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Furiex Pharmaceuticals, Inc. (NASDAQ:FURX)

Q4 2013 Earnings Conference Call

March 12, 2014 9:00 AM ET

Executives

Sailash Patel – CFO

June Almenoff – President and Chief Medical Officer

Fred Eshelman – Chairman

Analysts

Edward Nash – Cowen & Company

Matthew Kaplan – Ladenburg Thalmann & Co.

Operator

Good day, ladies and gentlemen, and thank you for standing by and welcome to the Furiex Pharmaceuticals Fourth Quarter 2013 Earnings Release and Conference Call. (Operator Instructions). As a reminder this call is being recorded. I would now like to turn the conference over to your host, Mr. Sailash Patel, Chief Financial Officer. Sir, please go ahead.

Sailash Patel

Thank you, operator. Good morning and thank you to everyone joining the call today.

Before I turn the call over to June I would like to remind everyone that our comments today include forward-looking statements. All statements other than statements of historical facts are forward-looking statements, including any statements concerning revenue and financing expectations, proposed financing of existing projects, research and development and clinical development plans and timelines, regulatory approval timelines, proposed licensing or collaborative opportunities or agreements and any statement of assumptions underlying any of the foregoing.

Actual results could differ materially from those projected or assumed in the forward-looking statements. Our future financial conditions and results of operations, as well as any forward-looking statements, are subject to inherent risks and uncertainties, including the risk factors described in our annual report on Form 10-K and other SEC filings, copies of which are available from our Investor desk and on our website, www.furiex.com.

I will now turn the call over to June Almenoff, our President and Chief Medical Officer.

June Almenoff

Good morning and welcome to the call. I will open the call with updates on our business; this will be followed by Sailash Patel, who will provide the financial update, followed then by Fred Eshelman, our Chairman who will wrap up.

I’ll start with eluxadoline, as you know we released top line data on February 4, 2014 and have continued to analyze the data set in detail. We submitted an abstract of key results to Digestive Disease week and if accepted one of our clinical investigators will present additional information from the Phase III trials. For this reason will provide limited updates on today’s call. When we presented our top line results in early February we focused on the composite primary endpoint which is the key endpoint for potential approval of the product.

Now as you know those pivotal studies reached significance for both FDA 12-week endpoint as well as the EMA 26-week endpoint. This composite endpoint measured simultaneous improvement in pain, specifically 30% improvement in worst abdominal pain over baseline average and stool consistency, specifically a Bristol stool score of less than five, on a daily basis. And those individuals who meet these criteria for more 50% of the days they were in the study met the protocol definition of a responder.

In our press release and Investor call on February 4 we shared results of this primary composite as well as a secondary analysis of the individual pain and stool consistency components of the composite. And you may recall you eluxadoline showed strong statistical significance on the secondary endpoint of stool consistency but a numeric increase in the secondary endpoint of 30% improvement in worst abdominal team responder rate.

Today I would like to discuss several additional pre-specified secondary analyses of pains to complement the aforementioned analysis of 30% improvement in abdominal pain. The following full responder analyses were requested by FDA to be part of our statistical analysis plan and there are also specified in the 2012 FDA guidance. These analyses assess worst abdominal pain where pain responder definition was 40% or greater improvement over baseline average and also 50% improvement or greater over baseline average for more than 50% of days a patient was in the study.

Statistical analyses were performed using the giving the Cochran-Mantel-Haenszel approach as with the primary endpoint. And these data are pre-specified pooled analyses of the two Phase III studies where p values of less than 0.05 are considered significant. First, looking at the pain responder definitions requiring a 40% or greater improvement over base line average, response rate were 35.8% for placebo, 40.1% for 75 mg that has a p of 0.078 and 43.2% for 100 mg and that has a p of 0.003.

Next, using the pain responder definition requiring a 50% or greater improvement in pain over baseline average, the pain responder rates were 30% for placebo, 34.7% for 75 mg or p equals to 0.047 and 36.0% for 100 mg where p equals 0.011.

To address potential limitations associated with this type of binary responder analysis we also did two [prospectively] planned ITT analyses on the worst abdominal pain scores themselves. First we looked at change in baseline pain scores using an analysis of covariance methodology for the pooled Phase III results. These analyses showed significant difference between 100 mgs in placebo at week 12 with a trend toward significance at 75 mgs. At week 26 eluxadoline demonstrated significant differences from placebo with both the 100 mg and 75 mg doses.

Additionally we did longitudinal regression analysis looking at daily pain scores for each individual pivotal study. For each study the analysis showed significant differences at week 12, for 100 mg eluxadoline versus placebo as well as a trend for 75 mg versus placebo.

At week 26 each study showed significant differences for 100 mgs eluxadoline versus placebo. And also at week 26 for 75 mgs it was a significant difference versus placebo for study 3001 with a trend in study 3002. So taken together our data showed that patients treated with eluxadoline demonstrate improvement versus placebo in various secondary endpoints including pain alone.

It’s important to emphasize however that it’s that primary endpoint for which eluxadoline demonstrates simultaneous improvement in both pain and stool consistency which is most important from a regulatory as well as clinical perspective. We have also analyzed other pre-specified secondary endpoints for stool frequency, urgency as well as several global assessments of patient symptoms. We plan to present this information at DDW if our abstract accepted or via another publication forum.

Some additional eluxadoline updates. Last quarter we announced the results of nasal insufflation study which showed low potential abuse liability – low potential for abuse liability. These results were published in an abstract and poster at the December ACNP meeting.

We recently completed our second of two Phase I abuse liability studies. This study assessed the potential for oral abuse in recreational drug uses using single doses of 100 mg as well as 300 mg, that’s three tablets or a 1,000 mgs, that’s 10 tablets. Top line results indicate that as with the nasal study there is low potential for abuse liability with the oral route.

Also as part of our Phase III study protocol we included a standardized assessment for withdrawal symptoms for the IBS-d patients completing or terminating treatment. This assessment, which is called the subjective opioid withdrawal scale, SOWS showed no clinical or statistical evidence of withdrawal. This is an important negative finding which suggests that eluxadoline does not cause physical dependence.

We have now completed our abuse liability work which consists of clinical, preclinical and temperability, extractability study. Taken together the data suggests low potential for IV abuse due to low solubility and extractability, also oral abuse based on [low bio] availability which is further supported by our clinical data. FDA has agreed with this assessment in their correspondence with us. Further our nasal insufflation study in recreational drug users shows low potential for abuse via snorting and in fact subjects disliked the experience of snorting eluxadoline compared to placebo or oxycontin.

Finally eluxadoline is not extractable in readily accessible solvent and any attempt to isolate the active ingredients under more extreme conditions involving hydrochloric acid with vacuum drying attempt results in an impure product that’s difficult to manipulate. Finally eluxadoline is – decomposes with heating and is therefore not amenable to smoking. So tying this all together the totality of the data suggests that even though eluxadoline is an opiate modulator it has very low potential for abuse.

Finally we received favorable feedback from FDA on our chemistry manufacturing controls or CMC pre-NDA package. All aspects of the CMC program remain on track. I’d like to congratulate and thank the team for tremendous execution on the eluxadoline program. We remain on schedule with an NDA submission that we plan for the end of Q2, 2014 with potential approval in the first half of 2015.

I’ll now provide some brief updates on our marketed portfolio. Takeda has recently launched Alogliptin for Type 2 diabetes in United Kingdom, China, Switzerland, Denmark and Australia and is pursuing other global approvals and launches. Last week Takeda announced that they have submitted a new drug application to the Japanese Ministry of Health, Labor and Welfare for Trelagliptin.

Trelagliptin is a DPP-4 inhibitor being studied in Japan for Type 2 diabetes using a once weekly dosing schedule. Takeda has indicated that Trelagliptin controls blood glucose levels effectively when dosed once weekly which they expect will contribute to improved patient adherence. If Trelagliptin is approved and marketed in Japan we would become eligible for royalties as-well-as sales-based milestones. The transition of Priligy to Menarini is nearly complete. Menarini launched Priligy in the UK in Q4 resulting in a $5 million milestone to us and they also launched Priligy in China in Q4.

This concludes our business updates. I’ll now turn the call over to Sailash Patel for the financial update.

Sailash Patel

Thank you, June. In my comments today I am going to focus on the results for the fourth quarter. Full year details can be found in the press release we issued this morning.

Revenues for the quarter were the $13.1 million compared to $9.2 million in the prior year. Milestone revenue in the quarter was $5 million, which we received from Menarini related to Priligy launch in the UK in October. For the full year 2013 Furiex recorded $45 million in milestone revenue as the company continued to execute on its business objectives. Specifically during the year payments were received for the FDA and the EMA approvals of three new Alogliptin-related products from Takeda and for the launch of Priligy in France and the UK for Menarini.

Furiex recorded fourth quarter royalty revenues of $8.1 million compared to $9.2 million for the same period in the prior year. The decrease in year-over-year royalties for the quarter was driven by transaction economics that added incrementally to recorded royalties during the transition period related to the 2012 reacquisition of Priligy and the negative impact of the yen-dollar exchange rate on Nesina royalty.

Sequentially royalty revenue increased $2.6 million or 47% in the quarter. As a reminder to investors we received royalty revenue from the sale of Nesina and LIOVEL in Japan. Nesina, Oseni and Kazano in the U.S and Priligy in multiple countries around the world.

Regarding Nesina and its related products specifically, Takeda reported during its latest financial results update that Nesina sales grew 20.9% year-over-year on a yen basis in the three months period ended December 31, 2013. Management continued to emphasis that diabetes is an important therapeutic area to the company and that the Nesina-Alogliptin franchise remains in-line with their plans in the U.S. Globally the macro trends continue to point to a growing diabetes market.

Moving to Priligy, the product is now almost fully under the control of Menarini who continues the process of launching or re-launching the product for future sales. We remain optimistic regarding the potential for future royalties as Menarini works to increase sales for the product. Menarini is committed to men’s health and is putting significant resources into marketing and prescriber communications.

Now moving to operating expenses, R&D expenses for the quarter including $0.4 million in stock compensation expense, totaled $15.4 million compared to $14.6 million in the prior year. The slight increase in R&D expense was due predominantly to increased Phase III costs associated with the development of eluxadoline.

Fourth quarter SG&A expenses were $2.4 million including $0.9 million in stock compensation expense, relatively in-line with the $2.5 million of SG&A expense for the fourth quarter of 2012. Interest expense was $1.7 million for the quarter ended December 31, 2013 compared to $1.1 million for the same period in the prior year.

Net loss was $6.5 million for the fourth quarter of 2013 compared to $9.1 million for the fourth quarter of 2012. Net loss per share for the fourth quarter of 2013 was $0.63 compared to $0.90 for the fourth quarter of 2012.

In terms of the balance sheet as of December 31, 2013 we had cash and cash equivalents of $29.2 million compared to $25.7 million as of December 31, 2012.

Moving to financial guidance for 2014, while we are not providing specific royalty revenue guidance, we do expect royalty revenue in total to increase in 2014 year-over-year. Total R&D spending in 2014 is expected to be between $35 million and $40 million. This number includes Phase III and manufacturing cost, preparatory work in anticipation of an NDA submission and a $10 million regulatory milestone payment that will be owed to Janssen upon FDA acceptance of an NDA filing for eluxadoline.

We believe our existing cash and anticipated revenue from our collaborators for marketed products will be sufficient to fund operations and debt service obligations into the fourth quarter. Any additional capital that we may require beyond that point will largely depend on the timing, scope and terms of the commercial partnership and the level of commercial preparations we elect to perform for eluxadoline.

To address our capital needs we may consider a range of possible transactions that include corporate collaborations, debt, equity or other financing alternatives.

This concludes my remarks and I’ll now turn the call over to Fred Eshelman.

Fred Eshelman

Thank you, Sailash. We are certainly pleased with how things are going and the overall direction of the company.

Just to review the high points Japanese sales of the Nesina franchise grew almost 21% year-over-year and U.S sales remain in line with Takeda’s plan. The Japanese NDA has been submitted for the once weekly DPP-4 antagonist, Trelagliptin with a Q1, Q2, 2015 approval anticipated.

Menarini continues with launches and re-launches of Priligy and they continue to invest in marketing and prescriber communications. Recall also that we have JNJ-Q2 the Phase III ready antibiotic for skin and skin structure infections as-well-as community acquired bacterial pneumonia. We remain on track for submission of eluxadoline NDA by the ended of Q2, 2014. Continued assessment of the results of the Phase III trials has shown statistically significant improvement in secondary endpoints such as pain and adequate relief.

Thank you and now I’ll turn this back to Dr. Almenoff

June Almenoff

Yes. Operator I would like to open the lines for Q&A.

Question-and-Answer Session

Operator

Thank you. Dr. Almenoff. (Operator Instructions). It looks like our first phone question will come from the line of Edward Nash with Cowen and Company. Please go ahead. Your line is open.

Edward Nash – Cowen & Company

Great, thanks very much for taking my question. So want to maybe find out a little bit about – first of all June, will we be getting pretty much the entire dataset with regard to efficacy and safety at DDW?

June Almenoff

Well obviously the dataset is quite large that we will certainly attempt to get as much as we can get out there in the timeframe we have for presentation though, absolutely.

Edward Nash – Cowen & Company

Okay, thanks, and then just one thing I just wanted to ask with regard to just what the – commercial opportunity here obviously is a very large one. And just now know from the cash position that you guys would consider doing whatever you have to do on top of what you normally need now operationally for funding in order to may be with a partner, if there is partnership in place or whatever may be to try to get this still in the market.

But is there still a very serious consideration of wanting to market this yourself or – because it just seems like from the primary care standpoint alone that would be just a bit – a lot to buy off as opposed to just taking the specialty physicians alone. So maybe if you could just talk a little bit about that and just relay if you are weighted more towards the partnership than taking things on alone?

Fred Eshelman

Yeah thank you we continue to evaluate all strategic options that might be available for the company, that being one. We have modeled a number of things as you might expect and it is our belief that if we did decide to launch this drug on our own we could do that with the GI Specialty force.

We have quantitated that in terms of the cost, the number of detailings and so forth and so on. And whether or not subsequently one would need a primary care sales force is kind of a different issue but we certainly believe that the spread over the primary care so to speak would be begin with GIs and GI KOLs for a couple of reasons one of which would be, it gets in use, it gets accepted, the second one would be if the patients go back to the primary care providers from the GI docs they would probably return with a prescription increasing the probability of refills written by the primary care doc.

So again in summary we believe that the drug could be launched through the GI specialty sales force.

Edward Nash – Cowen & Company

Great that’s very helpful. Thanks so much.

Operator

Thank you, sir. (Operator Instructions) Our next phone question will come from the line of Matt Kaplan with Ladenburg Thalmann. Please go ahead. Your line is open.

Matthew Kaplan – Ladenburg Thalmann & Co.

Hey guys, good morning. Thank you for taking my question. Can you hear me?

June Almenoff

Yes.

Matthew Kaplan – Ladenburg Thalmann & Co.

Great, thank you. First off, just want to follow up on a little more of the detail that you provided with respect to pain, the pain endpoints in Phase III and will these be – in terms of the pain endpoints, will these be part of the product label in terms of being able to incorporate that and actually it seems like you reached statistical significance on a number of the secondary endpoints in terms of 40% and 50%. Will that be part of the product labels going forward you think?

June Almenoff

Well that’s a great question. We think it will be a review issue obviously. Certainly these were all pre-specified endpoints and as I mentioned the FDA in their guidance does comment that they are not certain that the 30% improvement in pain is exactly the right place and that’s why they wanted the 40% and 50% because there is not a huge amount of experience with this particular endpoint in this population.

Matthew Kaplan – Ladenburg Thalmann & Co.

I guess those would’ve been more, I guess clinically it would be more clinically meaningful anyway in terms of the 40% or 50% reduction right?

June Almenoff

Absolutely.

Matthew Kaplan – Ladenburg Thalmann & Co.

And just you gave us also details in terms of some of the other aspects – preparation for the NDA in terms of the abuse liability studies and – that you’ve conducted, what else do you need to complete before the end of the second quarter to be able to facilitate your NDA submission in terms of CMC and other aspects of the filing, can you give us some detail there?

June Almenoff

Everything is completely on track and the only thing that remains is completing the submission process.

Fred Eshelman

Well we’ve got some CMC stuff that is still in process but all of that as June indicates is on track for the Q2, 2014 submission, all of that pre-clinical animal studies have been completed and reported.

Matthew Kaplan – Ladenburg Thalmann & Co.

Okay, great. So it’s more along the stability aspect of the product, is that fair to say?

Fred Eshelman

Yes, validation all the kinds of things that would go into a package.

Matthew Kaplan – Ladenburg Thalmann & Co.

Great, thanks. And then just a follow-up on Ed Nash’s question, in terms of if you go it alone and decide to commercialize the products yourself, can you give us a little bit more detail in terms of what that specialty sales force, how it would be comprised or what the composition will look like and to give us a sense of the cost of something like that to do it yourself.

Fred Eshelman

I don’t think we commented specifically on exactly how much we think it would cost, that would depend a lot of things. In terms of all the details around that I think we probably leave that for the Chief Commercial Officer, should we have one because we would certainly want to get a lot of experience and expertise involved in structuring, planning, positioning reimbursement strategy all of the kinds of things that would go into that.

So while we’re certainly thinking about it, planning and taking high level views of it I really don’t have any granularity for you today.

Matthew Kaplan – Ladenburg Thalmann & Co.

Okay, fair enough. And just one other question with respect to that, it seems other companies sign deals, in terms of commercialization deal where the company would focus on specialty call and then have a partnership for the - more for the GP aspect of that, is that something you are considering as well?

Fred Eshelman

I don’t think we’ve ruled anything off the table, no, anything that makes sense would be considered by our Board and that possibly could be one of those.

Matthew Kaplan – Ladenburg Thalmann & Co.

Great. And I guess to change the topic a little bit, one question in terms of your partnership with Takeda and I guess the recent filing NDA filing in Japan what do we know about in terms of Trelagliptin, in terms of the strategy for the rest of the world outside of Japan for the once a week product.

June Almenoff

Well thus far it is a Japan only opportunity as Takeda has been developing it. They did their Phase III trial in Japan. Part of and this is my take on it, part of this has to do with the fact that metformin which is a daily drug is generally used all over the world as first line or in combination with other agents but that’s apparently not the treatment paradigm in Japan. So this is a region and medical paradigm where something like that could fit.

Matthew Kaplan – Ladenburg Thalmann & Co.

Okay, very good.

Sailash Patel

If I can chime in, this is Sailash, I think initially Takeda is pursuing a Japan only opportunity but I don’t think they have ruled anything out in terms of what else they could follow that up with.

Matthew Kaplan – Ladenburg Thalmann & Co.

Great, well thanks again and congrats on the great progress and look forward to seeing the data at DDW.

June Almenoff

Great.

Operator

Thank you sir. (Operator Instructions). Presenters at this time I am currently showing no additional phone line questions at this time. I would like to turn the program over to management for any additional or closing remarks.

June Almenoff

We would like to thank everyone for joining the call today and for your interest and your support for Furiex. We look forward to speaking with you on our next quarter conference call and I will now turn the call back to the operator.

Operator

Thank you, doctor. Ladies and gentlemen, this does conclude today’s call. Thank you for your participation and have a wonderful day. Attendees you may log off at this time.

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