Egalet's (EGLT) CEO Bob Radie on Q2 2014 Results - Earnings Call Transcript

| About: Egalet Ltd. (EGLT)

Egalet Corporation (NASDAQ:EGLT)

Q2 2014 Earnings Conference Call

August 12, 2014 8:30 AM ET


Stan Musial – CFO

Bob Radie – President and CEO


Annabel Samimy – Stifel

John Newman – Canaccord

Jason Butler – JMP Securities


Good morning and welcome to the Egalet Corporation conference call. All participants will be in listen-only mode. (Operator Instructions) After today’s presentation, there will be an opportunity to ask questions. (Operator Instructions) Please note, this event is being recorded. I would now like to turn the conference over to Stan Musial. Please go ahead.

Stan Musial

Thanks, Kate. Thank you all for joining us this morning for Egalet’s second quarter earnings call. If you have not already received the press release, you can find it on our website at under the Investors tabs. Joining me on the call today is Bob Radie, President and Chief Executive Officer of Egalet.

During the course of this call, management will make projections and other forward-looking remarks regarding future events and the company’s future performance. Such forward-looking statements are not guarantees of future performance and involve risks and uncertainties including those noted in this morning’s press release and Egalet’s filings with the SEC.

Actually results may differ materially from those projected in the forward-looking statements. Egalet specifically disclaims any intent or obligation to update these forward-looking statements except as required by law.

A telephone replay of the call will be available shortly after completion through Wednesday, August 20th. You can find the dial-in information in today’s press release. The archived webcast will be available for six months on the company’s website,

For the benefit of those who may be listening to the replay or archived webcast, this call was held and recorded on August 12, 2014. Since then, Egalet may have made announcements related to the topics discussed. So please refer to the company’s most recent press releases and SEC filings.

Turning now to our financial results, Egalet’s cash position as of June 30, 2014 was $69.3 million compared to $77.5 million at March 31, 2014. Our primary use of capital was and we expect will continue to be compensation and related expenses, third-party clinical research and development services, manufacturing development and other regulatory expenses and general overhead costs. We expect our cash expenditures to increase in the near term as we found our clinical development of Egalet-001 and Egalet-002 and continue to build out our commercial manufacturing capability.

Revenues increased to $490,000 for the three months ended June 30, 2014 from zero for the three months ended June 30, 2013. This was the result of the amortization of deferred revenue and performance of certain research and development services under our collaborative agreement with Shionogi Limited.

Research and development expenses were $7.4 million for the three months ended June 30, 2014 compared to $1.2 million in 2013. The increase of $6.2 million was primarily driven by an increase in our development cost for Egalet-001 and Egalet-002 and employee and stock-based compensation expenses. Included in the $7.4 million is stock-based compensation expense of $1.8 million.

General and administrative expenses increased to $4.7 million for the three months ended June 30, 2014 compared to $1.1 million for 2013. The increase was primarily attributable to increased investment in our US infrastructure, including the hiring of personnel and adoption of a stock compensation plan. Included in the $4.7 million is stock-based compensation expense of $2 million.

Interest income increased to $4000 for the three months ended June 30, 2014 from interest expense of $1.4 million for the same period in 2013. This change was primarily attributable to the conversion of our related party convertible debt upon confirmation of our initial public offering in February of 2014 which was outstanding during the prior year period.

These increased research and development and general and administrative expenses in the second quarter of 2014 resulted in a net loss of $11.7 million compared to a net loss of $3.7 million for the same period in 2013.

Now I will turn the call over to Bob.

Bob Radie

Thanks, Stan. Good morning, everyone, and welcome to our second quarter conference call. There’s not a day that goes by without a story about the ongoing opioid abuse epidemic in the United States. Opioids continue to be one of the most effective treatment strategies for patients with chronic pain, therefore, it’s critical that patients maintain access to these products.

The issue of access to prescription medications is a big one that is far too often not discussed. A recent national survey published in Practical Pain Management Journal in March titled Current Access to Opioids: Survey of Chronic Pain Patients, found that 18% of the chronic pain patients surveyed were unable to fill prescriptions at a pharmacy where they had filled prescriptions before on at least on occasion. Respondents reported a physical and emotional impact due to being denied their prescription.

In addition, approximately 37% of those who experienced the denial of having a prescription filled considered suicide after being denied access to their medicine. This is a frightening statistic that shows how dire the consequences are for chronic pain patients who need these important medications to live productive lives.

There are serious issues here, the access issue for chronic pain patients and the abuse issue for our communities. As Cindy Steinberg, a pain patient advocate, recently commented, and I quote, “It is essential that we strike a balance between the need to fight prescription medication abuse and the need to maintain access to essential medications for those living with pain.”

We believe our technology and products are at the crossroads of both of these issues. Our mission is to help ensure access to effective medications for individuals living with chronic pain while helping to protect physicians, families and communities from the burden of abuse.

Egalet is focused on developing and, if approved, launching differentiated abuse deterrent opioids for patients who are suffering with chronic pain severe enough to require daily, around the clock, long-term opioid treatment and for which alternative treatment options are not enough.

Using our proprietary Guardian technology, we have a pipeline of clinical stage opioid-based candidates that are specifically designed to deter abuse by physical and chemical manipulation. The Guardian technology can be customized to resist specific routes of abuse that often occur with the underlying active pharmaceutical ingredient.

Now let’s discuss recent events along our path to bring our abuse deterrent products to the market. Before I provide an update on our lead product candidate, Egalet-001, an abuse deterrent form of morphine, let me remind you that Egalet-001 was created using our Guardian technology and was designed to resist common methods of abuse and, specifically, manipulation by injection, the leading method of abuse for morphine.

In the United States, morphine is the most commonly prescribed extended released opioid with the 7.1 million prescriptions written for extended release oral morphine in the calendar year 2013, which is up from 5.8 million prescriptions written in 2009 according to (NYSE:IMS).

With no abuse deterrent extended release morphine products current available, we believe that, if approved, Egalet-001 will address this unmet need.

We are conducting studies to establish Egalet-001’s abuse deterrent property with the goal of obtaining abuse deterrent claims in our product label in accordance with the draft FDA guidance titled Abuse Deterrent Opioids Evaluation and Labeling.

Interestingly, Targiniq, a new abuse deterrent oxycodone was approved with abuse deterrent labeling based on the results of category one, two and three abuse deterrent studies alone.

Recently we announced positive results from our category one abuse deterrent study which demonstrated that Egalet-001 resists physical and chemical manipulation. The purpose of this study was to perform a comprehensive laboratory assessment of physical and chemical manipulation of Egalet-001 and MS Contin based on the category one guidelines presented in the FDA guidance.

In this study, Egalet-001 demonstrated resistance to common forms of physical and chemical manipulation as compared to MS Contin. Egalet-001 resisted crushing in order to swallow, snort or smoke and dissolving in order to inject, which is one of the most common methods of abuse of morphine-based products.

Egalet-001 displayed extreme resistance to crushing and grinding with all household tools used in the study, whereas the comparator was easily converted to a fine powder. Pre-treatment of Egalet-001 by thermal stressing did not alter its resistance to physical manipulation attempts.

Egalet tablets resisted all extraction attempts and maintained extended release characteristics throughout the studies. Importantly, extreme jelling of Egalet-001 occurred with all (inaudible) solvents indicating one could not inject Egalet-001.

Because of the jelling, one cannot draw the product up into a syringe to inject it, which, again, is one of the most common methods by which morphine is abused.

To further explore the potential for Egalet-001 to deter abuse, we started a category two, three, human abuse liability study 067EG-008. The purpose of this study is to assess the impact of the abuse deterrent formulation on measures that predict how probably it is that the formulation both intact and manipulated will be liked by non-dependent, recreational drug abusers.

In addition, the pharmaco kinetic profiles of the manipulated formulation of MS Contin and manipulated and intact formulations of Egalet-001 will be compared in order to show the in vivo properties Egalet-001. We expect to have the results of this study in the fourth quarter.

We initiated and pivotal bioequivalence program in the first quarter of this year intended to establish bioequivalence of Egalet-001 to MS Contin. As we announced last week, we have top line results from two of those studies. We met the bioequivalence criteria as measured by area under the curb, or AUC, in both studies but did not meet the bioequivalence criteria on CMAX, which is the peak plasma concentration.

In the 100 milligram fasted study, even though the ratio of CMAX at 122 was within the BE criteria of 80 to 125, the upper limit of the 90% confidence interval that is used to establish BE fell outside the range at 127 and formal BE can therefore not be claimed.

As we discussed during the conference call to discuss the press release, for chronic pain medications, the measure of AUC is an important indicator of efficacy. We are encouraged by the fact that there have now been four studies showing consistent AUC results when comparing Egalet-001 to the referenced drug, MS Contin, including the 067EG-002 PK study in which our 60 milligram Egalet-001 was bioequivalent to MS Contin on both AUC and CMAX measurements.

In addition, in study 067EG-004, food did not increase the CMAX or the AUC of our abuse deterrent morphine product candidate when compared to other Egalet-001 PK studies in subjects in a fasted state suggesting that our Guardian technology will not result in a clinically relevant food effect.

In our two recently completed BE studies, our abuse deterrent morphine product candidate was well tolerated and no serious adverse events were reported.

Given that the March 2014 FDA draft guidance states that the FDA, when evaluating approaches of bio availability and bioequivalence for NDA submissions will use the totality of information, we are encouraged that the bioequivalence route to an NDA submission is possible.

As we have previously reported, we will have top line results from the 15 milligram bioequivalent study, 067EG-006, in the third quarter of 2014. Once we have that data, we will use our fast track designation to work with the FDA to determine our regulatory strategy for Egalet-001. At that time, it may be determined that additional efficacy studies will be required for NDA submissions.

Our second product candidate, Egalet-002, is an abuse deterrent extended release oral oxycodone formulation in development for the management of pain severe enough to require daily, around the clock opioid treatment and for which alternative treatments are inadequate.

We developed Egalet-002 using our Guardian technology designed to address the common methods of abuse with oxycodone. This system is specifically designed to resist abuse via the route of crushing and snorting, which is one of the most common ways that oxycodone-based products are abused. This product is formulated to improve upon the highest selling extended release opioid oxycodone which had $2.6 billion in sales for the 2013 calendar year.

In addition to its key abuse deterrent features, we also designed Egalet-002 to improve upon the PK profile of oxycontin OP. Our product’s PK profile demonstrates lower peak to trough concentration variability and drug exposure when compared to oxycontin OP. We believe this will result in Egalet-002 having fewer side effects and providing better and more consistent pain relief resulting in reduced use of rescue medications to treat breakthrough pain.

Because of its differentiated abuse deterrent characteristics and PK profile, we believe there is a significant opportunity for Egalet-002 if approved to capture a sizeable portion of the market for long-acting, extended release oxycodone products.

We remain on track to submit the NDA for Egalet-002 in the first half of 2016, however, we have adjusted our development timeline. We now plan to initiate the category two and three abuse deterrent studies for Egalet-002 in the fourth quarter of 2014 and plan to start the pivotal phase three trials for Egalet-002 in the first quarter of 2015.

Organizationally, we continue to build by bringing experienced pharmaceutical professionals to the business. We announced a few weeks ago the addition of Dr. Jeff Dayno as our Chief Medical Officer to our executive team. Jeff’s deep global pharmaceutical and medical affairs experience in the neurology and pain areas will be extremely valuable to us as we advance our product candidates, develop our medical affairs and educational strategies and evolve our commercial organization.

We are appreciate of the guidance Dr. Roland Gerristen van der Hoop has provided us over the past few years.

For the remainder of 2014, we remain focused on the following: completing the Egalet-001 15 milligram bioequivalence trial, completing the category two-three abuse deterrent study for Egalet-001, working with the FDA to determine our regulatory path forward for Egalet-001, initiating the category two and three abuse deterrent study for Egalet-002, working closely with our partner Shionogi on the hydrocodone programs and further enhancing our organization to support the development and commercialization of our product candidates.

While so many reports talk about the problem of prescription opioid abuse, these stories really tell of the chronic pain patients who depend on these prescription medicines to live productive lives. While these patients need access to these prescription medications, we need to deliver them in a safe and responsible manner to protect our friends, our families and our communities.

With prescription medication abuse at the number one cause of accidental death in the US, surpassing automobile accidents, it is critical that we have prescription medicines that deter abuse because far too often prescription medications end up in the wrong hands.

Like seatbelts have done for cars, our Guardian technology may do for pain medications. We look forward to be a part of the solution. With that, Kate, please open the call to questions.

Question-and-Answer Session


Thank you. We will now begin the question-and-answer session. (Operator Instructions) The first question comes from Annabel Samimy with Stifel. Please go ahead.

Annabel Samimy – Stifel

Hi, everybody. Thanks for taking my question. I just wanted to go back to the issues that you brought up last week regarding your bioequivalence study. You mentioned that as part of the fast track that you’d be able to potentially submit this data. Can you share with us what the exact requirements are for FDA to be comfortable with your bioequivalence? Are there requirements based on the number of patients that you have? Is the 60 milligram trial sufficient to count as one of those pivotal bioequivalent studies if the 15 milligram is positive? And if you can share with us maybe the timing of the FDA meeting. Thanks.

Bob Radie

Sure, Annabell. Thanks for the question. So the guidance put forth in March of 2014 by the FDA talking about bioavailability and bioequivalence approach for NDA submissions, it’s a broader definition and really what the agency talks about is the totality of information that’s available. And so our plan would be to submit the results from the bioequivalent studies that have been done to date, including the 60 milligram study, which you referenced, which again I’ll remind everyone did show bioequivalence for both area under the curve and CMAX requirements.

We would have the results of the 15 milligram bioequivalence study as we’ve described here in the third quarter. Obviously we have generated over time a significant data showing in vitro correlations. We’ll have results of the abuse deterrent studies obviously the for the agency to consider and all of this under the backdrop of knowing that for these chronic pain medications, the area under the curve parameter is really the primary indicator of a product’s efficacy in pain.

And so there is sort of that whole story to contemplate what we would put forth and present the FDA in subsequent discussions with them.

Annabel Samimy – Stifel

Okay, so there’s no specific requirement for number of patients that needs to be tested within the bioequivalence program. And if you’re submitting the totality to date, that also includes the 100 milligram. How might that look at that one little slight efficacy ding of the CMAX?

Bob Radie

Yeah, so we would obviously explore the different doses. One possibility would be to submit a different dosage range that may be within our original plan and that’s all part of the evaluation that we’re going through right now and admittedly, we are still evaluating the results of the study that we announced last week. It’s still relatively fresh in our hands to determine what data is relevant for future discussions with the FDA.

Annabel Samimy – Stifel

Okay, great. Thank you.


Our next question comes from John Newman from Canaccord. Please go ahead.

John Newman – Canaccord

All right, thanks for taking the question. I’m curious if you know of any examples historically speaking where companies have looked to demonstrate bioequivalence to a range of opioid doses and have had better success with lower doses than some of the higher doses. I mean, we know that morphine is a little bit dirty in terms of the PK profile but I’m just curious if you tend to see less variability at the lower doses. Thanks.

Bob Radie

Yeah, John, that’s a good question. We’re continuing to review publicly available information obviously within the opioid space. We’re continuing to review information even outside of the opioid space looking for precedence. And, again, I think that what is clear to us is that we have found an example, I don’t have all the specifics with me right now not within the opioid space of the agency showing some flexibility for an NDA that was submitted that fell slightly outside of bioequivalence for the strictness of standards.

But the literature would suggest that there is some variability of MS Contin at higher doses and we don’t have a full picture of this just yet but we have found some literature that would suggest that the product behaves differently and more variable as you get up in the dosage range that it does at the lower end of the dosage range and that’s some data that’s even been published by the sponsor.

John Newman – Canaccord

Okay, great. And I’m wondering if you have a sense as to when you might have data on the category two-three abuse deterrent study for 002.

Bob Radie

So as I stated, we will start those studies in the fourth quarter and I think at least traditionally, as I think about our timelines, we would probably have the results to be able to report of those studies by the second quarter or late second quarter. I mean, typically these are six month studies, so I would say late second quarter is likely.

John Newman – Canaccord

Okay. And just wanted to double check so that clear, the category two-three abuse deterrent studies will be comparing Egalet-002 head to head with produced product, is that correct?

Bob Radie

That is correct. We plan to do our studies head to head against oxycontin OP.

John Newman – Canaccord

Great. Thanks, Bob.

Bob Radie

Thank you, John.


Our next question comes from Jason Butler from JMP Securities. Please go ahead.

Jason Butler – JMP Securities

Hi. Thanks for taking my question. Just wondering if you could clarify for us in the bioequivalent studies that just went out, was the CMAX for MS Contin different to what you would normally expect it to be or was it in line with what you had predicted when you designed the trial?

Bob Radie

So as I said earlier, Jason, we’re obviously still evaluating all of that data. At least our first impressions are that when we look across bioequivalent studies, which in and of itself has its issues because you have different patient populations but it is data that we’re evaluating. When you look across the various bioequivalent studies that we’ve done and we look at publicly available information, we’ve seen that our product behaved reasonably predictably comparing it across studies.

And so whereas that the 100 milligram fasted study, we did see MS Contin behave a bit unpredictably in this study showing a lower CMAX than one would have predicted if you were to try to look for say dose linearity coming from other studies. And, again, that reference is publicly available information in literature that showed that at the higher doses, MS Contin does not appear to behave linearly.

And so again, still evaluating that, it was variable for sure, higher in the fed study and then it came out lower in the fasted study and that’s part of the challenge of the data that we’re analyzing right now.

Jason Butler – JMP Securities

Okay, that’s helpful, thanks. And just obviously you don’t have the data yet but if the results from the 15 milligram study are similar to the 100 milligram, is yours… doesn’t meet the bioequivalent standards for CMAX, is your assumption then that you would need to run an efficacy study?

Bob Radie

So as we said on the call last week, we’ve begun I think the planning for an efficacy study just as a good contingency and to be prepared to start down that path. I think that any data that moves us farther away from the definition of bioequivalence, so if the 15 milligram study were to not be bioequivalent for the appropriate criteria, then I think any attempts to achieve bioequivalence approach with the agencies would be more difficult.

I don’t want to close the door completely on it because, again, we have this totality of data approach for NDA submissions and it wasn’t as if the 100 milligram study was way outside of any range. It was actually as we stated. The ratio was within the range. It was that upper end of the 90% confidence interval. It was slightly outside, so part of it’s just going to depend on the 15 milligram data and just how it looks but we remain committed to the bioequivalence path and we will continue to pursue that as our primary objective going forward.

But just to be good… I think just to plan for that contingency for an efficacy study if that looks in the future to not be a viable path forward.

Jason Butler – JMP Securities

Okay, great, that’s helpful. Thanks a lot.

Bob Radie

Thanks, Jason.


(Operator Instructions) Our next question comes from (Kiara Russell) from (Janney Capital Markets). Please go ahead.

(Kiara Russell – Janney Capital Markets)

Yeah, great, guys. Thanks for taking my question. I just was curious if you had any more color on the potential 002 phase three trial in terms of design or patient population or anything like that and do you think you might be factoring in perhaps an interim data look?

Bob Radie

So we have had interactions with the agency. We know that we need to conduct two studies, two phase three studies. One would be an efficacy and safety study and the other would focus more on the overall safety profile of the two component system.

The efficacy-safety study is going to be a very traditional study in the opioid space looking at chronic pain patients, in our case the lower back pain, very common indication that people will study. And the design of that study is, again, fairly traditional and a study that has been done by many of the manufacturers developing long-acting chronic extended release opioid products, really nothing different or unique about the design of that. I don’t believe there’s an interim look in that study at all and obviously we’re in regular conversations with the FDA about the design and statistical analysis of that study as well. So really nothing unique or different than what anyone developing a long-acting opioid would be doing for that study.

The safety study, again, is designed to assess the safety of the delivery system primarily and, again, we have clear interactions with the FDA on the size and length of therapy for that study as well.

(Kiara Russell – Janney Capital Markets)

Okay. And I guess kind of my last question, obviously any additional thoughts about potentially bringing a third product (inaudible).

Bob Radie

Right, so yeah, we have not made any final decisions on the Egalet-003 in terms of what that product is going to be. We continue to assess the opportunities out there looking at everything from technical feasibility to commercial opportunities. We still remain committed to begin clinical work on that program in the first quarter of 2015.

(Kiara Russell – Janney Capital Markets)

Okay, great. Thanks, you guys.


(Operator Instructions) There are no questions at this time. This concludes our question-and-answer session. I would like to turn the conference back over to Bob Radie for any closing remarks.

Bob Radie

Thank you, Kate, and thank you, everybody, for taking time to join us for the earnings call this morning. We look forward to updating you on our progress moving our lead programs forward on our third quarter call.


The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.

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