Alexza Pharmaceuticals, Inc. (NASDAQ:ALXA)
Q1 2014 Results Earnings Conference Call
May 05, 2014 05:00 PM ET
Mark Oki - SVP Finance and CFO
Tom King - President and CEO
Charles Duncan - Piper Jaffray
Good afternoon, everyone, and welcome to the Alexza Pharmaceuticals 2014 First Quarter Financial Results and Corporate Update Conference Call. At this time, all participants are in a listen-only mode for the conference call. (Operator Instructions). This conference call is also being recorded, and if you have any objections, you may disconnect at this time.
I would now like to turn today's call over to Mr. Mark Oki, Senior Vice President Finance and Chief Financial Officer at Alexza. Mr. Oki, you may begin.
Good afternoon, and thank you for joining us. On the phone with me is Tom King, Alexza's President and Chief Executive Officer.
Today, we will review the company's financial results for the first quarter of 2014 and discuss Alexza's recent accomplishments and ongoing activities. At the end of the call, we will open the lines for your questions.
I would like to remind you that the matters discussed on this call contain forward-looking statements that involve risks and uncertainties, including our ability, along with our partners, Teva and Ferrer, to commercialize products; the timing of the commercialization of products; our projected revenue and expenses; and our ability to support operations based on available cash resources.
Actual results may differ materially from the results predicted and recorded results should not be considered an indication of future performance. These and other risk factors are more fully discussed in our quarterly report on Form 10-Q that we filed earlier today with the SEC, most particularly under the caption Risk Factors. Alexza disclaims any obligation to update or revise any forward-looking statement made on this call as a result of new information or future development.
As a reminder, our policy is to only provide guidance on products, product candidates and corporate goals for the next 1 to 2 fiscal quarters, and to provide, update or reconfirm our guidance only by issuing a press release or filing updated guidance with the SEC in a publicly accessible document.
Clinical and corporate milestone guidance is as of today, May 5, 2014. Financial guidance relating to our current cash, cash equivalents, marketable securities, restricted cash and other possible sources of capital, is based upon balances as of March 31, 2014.
With that, I would now like to summarize the financial information for the 2014 first quarter. In the first quarter of 2014, we recorded revenue of $2.2 million compared to $0.7 million in the first quarter of 2013. Our 2014 revenue include the $1 million milestone payment from Ferrer for the first commercial sale in Spain $0.7 million of amortization of the upfront payments from the Ferrer agreement and $0.4 million of product revenue for commercial units shipped to and accepted by Teva and Ferrer. Revenue in 2013 consisted solely of amortization of upfront payment earned under our Ferrer agreement.
GAAP operating expenses were $11 million and $10.3 million in the first quarter of 2014 and 2013 respectively. During the second quarter of 2013 concurrent with the initiation of ADASUVE commercial manufacturing, we began to classify certain manufacturing, supply chain and quality expenses as cost of goods sold. Prior to this time, we have classified these costs as research and development expenses.
The $3.8 million recognized as cost of goods sold in the first quarter of 2014 consists primarily of manufacturing variances as a result of the low initial volumes produced compared to the projected standard capacity of our GMP facility.
Research and development expenses were $3.1 million $6.2 million in the first quarter of 2014 and 2013 respectively. As I outlined beginning in the second quarter of 2013, research and development expenses were impacted by the classification of certain expenses as cost of goods sold. So a majority of our first quarter decrease is a result of this reclassification.
For 2014, our research and development efforts are focused on meeting our ADASUVE post approval commitments including clinical trials, pushing forward with the clinical developments of AZ-002 and identifying and developing additional product candidates for our product development pipeline.
Research and -- general and administrative expenses remained consistent at $4 and $4.1 million in the first quarter of 2014 and 2013, respectively. During the first quarter of 2014, we drew down an additional $5 million under the Teva Note. We also entered into a royalty securitization financing. We generated net cash proceeds of approximately $41 million before the establishment of an interest reserve account.
This forward-looking securitization financing consisted of a private placement to qualified investors of $45 million of non-recourse notes and five year warrants to purchase 345,661 shares of our common stock at a price of $0.01 per share. The notes bear interest at 12.25% per annum payable quarterly beginning June 15, 2014.
All royalty and milestone payments under the Teva agreement after paying interest, administrative fees, and any applicable taxes will be applied to the principal until the notes have been paid in full.
From the proceeds in the transaction, a $6.9 million interest reserve account was established to cover any potential shortfall in interest payments during the early product the update of the ADASUVE launch. Any remaining amount in the interest reserve account will be released to us on December 15, 2015 and possibly as early as June 15, 2015, subject to a meeting certain ADASUVE net sales targets, which were established by the new investors.
The notes are secured only by the right to receive U.S. royalty and milestone payment and have no other resource to us. We ended the quarter with cash, cash equivalents, marketable securities and restricted cash of the $60 million. Consistent with previous guidance, we believe we have sufficient capital resources to meet our anticipated cash needs for at least the next 12 months. This guidance is based on our cash, cash equivalents, marketable securities and restricted cash balances at March 31, 2014, as well as estimated product revenues and milestones associated with the sale of ADASUVE, in the U.S. and EU, remaining available proceeds from the Teva Note and the expected cash usage, as always, changing circumstances may cause us to use capital at a faster or slower rate than currently anticipated or to alter our operation.
I will now turn the call over to Tom for review of Alexza’s accomplishments and the business update.
Thank you, Mark for those comments and for the summary of our first quarter financial results. Good afternoon, everyone and thanks to all of you for joining our conference call today.
We started 2014 with an impressive set of accomplishments. The global launch of ADASUVE continues. We also significantly strengthened both our balance sheet and our management team.
I’d like to summarize our 2014 accomplishments today. During the first quarter of 2014 we and our partners Teva and Ferrer continued to build on the momentum generated over the last 18 months. Ferrer launched ADASUVE in Spain in July, Romania in March and the Nordic countries in April.
As a reminder, Ferrer is selling the product directly in Spain and is commercializing ADASUVE in Romania through a distribution agreement with Galenica SA and in the Nordic countries which include Sweden, Norway, Denmark and Finland through a distribution agreement with Medivir AB.
In three quarters, Ferrer has launched ADASUVE in eight countries in U.S. We expect them to continue the country-by-country product launch through 2014 and into 2015. In March, Teva announced the commercial launch of ADASUVE loxapine inhalation powder 10 mg in the United States. During the first quarter, we shipped a total of 28,221 total units to our partners including 18,788 units to Teva and 9,433 units to Ferrer.
This is an increase from the 21,170 units we shipped in the fourth quarter of last year. It is obviously early in the global launch of ADASUVE, but we are pleased with the shipment and the increases we are seeing in the quarterly shipment numbers.
We’ve rendered out our executive team with the addition of Rob Lippe and our newly created position of executive VP of Operations and Chief Operations Officer and Winston Brown as our Vice President of Quality.
As Mark reviewed we strengthen our balance sheet with the $5 million (inaudible) draw and the completion of our royalty securitization financing. Proceeds from these financings will allow us to invest in our commercial manufacturing capabilities and to continue to expand our product development pipeline.
Lastly in the general category of blocking and tackling, we completed the required work to extend the expiration dating of ADASUVE from two years to three years in both the U.S. and the EU.
All commercial products manufactured moving forward will have 36 months shelf life. We had fully recognized that ADASUVE was a stable formulation in platform and we are able to extend the dating of our product with our real-time stability data. ADASUVE is obviously the key driver for our value and we remain highly focused on ADASUVE.
As a reminder our global commercialization strategy for ADASUVE has been to secure strategic collaborations to commercialize the product, while maintaining control and primary responsibility for manufacturing. We have two excellent partners in Teva and Ferrer.
We continue to seek additional collaborations to commercialize ADASUVE outside the U.S. in the Ferrer territories with the primary focus on Asia at this time. It is also important to note that the commercial strategy in the U.S. and then in Europe are consistent with the ADASUVE product messaging, but are distinctly different due to the market dynamics, pricing considerations, hospital and physician protocol and historical norms in these two different markets.
ADASUVE has positioned as the first and only orally-inhaled medicine for the acute treatment of agitation associated with schizophrenia or bipolar disease in adults. It is clearly differentiated and clearly a new and normal approach to treating agitation.
In the United States the ADASUVE is being marketed in Teva’s U.S. Specialty Pharmaceuticals business by the Teva Select Brands team. Teva Select Brands markets innovative pharmaceutical products in the U.S. and has experience in hospital sales, mental health care markets and in an implementing REMS programs.
We continue to be impressed with the level of effort demonstrated by Teva during the early stage of product launch. Teva is highly focused on a core group of hospitals, which we believe represents the sides with the majority of patients who would benefit from ADASUVE. Teva has a strong combination of field staff, both sales REPS and medical science liaisons, supported by a broad group of central office staff during this initial launch phase. This collaborative team is focused on activities related to product availability, for example formulary work, REMS work and related hospital stocking issues along with a strong product message, both at the hospital and clinical level and also at the regional and national level with medical meetings and medical education.
Ferrer has a very similar product positioning, but with the added complexity of having to translate the ADASUVE position into various languages and cultures. It is clear to us, that Ferrer and its distribution partners are highly skilled with this, but fully recognize that each country is different and each country will have its own successes and challenges.
As a result, the daily tactics are different than seen in the United States and we collectively learned and continue to learn with each new country introduction about what strategy and tactics can be leveraged from previous EU launches and what must be adapted to the new country launch.
Note too that the country-by-country rollout in Europe had a strong pricing component in the strategy. What this means is that the initial markets were chosen not based necessarily on rapid uptake of the product per se but on the ability to gain and sustain the high value added price for ADASUVE.
Like Teva, Ferrer too has both sales staff and medical liaisons as part of their promotional mix along with medical education and regional national medical meetings. We continue to be very pleased with the level of effort that Ferrer and its distribution partners are making and look forward to continued successes in these markets.
With the approval for ADASUVE in the U.S. and EU, we continue to expand our investment in our product development pipeline. We plan to advance new product candidates based on our Staccato platform to address areas of important unmet medical needs.
As we have previously disclosed, our first such product candidate is being developed to treat a form of epilepsy known as acute repetitive or cluster seizures. We plan to study AZ-002, which is also known as Staccato alprazolam for this patient population. Alprazolam administered through our Staccato technology has demonstrated excellent dose proportionality; it has exhibited a median Tmax of 2 minutes and was safe and well-tolerated in the three studies we have completed to date. Our team has met with some of the leading opinion leaders in the field of epilepsy, some of whom will participate in our clinical trials.
We are finalizing the clinical trial protocol and the manufacturing of our clinical trial supplies. And we expect to initiate the first Phase II study for this program in this quarter. Equally important, our team has spent significant time over the past nine months evaluating the “what's next” for our Staccato platform. That work is nearing completion and we fully expect to announce another Staccato-based product candidate later this year.
All-in-all, it is a very exciting time as we start 2014 with such a solid set of accomplishments. With ADASUVE already being sold in nine countries, we will continue to work on establishing ADASUVE as a global brand. Our manufacturing facility is up and running to supply product on a global basis, product of which is being used today by clinicians to treat their patient.
We're in a stronger financial position than we have been for a long time, we are advancing AZ-002 back into the clinic for a treatment of a type of epilepsy and we continue to work on advancing additional Staccato-based product development candidates and look forward to announcing one later this year.
We look forward to updating you as we continue to make progress against our objectives to commercialize ADASUVE and to advance our product development pipeline. And as always, we fully appreciate your support in Alexza.
Thank you again for your time and we would now like to open today's conference call for questions.
(Operator Instructions). Your first question comes from the line of Charles Duncan from Piper Jaffray. Please proceed.
Charles Duncan - Piper Jaffray
Hi Tom. Thanks for taking my questions and congratulations on a good quarter of progress.
Thank you, Charles.
Charles Duncan - Piper Jaffray
So my first question is regarding the launch in the United States. So, I understand that it's only few weeks old. But I'm wondering if you’ve had any feedback from any or early adopters or any other color that you can provide in terms of how you've been impressed with how Teva is handling that launch?
Certainly Charles. We’ve not had direct contact with of the clinicians. Our relationship with Teva is obviously that’s their role, they hold the NDA. We’re currently at the ATA in New York City and looking forward to having a chance to talk with clinicians. There Teva has a large presence at this meeting. We’ll have the opportunity to spend some time with our clinicians. But it’s not our role to spend time in the field as much as we have curiosity about that. But we are looking forward to having a chance to get updated with some of our clinicians during the ATA over the next several days.
Charles Duncan - Piper Jaffray
Okay. And then in terms of the number of units that you have shipped, is there any way to really gauge how much of that was meant for inventory build, how much of it was meant to I guess serve demand in the first quarter, so any way to get a handle on that?
Yes. It’s our impression that the inventory build on this is relatively small. Teva has publicly announced they have two wholesalers, two specialty wholesalers that will be supplying the market. Those wholesalers here don’t necessarily have to keep a large supply of inventory. So there is not a 100 if you will wholesale sites out there. And hospitals also have the ability to basically where product, not necessarily on a daily basis, but they could if they chose to do so. So, we think the inventory build for this product will always be relatively small just given the distribution scheme that has been established and would view the course of sort of increase over time to based on demand.
Charles Duncan - Piper Jaffray
Okay. And then my next question and I’ll hop back in the queue is regarding the pipeline. You mentioned 002 for cluster seizures starting the Phase 2 this quarter. Can you provide some additional details on the design and sizing of that trial?
Yes. The clinical trial, Dr. Cassella who is our Chief Scientific Officer, has been working with two or three of the leaders in this area. And they are finalizing the other protocol, Once -- and he’s actually going to be representing at the Epilepsy Pipeline Update in early June. And I think we will have better clarity at that point in time Charles, about the design and the size of that trial.
As you expect when you talk with two or three key opinion leaders, there are some different views about what would be the right thing to study when. And I think that’s the ongoing discussion right now as finalizing that first protocol. I knew it, we are very excited about having the opportunity to present at the meeting in early June. And I think that will be the opportunity for us to talk more about clinical development program and the rationale for why we chose alprazolam and also what the first study looks like.
Charles Duncan - Piper Jaffray
Okay. So that’s your upcoming analyst meeting you’re saying?
Yes. It’s called the -- I think the Epilepsy Pipeline Update. It’s the Epilepsy Foundation supports this meeting and Dr. Cassella has been an invited speaker at this meeting. And I think it’s going to be the first week or so in June.
Charles Duncan - Piper Jaffray
Okay. Thanks for that added color.
Thank you, operator. It looks like there are no remaining questions at this point in time. So, I would like to conclude our conference call today. We look forward to updating you as we continue the global launch of ADASUVE and advancement of our pipeline candidates. Thank you again for participating today. And I hope you have a great day.
Ladies and gentlemen, this concludes today’s conference. Thank you for your participation. You may now disconnect. Have a great day.
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