahead.
Hey, guys. This is Tim Buzby on Forendo few questions from me.
First if we take the midpoint of your updated Zilretta guidance implies a deceleration in growth in Fourq Q.
It's up to three Q.
Right way to think about the upcoming quarter or could there be some conservatism built into the guide.
Yes, Dan this is good it's a great question and as Weve.
Consistently said about our guidance, we're providing numbers the range that we believe are incredible an achievable.
And we believe 70 to 75 is both of those and we'd be very pleased with that.
Okay and second.
With respect to your repeated administration Sndk has that FDA provided a reason for the delay as part of your ongoing dialogue.
You have to realize that the agency tends to be reasonably opaque about these kinds of things. So we do not have any clear insight into exactly what is transpiring there.
And as I expect that others will have questions about the status of the San Diego simply say that.
At this point in essence, what would we have put in the press release and in the script is the extent of our knowledge.
Got it understood and last question from me.
Where do you expect gross to nets to settle out one fewer.
Okay and based rebate program is fully implemented in place.
Sure. So this is David.
So at this point, we're not going to be providing their projection of our gross to net reductions.
As we.
As we are focused on continuing to dress economic considerations related to the rally utilization such as the introduction of the rebate program in the third quarter.
There will be clearly greater variability on the future gross to net reductions we're going to continue to in a thoughtful and judicious way look at approaches and means in which we can enhance the value proposition.
As it relates to Zilretta for health care providers and intermediaries such as GPS.
Got it thanks guys.
Thanks, Dan.
Our next question comes from Gary Nachman from BMO capital markets. Please go ahead.
Hey, guys, congrats on a quarter and great progress.
Thank you Gary So how is the direct ordering with physician practices and this value based rebate program been helping uptake I know, it's early but is that driving a lot of the shift to the 50 plus bucket that you highlighted.
Gary. This is this is David so we're not going to breakout sales by these specific initiatives and activities. What we can say is these things are all these things are all contributing.
To the performance that we had in the third quarter and we will continue to use these initiatives these activities and add to them in subsequent quarters to drive to drive continued growth in utilization that adoption.
Okay, and I mean within that bucket of 51, plus is there a group that's really high.
So curious where where the ceiling might be for some of your best accounts and.
At a certain products since they are contributing to sell much of the volume I'm curious just within that group how concentrated it might be.
Sure. So I think what I can do is share share a couple of additional pieces of information. The first is if you look at the 50, the more than 50 bucket and look at the average units purchased.
Over the last couple of quarters ramp over the last three quarters. It's gone from the average gone from 120 on average to in the in the first quarter to 136.
In the second quarter, two 163 in the third quarter. So we're getting.
Greater utilization out of those what we call. The early adopters Thats 0.1 0.2 is.
We do have a number of accounts more than 25 accounts that have purchased more than 50 unit five excuse me more than 500 units of Zilretta launched today.
Okay, that's very helpful.
And then Mike I know, it's hard does not much it you could share in the communications with the FDA, but since its taking them a bit more time as you think it's more likely we'll see a modification of the language versus a complete removal of the L. you from the label.
Yes, Gary I'd simply say that to avoid speculation I'll simply say that we continue to proceed with confidence in the data that supports an improvement in the label.
To go beyond that is to strain to the realm of speculation and I think as you can appreciate Gary to.
Speculate on what's going to transpire the FDA has to do so at your substantial risk.
Okay. That's fair and then assuming that it does turnout favorably and there is some change how quickly could you implement that to your promotional materials and how long before you think we might see a benefit and then just I know you've talked about in the past its just characterize how much of a benefit you think it might be.
Thanks, Yes, so in terms of translating the new label language, assuming we get new label language.
Translating that into marketing materials I can tell you that there's been a.
This should come as no surprise to you that there has been a broad and deep cross functional team focused on exactly that.
And they've done an outstanding job preparing for a variety of different outcomes and I'm confident that we will see new marketing materials within hours to days after we get the finalized.
Language from from the agency.
We expect that this will provide progressive positive influence on sales just like with the J code is not going to be the flip of a light switch it will create the opportunity for dialogue and a lowering the threshold for.
Repeat dosing it'll have ramifications for prescribing physicians and those handful of payers that have had any resistance the idea of repeat injection.
That will be a process that will roll out over months and quarters.
But I can tell you we have done internally everything humanly possible to prepare for rapid implementation of updated materials in the field.
Okay, great. Thank you.
Thank you.
Thank you next question comes from Elliot Wilbur from Raymond James. Please go ahead.
Hey, Good afternoon first question actually for David with respect to gross margin trends going forward.
Ben somewhat volatile over the last couple of quarters, but how do we think about this period sort of being a baseline going forward, especially as you implement some of these new.
Volume based and rebate based programs.
Yes, Elliott so gross margin in the.
This quarter third quarter was about 87%.
And that is a reduction from 92% in the second quarter. We've always said that expect some inherent variability in our gross margins as we continue to ramp from a manufacturing standpoint.
Once we hit steady state and we're not at steady state. It at this juncture, we think gross margins are going to be around 90%. So we're getting there, but we're not there yet.
Okay. So you're you would not anticipate some of these new initiatives to have a material impact on gross margins basically is that.
I think we're still going to see some variability over the near to intermediate timeframe.
Okay.
And then there couple of questions for Mike.
Based on.
Now what I imagine is rather significant interaction with the agency around.
Limitation of use language and.
The multi dose study that you guys have put together how might that inform youre thinking about the.
Study design.
In a shoulder and he's if capsulitis I would I would assume that youd sort of look to address.
How many issues that have arisen.
Yes, the indication.
Data in those studies.
Most likely sort of simultaneously with the.
The submission itself.
Well, it's it LT, it's a very good question under active I'd simply say underactive consideration.
What we'd like to do is due this sequentially, let's see how we come out.
With this current round of discussions with the agency and that will inform our decision making in shoulder.
Okay and one last question for you might as well with respect to FX 201, obviously neo way is the big target here, but once you get through.
The phase one.
Study how might you are I think.
Thinking evolve in terms of potentially running.
Different joint programs simultaneously I'm, assuming that obviously it to your one would have applicability in.
Joint similar to what standard.
Hey, or steroids, what but just you you're wondering if.
Might be considering.
More rapid development another joints in more of a simultaneous development program rather than sequenced. Thanks.
Oh, it's very good question and clearly that gene therapy does lend itself to a variety of different joints. I think it's fair to say that we will take this step wise, we will define the value proposition in knee and devote our effort and attention energy to knees inside.
It is such an important part of the unmet medical need out there and we will.
Judicially consider other joints and other conditions that might benefit from this approach.
Having having said that I do think knee is top of mind for us because getting it right in need getting that across the finish line represents such a an enormous opportunity.
Thank you.
Our next question comes from starts Ballenger from Needham and company. Please go ahead.
Hi, good afternoon.
A couple of questions on ongoing commercialization efforts.
First.
Do you see.
Can you give us an update there are you at a point where you can.
We will decide to expand.
Advertising.
Where are you.
The CCOH search.
Ccs.
Okay. So it relates to deep DTC surge.
Variety from ways you can.
Approach DTC in there there are web based approaches in print material approaches.
We are embracing increasingly.
And I would say stay tuned on that.
But we think that there is a big opportunity to.
Reach even more patients.
Going forward than we have today on the CCOH search, let's say that we are we continue to look for.
In individual who.
Has.
Great leadership skills.
Excellent track record of success, leading commercial organization and someone who add to the culture and be consistent with the values of this organization.
We're proceeding with confidence that we will find an outstanding visual.
And.
A follow on question that you might have or someone else might have as well is or timeline to this and the answer is yes. There is a timeline and that is as soon as possible.
Okay.
And then just on the pipeline I know the.
FX three or one acquisition is pretty recent but can you just give us.
Kind of a broad timelines for.
How this product will move towards.
The clinics.
Yes, I think we've guided to the fact that we expect to be in the clinic in 2021, assuming supportive.
Toxicology LP talk GLP toxicology, and that's I think thats, a very reasonable incredible timeline.
Thank you.
Thank you surge.
Thank you as a reminder to ask a question you would need to press star one on your telephone to withdraw your question.
Okay.
Sure on next question comes from Patrick.
Apparently Burke. Please go ahead.
Hi.
Hi.
Okay.
Two questions first related to tell you.
At the external expectations like 2020, a reasonable.
Hello Hello.
Some delays.
And then really.
Related to the continuation of the head trial.
Thanks.
It really speaking impossible.
Yes, perhaps different formulation logos that way.
Yeah.
Yes, let me so just just to be clear I think we missed the for your first question can you do you mind repeating that.
Sure.
Related to the Aloe you I'm just wondering if you think that the external expectations for 2020, a reasonable whether you can be removed.
We have not bowcan about 2020.
We anticipate we will ultimately put out guidance for 2020, so I'd simply say stay tuned in that regard.
As it relates to hip.
We don't use the word impossible around here very much.
It's a question of where do you put your resources to achieve the best return on what our.
Precious investor dollars and at this point, we believe that those dollars are best spent on other very high potential opportunities.
Preclude the possibility that the right time, we might revisit hip but given everything we know we're turning your attention to other higher priority potential projects.
Thank you.
I show no further questions in the queue at this time I would like to turn the call over to Mike claimants CEO for closing remarks.
I would simply like to thank everybody for your time and attention I have to tell you that we are very enthusiastic about where we've ended up in the third quarter through the didn't have efforts of a tremendous field organization.
Who are working hard every day to get what we believe is a medicine that matters to patients in need.
And we look forward to updating you on the fourth quarter results.
Shortly after the beginning of next year, Thanks, a lot.
Ladies and gentlemen, this concludes todays conference call. Thank you for participating you may now disconnect.