XenoPort's CEO Discusses Q4 2013 Results - Earnings Call Transcript

Feb.20.14 | About: XenoPort, Inc. (XNPT)

XenoPort, Inc. (NASDAQ:XNPT)

Q4 2013 Earnings Conference Call

February 20, 2014 05:00 PM ET

Executives

Jackie Cossmon - IR

Ron Barrett - CEO

Richard Kim - SVP, Clinical Development and Medical Affairs and CMO

Vince Angotti - EVP and COO

Bill Harris - SVP, Finance and CFO

Analyst

David Friedman - Morgan Stanley

Brian Abrahams - Wells Fargo Securities

Operator

Good afternoon. My name is Sherry and I’ll be your conference operator today. At this time, I’d like to welcome everyone to the XenoPort Fourth Quarter Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers remarks there will be a question-and-answer session. [Operator Instructions] Thank you.

Ms. Cossmon you may begin your conference.

Jackie Cossmon

Thank you Sherry, good afternoon and thank you for joining us on the call. Here with me today are Ron Barrett, our Chief Executive Officer; Vince Angotti, our Chief Operating Officer; Richard Kim, our Chief Medical Officer and Bill Harris, our Chief Financial Officer.

Before we begin our discussion of today’s news, I’d like to note that the information to be discussed on this conference call and webcast, including answers to questions asked during this call will include forward-looking statements that involve risks and uncertainties, including all statements related to our current and future XP23829 clinical development program, plans and future clinical trials and the timing thereof, regulatory actions and submissions and the timing thereof, the future sales of and all commercialization and promotional plans and opportunities for HORIZANT and the timing thereof, financial guidance and the therapeutic and commercial potential of XenoPort's product and product candidates.

XenoPort can give no assurance with respect to these statements and we assume no obligation to update them. For a detailed information about the risks and uncertainties that could cause actual results to differ materially from those implied by or anticipated in these forward-looking statements, please refer to the Risk Factors section of our most recent SEC filings, including our discussion of the inherent risks of commercialization, clinical trials and regulatory matters. In addition, we will be discussing HORIZANT and as such we encourage you to review the HORIZANT package insert which includes safety information that can be found on the FDA website. This webcast is a copyright of XenoPort.

At this time I'd like to turn the presentation over to Ron.

Ron Barrett

Thank you Jackie, and good afternoon and thanks for joining us on the call today. I’ll be making some opening comments. Then I’ll turn it over to Richard Kim who will discuss our progress and future plans for the development of our novel Fumarate product candidate XP 23829 which we will refer to as 829, and then we’ll turn the call over to Vince for an update on HORIZANT. Bill Harris will then provide a review of the Q4 and year-end financial results.

Last year we articulated a two-pronged strategy for increasing shareholder value. The first one was to advance the development of 829. Last year we completed a number of preclinical studies, including 13 retox studies and three phase 1 studies. Our first human trials have established the human metabolism and pharmacokinetics of 829, demonstrated our ability to achieve relevant MMF exposure and the ability to achieve a more extended pharmacokinetic profile with MMF. Finally we demonstrated pharmacodynamic effects on lymphocytes and eosinophil with peripheral blood that were consistent with other fumarate-based drugs, most notably with once-a-day dosing of 829.

Our second objective is to successfully transition into a commercial company and build a value of HORIZANT after the return of the asset midyear. Through our focused commercialization efforts, we made good progress in demonstrating strong physician and patient interest in HORIZANT when they are educated about the product.

Before I turn the call over to Richard let me say a few words of introduction. Richard joined this last July to support the launch of HORIZANT and has been instrumental in building a lean and effective team of medical affairs professionals. Richard is a neurologist and has more than a decade of experience, both in clinical development and medical affairs. His work in industry has been primarily focused on multiple sclerosis.

At Toronto he worked on the development of cladribine. At Biogen he was a Global Medical Director for TYSABRI and played an integral role in successfully introducing the drug after it was taken off of the market. He worked most recently at Elan where he served as Vice President of Clinical Development and head of the multiple sclerosis therapeutic area. We are excited to have Richard take on new responsibilities and act as our key member on our team as we move 829 into planned phase 2 developments.

With that I’ll turn the discussion over to Richard.

Richard Kim

Thank you Ron. It is a pleasure to be here today to discuss our plans for the development of 829, introduced to the program when I was still at Elan, while 829 was still at the preclinical stage. With the more recent phase 1 data showing desired pharmacokinetics and pharmacodynamic effects, I am even more excited about the project and believe we have an opportunity to develop a differentiated product that could help improve the lives of patients. I will briefly walk you through our development plans and pipelines for 829.

We announced in Q4 last year that our next planned study would be a phase 2 trial in psoriasis. Why psoriasis? As you know 829 is a patented fumarate class molecule that has a novel chemical composition. It is a pro-drug of monomethyl fumarate or MMF. 829 shares this MMF pro-drug property with dimethyl fumarate or DMF. DMF is believed to be the primary active component in FUMADERM which has been extensively studied as a psoriasis treatment and has been an approved treatment for psoriasis in Germany for a several decades. Of course DMF is also the compound found in Tecfidera which is approved for treatment of relapsing forms of MS in the U.S.

Many of you know that Phase 2 and 3 clinical trials in psoriasis were conducted with Tecfidera with impressive results. These trials were completed years before the completion of the designed and confirmed multiple sclerosis clinical trials. So from a mechanistic point of view, DMF has already been shown to be safe and effective in both psoriasis and MS. And as we thought about the most efficient means to generate safety, tolerability, efficacy and dose response information that could advance the 829 program for Phase 3 development, psoriasis rose to the top.

The planned Phase 2 psoriasis study is designed to examine three dosing regimens of 829 and placebo over 12 weeks of treatment in approximately 200 North American subjects with moderate to severe choric plaque psoriasis. The planned study will utilize our extended release formulation of 829 which we previously refer to as Formulation 2. This extended release formulation of 829 delivers MMF into the blood for a longer duration of exposure than Tecfidera. The planned study is designed to evaluate once a day and twice a day administration of 829 at doses that produce daily MMF exposures, similar to the approved dose of Tecfidera as well as once a day administration of a lower dose of 829.

The primary endpoint is expected to be the percent reduction from base line in the PASI score. Secondary endpoints are expected to include percent of subjects with reductions of PASI scores of 50%, 75% and 90%, and the percent of subjects that achieve a sPGA score of clear or almost clear. These endpoints are consistent with those of historical psoriasis Phase 3 pivotal trials. Additionally immune cells in peripheral blood will be monitored during dosing and the recovery period.

We plan to submit an IND to the FDA Division of Dermatology and Dental Products by the end of the first quarter, and assuming the FDA clears the IND, we believe we can enroll the first subject by mid-year. Based on historical enrollment rates, we anticipate top line data about 12 to 14 months. We will provide more precise estimates of trial completion once we have experience with enrollment. By conducting this Phase 2 trial, we believe that we can establish the efficacy, safety tolerability and dose response for 829 in this indication. This information can guide the design the design of potential psoriasis Phase 3 studies as well as dose selection for other potential indications such as relapsing forms of MS.

While the planned Phase 2 study is ongoing, we intend to also conduct long term toxicology studies to provide support for initiation of potential Phase 3 trials entailing longer treatment durations. It is noteworthy that for Tecfidera the same doses were explored in separate Phase 2 studies in psoriasis patients and MS patients. The dose response relationship was very similar across these two indications. We therefore believe that the planned Phase 2 study of 829 in psoriasis will be instructive for dose selection for potential Phase 3 development in both psoriasis and MS.

We were encouraged by feedback from the FDA Division of Neurology Products. We believe that the FDA would allow us to initiate potential Phase 3 clinical development using 829 doses that produce MMF exposure similar to that produced by the approved dose of Tecfidera. We believe that this pharmacokinetic dose justification, combined with the dose response results of the planned Phase 2 psoriasis study could position us to choose doses for potential Phase 3 clinical trials in MS.

Finally, for those of you attending the AAN Meeting at the end of April, we will have two posters covering the pharmacokinetics and pharmacodynamic effects of 829 from our Phase 1 multiple ascending dose study. In addition, we will also have a number of presentations related to HORIZANT at the meeting. I hope that I have the opportunity to meet some of you at that event.

And with that I will turn the call over to Vince.

Vince Angotti

Thank you, Richard. As you know from our press release of early January, we’ve been tracking a number of metrics to assess our progress in the commercialization of HORIZANT. The fourth quarter represents only our second full quarter of HORIZANT commercialization as we began our promotional efforts on June 1, 2013. As a reminder our targeted promotional efforts are currently only focused on physician specialists, who represent a small portion of the potential business for HORIZANT.

Our goal to date has been to confirm our belief that HORIZANT serves an unmet medical need and that is a promotionally responsive product. We’re evaluating the effectiveness of our near-term promotional efforts using a number of measures and believe that there is a good, albeit early indication that we’re seeing positive results from those efforts. As an example, the nationwide HORIZANT prescriptions and prescribed pill count for the fourth quarter ended December 31, 2013 increased by 23% and 27% respectively over the third quarter of 2013.

Now in the territories where XenoPort is promoting HORIZANT, total prescriptions and prescribed pills for the fourth quarter ended December 31, 2013 increased by 32% and 39% respectively over the third quarter of 2013 versus essentially no growth in non-promoted territories. Filing [ph] for the fourth quarter ended December 31, 2013 grew approximately 1,160 first time HORIZANT prescribers since the original launch.

And while we’re pleased with these early indicators of HORIZANT's acceptance, we're also cognizant of the fact that the general awareness of HORIZANT is low in the consumer and managed markets environments that we’re not currently reaching. So specifically for the consumer, as we mentioned in January, in October, 2013 we initiated our digital direct-to-consumer or DTC program, that is focused on restless leg syndrome or RLS information seekers who are located within the geographies where XenoPort is promoting HORIZANT.

This campaign resulted in over 0.5 million website used in the fourth quarter of 2013 alone which was an increase of more than 20 fold compared to the third quarter of 2013. This encouraging response continues to build in 2014, indicating that the need for information about RLS remains and that there is a continued interest in HORIZANT. We’ll continue to monitor the impact of this initiative moving forward.

In the fourth quarter, we also began our engagement with select managed care plans to ensure [indiscernible] had a high penetration in our territories. The feedback that we received again illustrates that there was a very little awareness of HORIZANT and its profile among those healthcare providers. With that said, in general summary of our managed care access is as follows; since XenoPort’s launch, the method of payment for HORIZANT has been consistent, with approximately 70% of HORIZANT prescriptions from commercially insured patients and approximately 23% of HORIZANT prescriptions for Medicare Part D patients. The remaining HORIZANT prescriptions were from cash, Medicaid and other forms of reimbursement.

Nationally, about 67% of commercially ensured patients have unrestricted access to HORIZANT, with approximately 75% of HORIZANT prescriptions written for commercially insured patients being successfully filled in the fourth quarter. About 9% of Medicare Part D cover patients had unrestricted access to HORIZANT nationally with approximately 62% of HORIZANT’s prescriptions written for Medicare Part D patients being successfully filled in the fourth quarter.

Our objective for 2014 is to grow HORIZANT sales through our continued targeted promotional efforts, expand unrestricted managed care access in particular in Medicare Part D and continue to manage our costs. While we believe we’re making good progress and just beginning to see the benefits of our investment, we’ll continue to closely monitor our progress towards these objectives.

With that I’ll turn it over to Bill.

Bill Harris

Thanks Vince. I’ll spend a few minutes reviewing our financial results for the fourth quarter of 2013, provide a brief overview of our future expectations for the business and we will then take your questions. Revenues for the fourth quarter were $2.9 million, compared to $0.5 million for the same period in 2012. The increase in revenues in the fourth quarter of 2013 was principally due to the HORIZANT net sales of $2.7 million.

Research and development expenses decreased in the fourth quarter of 2013 to $3.7 million compared to $10.6 million for the same period in 2012, primarily reflecting decreased net cost for AP, decreased personnel cost and decreased net cost for 829.

Selling general and administrative expenses were $17.6 million for the fourth quarter, compared to $7.4 million for the same period in 2012. This increase was principally due to the cost related to the commercialization and promotion of HORIZANT, which includes increased professional fees, marketing cost and personnel costs.

Net loss for the fourth quarter of 2013 was $19.1 million compared to net income of $3 million for the same period in 2012 during which we recognized a one-time non-cash gain on litigation settlement. Basic and diluted net loss per share was $0.40 for the fourth quarter of 2013, compared to basic and diluted net income per share of $0.07 for the same period in 2012.

In terms of cash, I’ll remind you that our cash burn guidance for 2013 was in the range of $85 million to $95 million. I'm pleased to report the actual cash burn was approximately $80 million for the year, reflecting our ongoing efforts to operate our business more efficiently. Accordingly we ended 2013 with cash, cash equivalents and short term investments of $58.7 million and in January we completed a follow-on public offering raising net proceeds of approximately $67.3 million. Finally, turning to the matter of cash flow and guidance for 2014, we expect that the net use of cash for 2014 will be in the range of $60 million $70 million

With that, we’ll open the call to questions, operator?

Question-and-Answer Session

Operator

[Operator Instructions] And you first question comes from the line of David Friedman from Morgan Stanley.

David Friedman - Morgan Stanley

I just wanted clarify little bit; in terms of the formulation that you’re going forward with in the Phase II psoriasis trial, is this the one that has a lower Cmax but the roughly similar AUC and if that is the case, with your discussions with the FDA around going into Phase 3, 4 MS without a Phase 2, was this formulation the one that was sort of deemed to be similar and if all of what I’ve said is true, does that mean that a 505(b)(2) is possible or not possible given the Cmax differences? Thanks.

Ron Barrett

So, there is quite a lot of embedded questions there. So let me see if I can take them one at a time. So, yes, we are using the formulation two in the psoriasis study. This formulation does have a lower Cmax and approximately the same AUC as Tecfidera and an equivalent normal dose. The question of 505(b)(2) that we placed in front of the FDA, we really asked two questions about both formulations. Obviously the formulation one mimics Tecfidera both in Cmax and AUC pretty closely. So the questions there were more related to could we use a pharmacokinetic argument only as the basis of the 505(b)(2) indication. They didn’t close the door to that. They simply said that more information was required.

With regard to the second formation, typically when you have -- a product has different pharmacokinetic profile and you’re refereeing to the reference listed drug as would be the case for formulation two versus Tecfidera, you would have to do at least one study, clinical study, to show that that change in pharmacokinetic profile does not result in a change in the safety or efficacy. And so that one we asked the FDA whether a single trial would be sufficient and again they simply said that there wasn’t enough information at the current time. We like the formulation two because it is different from Tecfidera. We did show in that Phase I that once a day dosing of that formulation did have the desired pharmacodynamic effects with once a day dosing and so that’s why we’ve chosen that one to move forward with/

Operator

Your next question comes from the line of Brian Abrahams from Wells Fargo Securities.

Brian Abrahams - Wells Fargo Securities

Now that you’ve laid out the trial design in psoriasis more specifically, can you maybe talk a little bit about where psoriasis might fit into your future strategy, because what you’re looking for in these results, what the bar is for and what would push you to move forward in psoriasis, versus MS, versus exploring both in Phase 3?

Ron Barrett

Okay, well our objectives for the psoriasis study are obviously the typical safety and tolerability of the compound. We also want to know with regard to particularly lymphocytes what the time course of the lymphocyte reduction looks like and how it recovers after the dosing is done at the end the study when we look at the recovery period.

But the major objective of the study is understand the dose response. While it’s still very early and the results were preliminary, our Phase I data would suggest that maybe is some subtle differences in the concourse of the lymphocyte reduction. So does that result in either earlier onset of efficacy or a greater level of that efficacy, we want to understand the dose response. It’s not unreasonable to think that we may actually be able to have an effect similar to Tecfidera or Fumaderm with a lower dose if we have this impact on lymphocytes and that’s a major of the effect in psoriasis.

Now, in terms of what we want to see out of the study, obviously statistically significantly improvement in the PASI score versus placebo, we’d like to understand whether once a day versus twice a day, whether once day provides similar or maybe even better efficacy and as I mentioned earlier, we’d like to know whether a lower dose can provide that same level of efficacy.

If you look at the Tecfidera, psoriasis studies, the phase 2 and phase 3 studies, the PASI-75 responder rate in those studies was in the high 30s, low 40s in terms of percentage. We'd like to see something similar to that but I will remind you that this is a 12 week study and there is at least some suggested in the literature that more extended duration beyond 12 weeks may continue to generate more efficacy. So I wouldn’t say that this study is going to be the definitive answer in terms of the magnitude of the efficacy but it will clearly give us an indication of which doses and dosing regimen makes senses to move forward. Go ahead.

Brian Abrahams - Wells Fargo Securities

I was just going to follow-up in terms of how you think about translating from dosing in psoriasis to optimal dosing in MS? You mentioned the greater lymphocyte effects that could enable better efficacy in psoriasis at lower doses, doing lymphocyte changes and efficacy in MS to enable you to translate well in terms of determining what will be phase 3 dose in MS based on psoriasis study?

Ron Barrett

I think as Richard indicated, there was the same doses tested in both psoriasis and in a six month MRI study in MS and the results were very similar in terms of the dose response. I think you are asking higher level question is where in the case of psoriasis there is a fair amount of evidence that there is a relationship between lymphocyte reduction and efficacy in terms of reducing psoriatic regions, the evidence in MS is maybe not as strong, maybe because there haven’t been as many studies and no one has really carefully looked at it.

I think you are aware that this is a question that the FDA was interested in, in the Tecfidera review and there is actually a subgroup analysis that looks at patients who had lymphocyte reduction at least one visit below the limit of normal compared to those do not and there was a strong trend to indicate that those that had the lymphocyte reduction had improved annualized relapse where that population had an improvement in annualized relapse rate. But agree that the evidence for the relationship between lymphocytes and relapse prevention is not as strong as it is in psoriasis.

Operator

And there are no further questions at this time.

Ron Barrett

Okay. Well, thank you for participating on today’s conference call. We will be participating at several healthcare conferences in the next few weeks and hope to meet some of you there. If you have any further questions, please don’t hesitate to contact Jackie at 408-616-7220. Have a great day. Thank you.

Operator

This does conclude today’s conference call. You may now disconnect.

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