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Executives

John Woolford - Principal

Armando Anido - Chief Executive Officer and Director

Keith A. Goldan - Chief Financial Officer

Gerald W. McLaughlin - Chief Commercial Officer

Analysts

Elliot Wilbur – Needham & Company

Michael Schmidt – Leerink Swann

Annabel Samimy – Stifel, Nicolaus & Co., Inc.

NuPathe Inc. (PATH) Q2 2013 Earnings Conference Call August 8, 2013 8:30 AM ET

Operator

Good morning ladies and gentlemen and welcome to the NuPathe Second Quarter 2013 Earnings Call. After prepared remarks we will be opening the call to a Q&A period. (Operator instructions). As a reminder, this call is being recorded.

It is now my pleasure to turn the call over to Mr. John Woolford. Please go ahead, Mr. Woolford.

John Woolford

Thank you, operator, and good morning, everyone. With me on today's call are Armando Anido, Chief Executive Officer; and Keith Goldan, Chief Financial Officer. Jerry McLaughlin, Chief Commercial Officer, will also be joining us for the Q&A portion of the call.

We issued a press release detailing second quarter 2013 financial results this morning. For those of you who may not have seen the release, it is available on our website at www.nupathe.com in the Investor Relations section. The format of today's call is as follows. Armando will begin with an overview of recent corporate highlights. Keith will then provide a summary of our financial results for the quarter; and Armando will end the prepared remarks with a brief closing, followed by a Q&A session.

Before we begin, I'd like to remind you that we will make various remarks during this conference call that constitute forward-looking statements. All remarks that are not historical facts are hereby identified as forward-looking statements and include statements regarding the potential benefit, market opportunity and commercial prospects of Zecuity, our plans regarding the commercial launch of Zecuity, the sufficiency of our cash to fund operations and debt service obligations into the fourth quarter of 2013, our ability to obtain commercial partners and additional capital to launch Zecuity and other statements regarding our plans, expectations and beliefs regarding future operations, performance, financial condition and other future events.

Forward-looking statements are based upon current plans, expectations and beliefs and are subject to numerous risks, uncertainties and assumptions that could cause actual results to differ materially and adversely from those reflected in such statements, including those factors discussed under the heading Risk Factors in our Form 10-K for the year ended December 31, 2012, which is on file with the SEC and available through the Investor Relations section of our corporate website. As a result, you should not rely on any such forward-looking statements. While we may elect to update forward-looking statements from time to time, we specifically disclaim any obligation to do so. Also, today's call may not be reproduced in any form without our express written consent.

I will now turn the call over to Armando Anido, Chief Executive Officer. Armando?

Armando Anido

Thank you, John, and thank you, all, for joining us this morning. We made substantial progress on a number of fronts as NuPathe since our last call. We remained engaged in discussions with potential partners. We advanced our commercial and manufacturing preparations for the launch of Zecuity in the fourth quarter of this year. And we continued to build awareness of the clinical benefits of Zecuity, including recent presentations at the International Headache Congress or IHC. Further, we managed our resources very well, prioritizing our focus on commercial as well as our manufacturing scale up.

Let’s start with our commercial preparations. As you all know, we have been focused on securing partners that will enable us to maximize the opportunity for Zecuity in the U.S and throughout the world. While we will not provide details, I will confirm that we remain in discussions with potential partners. While we advanced the partnering discussions, we also ramped our commercial and manufacturing operations in anticipation of launch.

Our commercial team accomplished a number of key objectives. We have selected our sales leadership and managed care teams, as well as a third party logistics provider and advertising and public relations agencies of record. Over the next few months, our sales leadership team will be focused on recruiting our regional managers and establishing our training program. In addition, our managed care team will begin visiting major national plants to introduce security and to secure coverage. Our advertising agency is already in the process of readying launch materials for the Office of Prescription Drug Promotion, OPDP submissions to the FDA.

We’ve also further refined our key position target lists, with a focused sales effort targeting the top 10,000 Triptan prescribers, primarily headache specialists and neurologists. We can access over 40 million Triptan units annually. This translates to over $4 billion in revenue potential at current branded injectable pricing.

And finally, a recruiting plan is in place for the field sales team to support the launch. As we have discussed previously, the NuPathe organization required to launch Zecuity will depend upon the scope and structure of a commercial partnership because we plan to build our commercial infrastructure to complement that of our partner. Building awareness of the clinical benefits of Zecuity is a key strategy in our commercial plans. At the International Headache Congress, the premier headache scientific meeting, we presented data that reinforces Zecuity as an easy to use treatment option that may benefit the more than 8 million migraine patients who frequently suffer from migraine related nausea, along with their headache pain.

One post-hoc analysis showed that Zecuity was efficacious in treating migraine headache pain and associated symptoms, regardless of the presence of nausea prior to treatment. A second post-hoc analysis showed that patients treated with a placebo patch were more likely to have treatment-emergent nausea than those treated with Zecuity. And lastly, a third data presentation showed that migraine patients could correctly and easily assemble, apply and activate Zecuity during an attack. Overall, we believe the data was well received by physicians and we were pleased with the enthusiasm of potential prescribers for the launch of Zecuity.

Moving on to manufacturing, we have made significant advances, including the completion of almost all of the process qualification activities, the initiation of process validation for critical manufacturing operations and finalized delivery schedules for T assemblies and components. With this progress on both the commercial and manufacturing fronts, we are well positioned to support the planned fourth quarter 2013 launch.

And lastly, I also wanted to highlight that the United States Patent and Trademark Office recently issued NuPathe a patent titled “Transdermal Methods and Systems for the Delivery of Anti-Migraine Compounds.” This patent will provide additional protection for Zecuity and is the fifth patent covering Zecuity to be listed in the U.S. Food and Drug Administration's Orange Book.

With that, I'll turn the call over to our CFO, Keith Goldan to review our financial results. Keith?

Keith Goldan

Thank you, Armando, and good morning, everyone. We issued a press release detailing financial results and recent operational highlights for the second quarter 2013 earlier this morning, and we’ll our Form 10-Q tomorrow.

NuPathe reported a net loss applicable to common shareholders of $4.9 million or $0.16 per share for the second quarter of 2013, compared with a net loss applicable to common shareholders of $6.2 million or $0.42 per share for the second quarter of 2012.

Second quarter 2013 operating expenses were $4.7 million, compared with $5.8 million in the 2012 period.

Research and development expenses during the second quarter of 2013 were $2.4 million, down from $3.4 million in the comparable quarter of 2012. This decrease in R&D spending was largely attributable to higher spending in the 2012 period on clinical and manufacturing expenses related to Zecuity, in preparation of the NDA submission, which occurred in July of 2012 as well as reduced compensation expenses in the 2013 period due to fewer headcount. This was partially offset by increased expenses in the 2013 period in the areas of regulatory, quality assurance and medical affairs as we prepare for the launch of Zecuity.

Selling, general and administrative expenses were $2.3 million in the second quarter, basically flat with the $2.4 million expended during the same period last year.

Net cash used in operating activities for the six months ended June 30, 2013 was $6.8 million, primarily the result of spending for normal operating activities, including manufacturing scale up and commercialization expenditures for Zecuity. During that same period, we also used $2.2 million of cash in investing activities, primarily for the purchase of commercial manufacturing equipment for Zecuity, and generated $2.5 million in financing activities, primarily from the exercise of warrants.

At the end of the second quarter, NuPathe had $16.1 million in cash and cash equivalents and working capital of $10.7 million, compared with $22.6 million in cash and cash equivalents and working capital of $19.8 million at December 31, 2012. We continue to expect our existing cash and cash equivalents will be sufficient to fund operations and debt service obligations into the fourth quarter of 2013. The additional capital that the Company will require to launch Zecuity and to fund operations and debt service obligations beyond that point, will depend largely upon the timing, scope, terms and structure of a commercial partnership for Zecuity.

As Armando stated earlier, we intend to build our commercial infrastructure to complement that of our partner. Incremental capital may come in a range of possible transactions, including corporate collaborations, partnerships or other strategic transactions, debt or equity financings or other funding opportunities. As always, we remain focused on creating shareholder value as we evaluate all our options.

I’ll now turn the call back to Armando for closing remarks.

Armando Anido

Thank you, Keith. As I mentioned earlier, this has been a very busy and productive quarter for NuPathe as we advance our manufacturing and commercial operations in preparation for the upcoming launch of Zecuity. We again thank all of our stakeholders for their continued support.

With that, we're now happy to take your questions. Operator, please begin the Q&A session.

Question-and-Answer Session

Operator

(Operator Instructions) We'll hear first from Elliot Wilbur from Needham & Company.

Elliot Wilbur – Needham & Company

First question for Armando and then Jerry on the IHC data, maybe just help us tease out what’s new incremental or differentiated versus what we’ve seen before or at least relative to existing perceptions of the products utility and positioning and then for -- I guess the Jerry part of the question is, does the new data you think in any way give you any new weaponry on the commercial front in terms of opening up additional segments or enhancing the position in the product?

Armando Anido

Thanks a lot for the question this morning, Elliot. We’re pretty happy with the response that we received at the International Headache Congress back in Boston at the end of June. I think the data was very well received. I think that what you found is that as people are taking a look at Zecuity and how to position it; I think they are continually looking for how does it work, particularly in the nausea patients or particularly in those that are getting potentially treatment-emergent nausea. And the treatment-emergent nausea data is one that actually resonated unbelievably well with the key opinion leaders and one that at the end of the day may help to differentiate us even further from the current treatment options that are available. But Jerry, maybe from a commercial perspective you can give your insights.

Gerald McLaughlin

Sure. Elliot, what I’d like to first do is focus on our core message in the label. The fact is that Zecuity can effectively relieve not only the headache pain, but provide category leading nausea freedom for patients at 84%. And that is a very compelling message to physicians and patients and that will be the core of our promotion. What I get excited about this data; it provides very practical and clinically meaningful information for physicians as they interact with their patients. And first with the fact that regardless of nausea base line, Zecuity is just as effective in relieving headache pain is quite important as there’s overwhelming evidence in the literature that if you’re a patient and you present your headache means – your migraine is a headache plus nausea, you’re less likely to have a headache response to an oral Triptan. And there’s thousands and thousands of patients in multiple publications that demonstrate that.

And so with that data, clinicians can look in the face of nausea that I can feel comfortable prescribing Zecuity and it’s going to deliver on the promise of both headache pain relief and nausea freedom. The second, with the potentially treatment-emergent nausea is the disease burden associated with (inaudible) or migraine-related nausea, while headache pain is the number one driver of disability, there’s substantial evidence and we’ve seen that in recent years. We’ve talked about it previously that nausea leads to poor outcomes and actually drives healthcare utilization. Now, a clinician for someone with a history of nausea, they can have confidence that Zecuity, their patient doesn’t have nausea based on it’s not going to cause it because when you’re reporting rates of two hours of less than 5% and with oral Triptan it’s up to 20% of patients who don’t have nausea base line two hours later reported, that becomes an important clinical consideration.

And then finally, with the human factor study or usability study, there’s always the question within a new technology, a new round of delivery and disease category, particularly when you’re talking about a disease where patients have moderate to severe headache pain, are they going to be able to use the product during a migraine attack. I think we really put it to the ultimate test here for multiple reasons and studying folks who, some were trained on the product and some were not. It may reflect real well. There’s much support as we’ll give the market. Some patients are probably going to get the product of that while they’re being trained. So we can monitor to test that. And the second thing was, these folks came back up to 20 days later. So it wasn’t as if we trained them or told them about the Zecuity and then had them assemble, apply and activate the patch.

Some came back as much as three weeks later and the great news is every one of them, 100% were able to assemble, apply and activate the patch and most of them, 97% of them had a migraine impact that was moderate to severe in intensity. So that was very important. And then finally, the icing on the cake was we asked patients to rate the ease of use of the product and on a scale of one to seven, one being hard, seven being difficult, with very close high, in the mid six to high sixes on folks saying it was easy to assemble, easy to apply and activate. And so that gives a lot of confidence heading into the market that the patients will accept our product and be able to readily use the product.

Elliot Wilbur – Needham & Company

And then just I have a follow up for Armando as well. Obviously I know you don’t want to talk too much about the partnership discussions, but I wouldn’t be a sell-side analyst if I didn’t at least ask the question.

Armando Anido

It’s a surprise that you’re asking by the way.

Elliot Wilbur – Needham & Company

Yeah, I know. Obviously very fluid dynamic process, but at least based on some of the additional commercial moves you’ve made, it sounds like at this point you haven’t at least given up on maintaining a direct economic interest in the product. I’m just wondering if any of the thematics have emerged. I guess, look the observation is, it seems like there’s a whole host of new players out there that are looking for relatively low risk assets that have been developed using the 505(b)(2) pathway. It just seems like that your potential partnering target universe would be pretty robust and I’m just – I don’t know. Any color commentary you can offer at least on big picture aspect of discussions would be helpful. Thanks.

Armando Anido

I think that even though we won’t give specifics, I think that in general we have and continue to be in discussions with potential partners. There is a wide universe of this that have been in discussions with us. And I think that the opportunity for us has always been how do we complement what we believe is a – we wanted to keep a piece of this. So it’s not like we’re willing to just give it away to somebody entirely and not have a piece. So I think that trying to find the right partner that can complement us appropriately and give us enhanced reach beyond what we think we can do on our own, I think is an important step. And unfortunately it takes time and I know that investors get frustrated. We get frustrated that it doesn’t happen overnight. But I think that in the long term I think that finding the right partner and doing the right thing with it is in the best interest of all of us.

Operator

Our next question comes from Michael Schmidt from Leerink Swann.

Michael Schmidt – Leerink Swann

Maybe one for Jerry. Could you provide some more color on your interactions with payers and managed care ahead of the launch. Has some of the new data that was recently presented been helpful in discussions and what are your most recent thoughts on pricing?

Gerald McLaughlin

I’ll answer the last first. We won’t give any guidance on pricing here today or talk about pricing, but we can talk generally about it. But our work continues to come back with similar results and as we continue to take this into the market. It’s understanding this category and how the payers approach it. The way they approach it today, they consider low cost category. They have many, many other categories that are bigger drivers of dollars and as a result, the way they approach it today is they have generics in Triptan. They have a couple of other generics. They intend to drive the market through generic first, through copays, through tier-1 copays and also step edits requiring a trial first for generic. We’re absolutely fine with that. We’ve anticipated for years and years that the market we would enter. We built our product positioning around that.

We actually view generic first line as a diagnostic. What do we know though? We know 80% of patients move on to a second agent. 50% have been on three or more. We are a solution for a value or important sub payment population that’s of migraine GI related issues. And what do the payers know today? They know there’s a need for non-orals. They accept that there are GI issues and they also know definitely that a poorly controlled migraine will cost the system money. In fact, if you look at IHC, it wasn’t a poster from us, but there was data from Richard Lipton that showed that those patients with frequent nausea on consecutive years were much more likely to progress to chronic migraine. And once you progress to chronic migraine, you’re talking about significant healthcare utilization. In addition, previous data showed that those with frequent nausea are driving healthcare utilization. They’re seeing a specialist three times as often. They’re driving 5.4 times the ER cost and 8 times more overnight hospital stay cost.

And I can tell you, we’re in the process now of developing our dossier, our MC dossier which is the playbook for managed care as a necessary item as you’re interacting with the payers and we’re quite excited with the progress. The vendor we’re working with, they have found the data on the cost associated with migraine nausea quite compelling. So we’re quite confident we’ll be able to achieve tier-3 position. In many cases we’ll have a step edit through generic, but once again that’s what we expected anyway and our product fits quite nicely. The benefits of giving up on that first-line strategy is that it gives us tremendous pricing flexibility. And if you look at the market today, branded injection is priced at about $100 per dose. We feel quite confident that we can price at least there. We’ll divulge that in later date on what our final pricing is, but we’re quite confident that will get us a tier-3 placement.

Armando Anido

Michael, just to confirm what Jerry said, we will announce the price when we are ready to launch, but at this particular point we are feeling pretty good that it is probably north of where injectable pricing is going to be. And we feel that with our commentary that we’ve had with managed care that tier-3 positioning will be something that we’ll be able to achieve well.

Michael Schmidt – Leerink Swann

Sure. And then one for you Armando, you said you have now a recruiting plan in place for the potential field sales force. Obviously the size may depend on the extent of a potential partnership. But could you just provide some more color on what you said, how big that force might be if you go alone initially or if you for instance have a shared commercialization program in place.

Armando Anido

I think that the range is pretty broad right at the moment, Michael. I think probably on the upper side it’s probably the easier one to give you right now and that is, if you think of the top 10,000 doctors that represent 40 million Triptan units annually and a market opportunity of about $4 billion for us, probably would require a commercial structure of about 100 individuals. And then probably the bottom end of that is that we would call on the headache specialists that represent probably a couple of thousand physicians, maybe up to 3,000, so probably a 25 to 30 person structure.

So that gives you the bounds of what we’re contemplating from a recruiting plan standpoint. I think that we have – we’re working with a recruiting firm that I’ve used in previous lives that have been very successful in helping me expand sales organizations quite rapidly and they are very skilled at finding top talent and doing it in a very quick fashion and also in a very cost effective fashion for us. So I think that once we get settled down to exactly the number that we’re going for, they’ll be able to push the button and be able to go. But they’re starting broad too and then we’ll be able to narrow them down depending on the exact territories that we build out.

Operator

(Operator Instructions). We’ll now take our next question from Annabel Samimy with Stifel.

Annabel Samimy – Stifel, Nicolaus & Co., Inc.

Jut to go back to the sales force a little bit, the top 10,000 docs that you’ve identified, are those headache specialists specifically, neurologists specifically or do those include primary care physicians that also prescribe Triptans?

Gerald McLaughlin

Annabel, this is Jerry. I’ll answer that. If it includes headache specialists and neurologists, then a sliver of primary care who behave like headache specialists based on prescribing patterns. And the interesting thing about the migraine category is that there are more than a handful of PCPs who are key opinion leaders in the headache community or serve as a headache specialist. And then in some cases it’s due to geography. Actually there was some data presented at IHC this year. There’s a need for headache specialists and in some categories they serve as the headache specialists. So that’s going to be the focus. It allows us to get into the very, very high prescribers where there’s good return on investment.

Annabel Samimy – Stifel, Nicolaus & Co., Inc.

And I guess along those lines, the partner that you’re looking for would expand into more of the primary care market. And if that’s the case, is that becoming more difficult only because many companies seem to be moving away from primary care skilled forces and are looking more towards the specialists. So is that part of what’s making this a little bit more difficult for establishing a partnership that you’re entrenching yourself in the specialty versus where the partners may want to entrench themselves?

Armando Anido

I think the one thing is that we are looking for somebody to complement. And as I said in the previous question that Michael had asked, it ranges anywhere from a field force of 30 that covers the just purely headache specialist community, up to the most we would have would be 100. So there are certain conversations that would be sharing in some of that 10,000 and maybe expanding beyond that and going into the next several deciles of physicians. Or it could be that we cover all of the 10,000 and complement it with a partnership that gets us out to a much broader PCP coverage. That’s something we obviously are not going to go and pursue on our own, going after the broad PCP coverage. It for the most part becomes a mile wide an inch thick. And I think that for a small company like us it wouldn’t really make any sense for us. But our partnership discussions range from getting into the primary care space very deep or in some cases just going slightly into them.

Annabel Samimy – Stifel, Nicolaus & Co., Inc.

And just a question on the warrant position that you have. You said you raised $2.5 million through the exercise of your warrants. Can you tell us how much do you have left in terms of exercising warrants and as will all exercise, what might that provide to you and how much flexibility this would give you?

Keith Goldan

Sure. Hey Anna. This is Keith. How are you doing? I’m sorry, not Anna, Annabel. So at 230, remember we issued $14 million warrants in conjunction with the pipe that we completed last year. As of June 30, 3.5 million of those have been exercised. But somewhere exercise via cash, somewhere exercise via a cash place option that was attached to the warrant. So for the 3.5 million that were exercised, we issued 2.2 million shares of common stock and recognized proceeds of $2.7 million in conjunction with cash exercises of those warrants.

Annabel Samimy – Stifel, Nicolaus & Co., Inc.

And if they were all exercised, might that push you beyond the 4Q 2013 timeframe?

Keith Goldan

Yes, certainly if they were exercised for cash. But they do have a cash place exercise option attached to them.

Operator

I would now like to turn the conference over to Mr. Anido for any additional or closing remarks.

Armando Anido

Thank you all for very much participating this morning with us. We’re quite pleased with the progress that we are making and we look forward to updating you again in the coming months. Thank you all.

Operator

This does conclude today's conference call. Thank you all for your participation.

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