Zogenix, Inc. (NASDAQ:ZGNX)
Oppenheimer 24th Annual Healthcare Conference Call
December 11, 2013 8:55 a.m. ET
Ann Rhoads - Chief Financial Officer
Akiva Felt - Oppenheimer
Akiva Felt - Oppenheimer
[Abrupt start] Senior biopharma analyst here at Oppenheimer. I am happy to introduce our next company, Zogenix Pharmaceuticals, this is a company we cover. Zogenix recently had an FDA approval for their lead asset, Zohydro ER, to treat chronic pain, and presenting for Zogenix this morning we have Chief Financial Officer, Ann Rhoads.
Thank you, Akiva, and thanks everyone for coming today. We appreciate it. Just to state the obvious, I may be giving you forward-looking statements, you should always refer to our SEC documents. So we are pleased to be here today to give you an overview of the company's recent developments and talk about what we are planning for 2014.
Zogenix is a specialty pharmaceutical company focused on CNS disorders and pain. We have two approved products, one development phase asset and also a proprietary needle-free drug delivery technology. Our first approved product has been on the market now since 2010. It's a product called SUMAVEL DosePro, for the treatment of migraine headache. That product is currently doing about a $36 million run rate, and again is in the market being co-promoted with our partner Mallinckrodt.
Our second product which was recently approved is Zohydro ER. We did have a delayed PDUFA date from the FDA. Finally it did receive approval in late October. We are really pleased about this. Plan to be launching the product in March 2014. That product again is an extended release hydrocodone without acetaminophen for the treatment of chronic pain.
Our development state asset is a product called Relday. It's just completed its Phase I trials. We are moving forward into our multi-dose trial. This is a product that is a once-a-month subcu injection for the treatment of schizophrenia. And then lastly you see at the bottom, our needle-fee drug delivery technology, which is used in our first product SUMAVEL DosePro and we are also speaking with other companies about the potential use of that product in combination with their drugs.
This is an overview of our management team. We do have an experienced management team, both on the development and the commercial side of the business. Roger Hawley, our CEO, has spent most of his career at GSK. Steve Farr came from Aradigm on the development side, and you can see there we have just built some additional members of our team, including a Chief Commercial Officer, Scott Shively, who came over from Pfizer where he led the pain franchise.
So I am going to start with Zohydro ER. That’s where I get a lot of questions from investors wanting to know and understand more about this product. As I stated earlier, again, it's a single entity hydrocodone for the treatment of chronic pain. This is going to be the first single entity hydrocodone on the market. It will be a Schedule II product. We have patent protection on this product through 2019. And what we think is really interesting and important about this product is that it delivers consistent 12-hour medication for patients. This can make a real difference in their quality of life. Again BID dosing twice a day, allowing a patient to sleep through the night.
And then also it reduces the risk of liver toxicity associated with the current combination hydrocodone products on the market which, many of you may know, is Vicodin or Vicodin generic. We think that this does fill a real clinical need for patients. Again, we know that there are approximately 47 million patients in the U.S. today that are using immediate-release hydrocodone. Of that, our market research estimates that about 5% of those patients are using immediate release products for the treatment of chronic pain. Meaning that they are taking these products four to six times a day, day-in, day-out for months at a time. We think those are ideal patients for our products. Again, taking out the acetaminophen makes it much less toxic to the liver and then also we think that this will be an important treatment option for physicians who treat chronic pain in opioid rotation.
Many times what will happen is that a patient will be on an opioid that they will find pain relief from. Over time that pain relief starts to diminish, physicians start to rotate among opioids. We think this will be an important new addition for physicians in that opioid rotation.
Shortly before our product was approved, the FDA did come out and announce a new Class-wide labeling and post-marketing requirements for all products in the extended-release long-acting opioid class. Zohydro did receive that updated labeling. As you can see here on the left, it's for the management for pain severe enough to require daily, around-the-clock, long-term opioid treatment and for which alternative treatments are inadequate. So we think this is a good addition from the FDA, really bolstering the label requirements for the ER/LA REMS stating the risk associated with these patients.
In addition, we will be part of the FDA's requirements on the post-marketing studies that they are asking all the companies with ER/LA products to participate in. Again there are some timelines and deadlines that the FDA has set out. We will be part of that new working group looking at those longer-term trials for products in this space.
In addition to the ER/LA REMS, we came forward in the process of our NDA submission and talk about some of the other things that we are planning to do to be a responsible commercial party in bringing this product to market. I have just given you an overview here of what those look like. We are calling them voluntary safe use initiates. And they are really encompassing many things that go above and beyond the REMS.
One, we are going to be providing broad education not only for physicians, but also for pharmacists and patients. We are going to be using a company called [Inflexion] (ph) that will help us do some surveillance monitoring looking for issues of misuse or abuse of the product. Our commercial activities are going to be focused on those physicians that currently write extended-release opioids. So not everyone that is currently prescribing pain products but rather those that are focused on treating chronic pain.
We will be having substantial training and certification of our sales force reps and their incentive compensation during the first year of commercial launch is not going to be based on sales targets but rather on those education requirements that we are putting forward. And then lastly, we are providing some mechanisms of safe storage that we are going to make available to patients. Those being locking co-cap [ph] and also drug safe should they want to take advantage of those for safe storage of the product at home.
We are planning to launch the product in March 2014. We are currently expanding our commercial team. We think that this is going to be the best way for us to make sure that there is a responsible launch and commercialization of this product during the first year. The FDA has come out and has stated that they are going to be looking at scheduling changes in the timelines for moving immediate-release hydrocodone to Schedule II, it's currently a Schedule III drug. Moving it to Schedule II would make it more difficult for that product to be written. As those changes are announced and we understand more about the timeline, we might consider a partner for our product because we think it would expand the market opportunity for us. But right now are planning on commercializing the product on our own.
So we are going to be focused on about 17,000 physicians that cover about 60% of the ER opioid market. We are going to be expanding the size of our commercial team, our sales force from about 47 today up to 155. We have received a lot of resumes and a lot of interest. So we are very excited about the quality of the talent that we are recruiting and hiring right now. We also have an existing commercial organization which makes many of the other launch activity pretty smooth. Contracts with all the major payers are ready for existing products, wholesales etcetera. So we are adding some staff to that but all of those activities are well underway and we are currently finalizing our payer research relative to pricing of the product.
We are also developing an abuse deterrent formulation of this product. What we are trying to do is bridge to the existing PK profile of Zohydro ER and also make sure that the drug itself, what we are targeting is that it would not be able to be abused, whether it be through an IV, nasal or oral route. We are currently moving forward with two approaches. One is with Alkermes, our partner, on the approved product Zohydro ER. And then also with a new company that we have recently announced, Altus Technologies. We are going to be advancing both of these products forward and making a determination at probably a year or so out as to which technology we are ultimately going to advance. But we do think there is a potential to get through the FDA process within about three years for an abuse deterrent formulation and we would be introducing that product to the market at that time.
For those of you who may not be as familiar with opioid landscape, I wanted to include this slide to just give you some sense about the current opioids that are on the market today. Those are the drug classes that you see there on the left. And we have given you kind of the sales and scrip count so you can see those. What's notable on this screen is that in the hydrocodone category there is no immediate-release product today and that’s where Zohydro ER fits in. It will be the first extended-release hydrocodone on the market today.
And the immediate-release product, the largest prescription drug in the U.S. is about 126 million scripts written every year. We do think this represents a very attractive commercial opportunity for us. This isn't a peak sales analysis but rather it's an illustrative example of what the math would look like if you wanted to understand what 1% share of the hydrocodone market today would look like. What I have shown here is net revenue per day of about $7.87. We haven't finalized pricing yet but that’s pretty consistent with where OxyContin is priced right now. If you assume that a patient on therapy for 30 days, calculating a monthly scrip amount of $236, and so with that if you were to see the 1% share of the hydrocodone market at that pricing, it would be worth about $300 million to us.
So now shifting gears. Just want to give you a quick, high-level overview of SUMAVEL DosePro, our other product that’s on the market today. Again, this is a subcutaneous injection of sumatriptan for the treatment of migraine headaches. It does utilize our proprietary needle-free drug delivery device. We launched this product in January 2010. Mallinckrodt is currently in the field along with our 47 reps promoting the product. We think this product is very compelling for migraine patients because in our clinical data we showed that 64% of our patients were pain free within two hours of administration. Most migraine products report pain relief in their clinical data not pain freedom, so we think this is a very good piece of data as it relates to the way in which patients can receive relief with our product. And many patients received relief within as little as ten minutes.
This is a history of our scripts since launch that you can see. You will see some flattening over in 2013, I just note for you that we are actually pleased with this. As we received the FDA delay on the PDUFA date for Zohydro, we went into a cash conservation mode with that. We laid off a number of employees. And so our sales team went from about 72 reps down to 47 and so we are still holding those scripts with a significantly smaller team. So we are pleased with these results. Again, you will see as we expand up the team to 155 for Zohydro, those reps will also be working on SUMAVEL DosePro as well. So more changes to come there in 2014.
Just to give you a little bit of an overview of the some of the commercial strategies we have had in place for the product. Two things that I would note for you this week. We just announced that we got a 4-milligram formulation of our products approved by the FDA. We do plan to launch that in 2014. Our current formulation is a 6-milligram. And so one of the things we think this brings to the table is another treatment option for cluster headaches for physicians, because with the lower dose they can administer it more often. Secondly, certain patients who experience triptan effects from the sumatriptan, a lower dose formulation can help for those patients as well.
And then lastly, we are also promoting a product for Valeant called Migranal. And our teams have been promoting that product since late August. We have been really pleased with the results that we have been able to deliver for our partner there.
Moving on to Relday. This is our development stage asset. Again we have completed our Phase I trial. This is a once-a-month subcutaneous injection of risperidone for the treatment of schizophrenia. We think this market is very compelling. What I am showing you here is the U.S. market. The dark blue bars represent the oral forms of the product. The light blue is the injectable forms. You can see that there is growth there in that market. These patients tend to have issues about maintaining oral regimens of their medication and so long-acting injections can be a valuable tool for physicians in the treatment of schizophrenia.
This gives you an overview of what we think this product brings to the market as compared to the other products that are out there today. Therapeutic levels on day one for Relday. Many of the other products require loading doses or it takes two weeks before those reach therapeutic levels, our product reaches that on day one. It's a once-a-month formulation. As I mentioned, no loading dose is required or oral supplementation. It's subcutaneous. We think this is also very helpful for physicians and patients. All the current long-acting injections are intramuscular injections which are delivered with large needles. Ours is going to be a subcutaneous injection and then there is no requirement for reconstitution of the product in the physician office.
This is going to be a 505(b)(2) clinical pathway. Again, we did finish our Phase I trials in 40 patients. We are moving forward with the multi-dose PK and safety trials in the second half of 2014, and that will get us positioned ready to do a Phase III trial. And lastly, just an overview. We also announced that we have extended our marketing relationship with Battelle on our DosePro delivery technology. Battelle is one of the largest private R&D organizations in the U.S. doing a lot of work for pharma and the government. They have been out talking to their clients about the DosePro technology and where it could provide value for them in formulations for their products. And so we are very excited to have extended that relationship to a long-term five-year agreement where they are going to be helping us promote that technology in the market place.
Lastly, just a high-level overview of financials. You can see our last quarter reported, which would have been revenue for SUMAVEL DosePro, $6.9 million. We did take a reserve for return product in the quarter which diminished top line revenues of that product. You can see there that cash flow from operations for the year, about $34 million used in capital. We did just go out and complete a capital raise. Raised about $64 million. You can see that reflected on our cash balance here at slightly above $81 million. And then I have just noted some of the other balance sheet items for you here.
So again in summary. We think it's a compelling company opportunity. Two approved products, with Zohydro about to launch in March of this year. Very interesting asset. And Relday addressing a very large worldwide market. And then lastly a drug delivery technology that we haven't tapped into yet with other parties but we do feel that there is good potential for them in the future. Thank you.
Akiva Felt - Oppenheimer
Great. So we have got time for some questions here. I will start with Zohydro and source of patients. We have got current chronic hydrocodone patients switching and then also patients that are on other extended-release opioids. It's sort of cycling that’s normally done with those patients and would you expect Zohydro to then become part of that cycle?
There is cycling that is done within the extended-release opioid patient population. Physicians will tell you that, again, they will be using the molecule with the patient. Over time they will find the need to move that patient to a different molecule. So we think Zohydro ER is going to be another treatment option for those physicians in that opioid rotation. And one of the great things about it is, physicians know and understand the molecule because hydrocodone has been on the market for so long. So they really get the product in that it's just a safer form of a product that’s already on the market today for those patients who were taking it chronically.
Akiva Felt - Oppenheimer
Okay. And then I was wondering if you could walk us through the initial launch metrics again. In terms of number or reps, physicians that are going to be targeted, and your estimate of the percentage of scripts that are going to be covered by the sales force.
Sure. So we currently have 47 reps. We are in the process of expanding up to 155 on our sales team. Our full commercial team at that point will represent about 190 people. But for sales reps 155 reps. They will be targeting the 60% of ER writers in the U.S. That represents about 17,000 physicians here in the U.S. So again covering about 60% of the scripts written in the ER opioid class with that team of 155.
Akiva Felt - Oppenheimer
Okay. Are there any questions from the audience? Okay. Turning then to some of the pipeline. We know Teva is actively working on a subcutaneous risperidone as well. Just wondering if you had seen interest, or inbound interest from potential partners looking at Relday?
So we have seen inbound interest. As we have talked about before, we had reached out. We are in at partnering discussions. Based on that process and where we were at the completion of Phase I and with the Zohydro approval, we made a decision that we thought it was much better that we go ahead and advance the product into Phase II. We feel that the product profile is very compelling and the potential value creation with a successful Phase II trial, multi-dose trial, we think will only enhance the value for shareholders, and so we are very excited about moving our product forward.
Akiva Felt - Oppenheimer
Okay. Back to Zohydro and the launch. Where do you see, even if it's a range, kind of breakeven point for net sales?
Yes. So we are really not talking about that at this stage. One of the things that we are most focused on commercially is that we have a good launch, and we want to make sure that we are doing that in a commercial and a responsible way. So we are being very focused on watching what prescriptions are coming out of the first quarter from launch. We do feel like that the capital raise that we have just had is adequate capital for us to commercialize the product and move forward the other assets that I have discussed today. But we are not giving kind of cash flow breakeven estimate.
Akiva Felt - Oppenheimer
Okay. Well. Ann, thanks so much for the update and joining us this morning.
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