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Flexion Therapeutics, Inc (NASDAQ:FLXN)

Q2 2014 Earnings Conference Call

August 7, 2014 16:30 ET

Executives

Fred Driscoll - CFO

Mike Clayman - President & CEO

Analysts

David Maris - BMO Capital Markets

Elliot Wilbur - Needham Company

Operator

Welcome to the Flexion Q2 2014 Financial Results conference call. My name is Amanda and I will be your coordinator for today. (Operator Instructions). I will now turn the call over to Fred Driscoll from the company. Please proceed with your call.

Fred Driscoll

Thanks Amanda. Good afternoon this is Fred Driscoll, Chief Financial Officer and I thank you for joining us on today’s second quarter 2014 financial results conference call. Both the earnings release from this afternoon and an archive of this earnings call can be found on the company’s website at flexiontherapeutics.com.

On today’s call with me is Flexion’s President and CEO, Dr. Michael Clayman. Before we begin our prepared remarks I need to remind you that we will be making forward-looking statements during this teleconference that include financial and clinical projections. Statements relating to future financial of business performance, conditions or strategies and other financial and business matters including expectations regarding operating expenses, cash usage and clinical developments and anticipated milestones are forward-looking statements within the meaning of the Private Securities Litigation Reform Act.

Flexion cautions that these forward-looking statements are subject to numerous assumptions, risks and uncertainties which can change overtime. Further information on the factors and risks that could affect Flexion’s business, financial conditions and results of operations including those mentioned in the forward-looking statements are contained in Flexion’s filings with the SEC which are available at www.sec.gov. These forward-looking statements speak only as of the day of this call and Flexion assumes no duty to update such statements. With that I will now turn the call over to Flexion’s CEO, Mike Clayman.

Mike Clayman

Thanks Fred. Good afternoon everyone. Thanks for joining us this afternoon. Our agenda for today’s call is to discuss Flexion’s most recent accomplishments and then our expectations for the remainder of 2014. After that I will turn the call over to Fred to summarize the second quarter and first half financial results and follow Fred’s comments with your questions. In the second quarter we continue to make solid progress on our lead drug candidate FX006 which is a sustained release sustained-release intra-articular steroid, this specific steroid is triamcinolone acetonide or TCA. This is for the treatment of osteoarthritis or OA of the knee. There were two significant advancements in our clinical development program for FX006.

First in April we announced on schedule that the first patient have been dosed in a confirmatory Phase 2b clinical trial designed to further evaluate the safety, tolerability and efficacy of certain doses of FX006 as a treatment for relieving pain associated with the OA of the knee.

The clinical trial is currently recruiting patients who are being randomized to a single injection of either 20 milligrams or 40 milligrams of FX006 or saline placebo with the goal of enrolling 100 patients per treatment group for a total of 300 patients. The primary end point is pain relief at 12 weeks versus placebo as measured by the weekly mean of the average daily pain intensity scores using an 11 point numerical rating scale. Pain relief will also be measured out to 20 weeks since there is a reasonable possibility that FX006 will provide meaningful efficacy beyond 12 weeks.

Secondary end points include the change from base line in WOMAC pain, stiffness and function. Patient global impression of change, clinical global impression of change and responder status. Assuming positive data the FDA whom we continue to have active discussions with has indicated that this can serve as one of two pivotal trials needed for registration. As you may recall in earlier clinical trial at FX006 convincingly demonstrated that a single injection conferred superior magnitude and duration of pain relief compared to the standard of care immediate release TCA. The overall reduction in pain relief over the 12 week trial associated with the 40 milligram dose of FX006 was in excess of 60% which is amongst the largest analgesic effects seen in osteoarthritis clinical trials.

In addition all treatments were shown to be well tolerated and there were no drug related series adverse events. In June 2013 we reported these data and subsequently presented them at the America College of Rheumatology later that year. The second accomplishment in this quarter was the deliver on schedule of positive top line clinical trial results from a Phase 2a synovial fluid pharmacokinetic study of FX006. This trial demonstrated for the first time that a single intra-articular injection of a sustained released steroid can provide therapeutic concentrations of drug in this case TCA in joint fluid for at least 12 weeks.

In this multi-center open label study of 50 patients with OA of the knee researchers assigned patients sequentially to one of five groups that received a single IA injection of either 10 or 40 milligrams of FX006 or 40 milligrams of immediate release TCA which is the current standard of care.

Synovial fluid concentrations of drug were measured at 12 weeks in all dose groups and also it's 16 and 20 weeks in the FX006 40 milligram dose group.

At 12 weeks both the FX006 10 milligram and 40 milligram dose groups had therapeutic concentrations of drug in synovial fluid. In contrast the 40 milligram immediate release TCA dose group had concentrations of drug that were below the lower limit of quantitation. The FX006 40 milligram dose group also demonstrated readily measurable concentrations of drug at 16 weeks, which fell to below the lower limit of quantitation at 20 weeks. These FX006 data represent a six fold increase in the duration of joint residency compared with immediate release TCA. We believe these data validate our sustained release technology clearly distinguish FX006 from immediate release TCA and further bolster our confidence that FX006 can provide patients with persistent and prolonged pain relief.

Data from this trial will also inform the appropriate dosing interval for our planned repeat dose safety clinical trial. So we continue to be pleased with the progress we have to-date with FX006 by executing on both the initiation of the Phase 2b confirmatory trial and the generation of the Phase 2a Synovial PK top line clinical data on schedule and as planned. We expect to report top line results from the Phase 2b trial in the first half of 2015 and to initiate Phase 3 shortly thereafter. Further we intend to initiate a repeat dose study of FX006 by the end of 2014.

Before turning to our second clinical product candidate I also want to highlight our announcement in July of an exclusive worldwide licensing agreement with South-West Research Institute or SwRI, one of the oldest and largest independent R&D organizations in the United States. To utilize their patent protected microsphere manufacturing technology for production of FX006. This exclusive license is important as it adds another layer of intellectual property protection for FX006 and provides for an expanded field of use in a variety of muscular skeletal disorders and several steroid microsphere combinations where sustained released technology could be useful for patients. Let me point out that we have been using the SwRI microsphere manufacturing technology from the beginning of the development of FX006.

We began the technology transfer in 2012 from SwRI to Evonik Corporation. A leader in the global supply of CGMP compliant PLGA products. Evonik has now used this technology to manufacture FX006 for clinical trials and we will do so to manufacture FX006 for commercial use.

So as I mentioned earlier this license will strengthen our intellectual property protection and will complement our composition matter patent for FX006 which we expect to be issued by the U.S. Patent and Trademark Office in the next 6 to 12 months.

Let me now move on to a quick update on FX007, our small molecule TrkA receptor antagonist that we’re developing for the relief of post-operative pain. FX007 is intended to be administered just before surgical wound closure via local tissue infiltration. There are approximately 51 million surgeries performed in the U.S. each year and the global postoperative pain market was estimated to be almost $6 billion in 2010.

Despite the size of this market however postoperative pain management remains a challenge for healthcare providers with studies reporting that upto 80% of patients experience inadequate pain relief after surgery. Given the limitations of current therapies in this category we’re developing FX007 as a potentially superior alternative for managing postoperative pain. FX007 is being developed for acute local administration to provide pain relief for upto 72 hours.

We’re currently conducting preclinical toxicology studies to assess the optimal dose to movement to human studies. Our current plan is to initiate a proof of concept clinical trial for FX007 late this year.

That concludes our clinical update. Before asking Fred to review our second quarter 2014 financial results I wanted to call your attention to the Board level changes we announced this quarter. As we began the process of planning for our IPO we gave a great deal of thought to the capabilities and skill sets we would need to move the company forward to a fully commercial entity. Our analysis led to us to conclude that changes on our Board of Directors would make sense if we could add industry specific commercial and financial expertise. As you know we announced a first of these changes with the appointment of Ann Merrifield to the Board.

Ann most recently served as President and CEO of PathoGenetix and was formerly the President of Genzyme Biosurgery where she led the growth in revenues to over 400 million for the their intra-articular hyaluronic acid products Synvisc for the treatment of knee osteoarthritis. We’re excited to have Ann on our team and look forward to her contributions as we move closer to the commercial launch of FX006.

More recently in July we expanded the financial expertise of our Board by adding Sandy Mahatme, Senior Vice President and Chief Financial Officer at Sarepta Therapeutics. Sandy brings relevant experienced garnered in senior financial roles at both Celgene and Pfizer has been appointed Chairman of the Audit Committee of the Board.

In the press releases announcing these appointments we also indicated that three of our venture capital directors had stepped down. I wanted to take this opportunity to thank them for their contributions, dedication and insight over the past several years.

Dr. Brad Bolzon from Versant Ventures, (indiscernible) and Dr. Elaine Jones from Pfizer Venture Investments have each been committed and highly effective Board Members and played critical roles in the success of Flexion to-date.

With that I will now turn the call over to Fred to recap our financial results for the quarter and six month period just ended.

Fred Driscoll

Thanks Mike. The company reported a net loss of $5.9 million for the three months ended June 30, 2014 compared to a net loss of 4.6 million for the same period in 2013. Research and development expenses increased to 3.6 million for the three months ended June 30, 2014 as compared to $3.1 million for the same period in 2013 due to higher salary and other related employee costs of $500,000 as a result of greater headcount levels.

Direct program expenses related to FX006 including clinical trials and CMC development increased by $800,000 due to an increase in costs related to the current Phase 2b dose confirmatory trial. These cost were offset by a decrease of $800,000 in FX005 program expenses due to the completion of certain toxicology studies.

General and administrative expenses increased to 2.2 million for the three months ended June 30, 2014 as compared to 1.4 million for the same period in 2013 due primarily to salary and related employee costs associated with higher headcount levels as well as insurance cost associated with being a publically traded company. For the six months ended June 30, 2014 the company reported a net loss of $12.5 million compared to a net loss of 9.4 million for the same period in 2013.

Research and development expenses increased to 7.8 million for the six months ended June 30, 2014 compared to 6.3 million for the same period in 2013 due to FX006 program expenses related to the initiation of the Phase 2b trial and manufacturing expenses associated with clinical trial supplies. In addition, increases in salary and other employee related costs including stock compensation expense also contributed to the higher spending level.

General and administrative expenses increased to 4.5 million for the six months ended June 30, 2014 compared to 2.9 million for the same period in 2013 due to salary and related employee costs associated with additional headcount, higher stock compensation expense. In addition increases in legal and professional fees and insurance costs and associated with being a public company contributed to the higher spending level in G&A.

As of June 30, 2014 the company had 71.9 million in cash and cash equivalents and marketable securities compared to 16.4 million as of December 31, 2013. From a liquidity and cash resource perspective the cash used in operations for the second quarter of 2014 was in-line with our expectations and we continue to provide guidance that our existing cash resources will provide a liquidity run-way into late 2015.

That concludes our prepared remarks. Operator we will now open the call for questions.

Question-and-Answer Session

Operator

(Operator Instructions). Our first question comes from David Maris with BMO Capital Markets. Your line is open.

David Maris - BMO Capital Markets

Mike maybe if you can go over a little bit of what you are expecting for the remainder of the year and Fred I don’t know if you want to talk all about potential partnerships or your thinking around when you might consider looking for partnerships. Is it better to wait for a 2015 and some more data is that something that you would explore now? Thank you.

Mike Clayman

So David just in terms of what we’re expecting for the rest of this year in terms of value inflection is that you’re asking?

David Maris - BMO Capital Markets

Yes what do you consider the most? And we have our own opinions is it the most important, but what do you consider the most important remainder of this year and why?

Mike Clayman

Well I think as we have been saying for a number of months now the expectation at the patent will grant, we have said constantly is between 6 and 12 months, we will maintain that guidance and we’re proceeding with confidence that we will see that -- I will just put it this way, it's certainly possible that we will see the patent grant before the end of the year and we think that’s very important because it's a fundamental underpinning for the value proposition.

And it's also our intent going to the current clinical plan to initiate both to repeat those study for FX006 and a proof of concept study for FX007.

Fred Driscoll

David to your, the second part of your question regarding partnering. I think as the company has stated for long, our intentions in the United States are clearly to commercialize the product to hire our own internal sales organization to commercially launch the products. So that’s our the strategic direction the company is taking now for a while and what we have also stated is that our plans are to look for a partner to help us commercialize in Europe and other parts of the world and what I would say -- I don’t want to go into a lot specifics but what I could say is that a very attractive program and that we are consistently having discussions with people in those areas of the world regarding a potential relationship.

Operator

Our next question comes from Elliot Wilbur with Needham Company. Your line is now open.

Elliot Wilbur - Needham Company

First question for Michael with regard to the current Phase 2b trial, if there is anything you could say regarding current enrollment stats, I would assume you’re not going to have any difficult enrolling but maybe just sort of update in terms of where you currently stand and then you mentioned the measurement of efficacy out to 20 weeks and just curious if in fact you do see good numbers at that point in time what would that do in terms of your thinking about the Phase 3 pivotal trial. I mean I think obviously the standard is 12 weeks but in fact do you see good numbers is that something that could alter the development plan for the pivotal efficacy trial and then with respect to 007, assuming you do move it into the clinic and you just remind us sort of what you’re thinking about in terms of the initial study indication and just some of the parameters around that in terms of -- not sure assuming it's placebo based but then obviously there is some sort of baseline pain medication involved and what not but just any details you could provide about your current thinking on what the initial 007 study may look like?

Mike Clayman

I will just say that the enrollment is going well and according to plan for the Phase 2b trial, we’re pleased with how it's enrolling. It's -- there is still a fair number of the 300 patients to enroll, so it's premature for me to speculate on when enrollment is going to conclude. But what I’m comfortable saying is that we remain on track for delivery of data in the first half of next year.

As it relates to 20 week end point, should we see robust separation in terms of FX006 from placebo at 20 weeks in terms of pain relief then we would obviously look carefully at the shape of those curves, we will consider the possibility of in the Phase 3 trial not only taking it out to 20 weeks but even out to six months, total of six months. As you know the regulatory standard and what the agency wants to see is 12 week data for this product as the primary end point, as the registration end point. We see only upside to the possibility of demonstrating efficacy at later time points.

And as it relates to efficacy 007 in terms of the proof of concept trial I think the one comfortable thing is that that trial is very much under discussion internally and exactly what it looks like is still not yet locked and loaded. I suspect that it will be in the coming couple of months and if I had a very detailed protocol locked and loaded I would be happy to share that with you but we’re just on there yet.

Elliot Wilbur - Needham Company

Okay. If I could ask just one question, Fred as well, as time progress Fred you’re supposed to spend more money on R&D not less. Just wondering what we should be thinking about in terms of the back half of the year?

Fred Driscoll

Well we did spend more Elliot and you’re correct and our expectations are that those numbers will clearly will increase for all the things Mike just said between the initiation of the 006 Phase 2 that we’re in, the repeat dose and 007 to name a few those all are going to drive R&D higher. So that’s clearly still the expectation and that’s why I said the cash run-way projections have not changed and we are still guiding that cash will last through the end of next year. So, I would say we’re on target, we’re a little of ahead of our budgeted numbers on cash usage but as I say I think that’s more timing and that will pick up in the second half.

Operator

(Operator Instructions). I’m showing no further questions at this time. I would like to hand the call back to Mike Clayman for closing remarks.

Mike Clayman

I just would like to thank everyone for your participation in today’s call. We will look forward to providing further updates to you in the future as we continue to make progress with our product pipeline. Thanks again and have a nice day.

Operator

Ladies and gentlemen thank you for participating in today’s conference. This does conclude the program. You may all disconnect. Everyone have a great day.

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