Corium International's (CORI) CEO Peter Staple on Q3 2016 Results - Earnings Call Transcript

| About: Corium International, (CORI)

Corium International, Inc. (NASDAQ:CORI)

Q3 2016 Earnings Conference Call

August 04, 2016 05:00 PM ET

Executives

Robert Breuil - CFO

Peter Staple - President and CEO

Analysts

Serge Belanger - Needham

Edward White - FBR & Company

Operator

Good day, ladies and gentlemen, and welcome to Corium International's Third Quarter of Fiscal Year 2016 Conference Call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session, and instructions will be given at that time. As a reminder this conference call may be recorded.

I would now like to hand the call over to Mr. Robert Breuil, Chief Financial Officer. Sir, you may begin.

Robert Breuil

Thank you, Kelly. Good afternoon. And welcome to our third quarter fiscal year earnings call. Joining me today on the call are Peter Staple, our President and Chief Executive Officer; and Dr. Parminder Bobby Singh, our Chief Technology Officer and Vice President of Research and Development.

Peter will begin with an overview of our recent corporate highlights and product development program. I will then discuss our financial results for the quarter. Our comments will be followed by a Q&A session.

During the course of today's call, we may make a number of forward-looking statements, including comments on our business strategy, strength and priorities, products pipeline, clinical trial timing and plans, and associated resource requirements, regulatory pathways for our development program, the outlook for our products, programs and partnerships, the achievement of clinical and commercial milestones, partnering or co-development efforts, the advancement of our technologies in our proprietary co-developed and partnered products and product candidates, the competitive landscape and pricing pressure for our products, the potential impact of market consolidation or product divestitures, trends with respect to our revenues, expenses and cash flows, our ability to generate revenue growth and our ability to manage our costs, uses of cash and other matters.

These forward-looking statements are based on assumptions that are subject to risks and uncertainties that could cause our actual results to differ significantly from those suggested by these statements. Given these risks and uncertainties, you should not place undue reliance on these forward-looking statements.

Please refer to our Form 10-Q filed with the Securities and Exchange Commission on May 13, 2016 for some of the important risk factors that could cause our actual results to differ materially from expectations, including any forward-looking statements made on this call. Except as required by law, we disclaim any obligation to publicly update or revise any forward-looking statements to account for or reflect events or circumstances that occur after this call.

I will now turn the call over to our President and CEO, Peter Staple. Peter?

Peter Staple

Thank you, Bubba, and welcome, everyone. In the third fiscal quarter, we made important advances on several fronts as we continued to execute on our business strategy. We reached additional milestones in our Alzheimer's program, which included defining a clear path forward to develop our Corplex Donepezil candidate with substantially reduced risk, time and cost compared to a typical transdermal development program. And we achieve significantly increased revenues and reduced cash burn during the quarter.

I’ll start with our Alzheimer's programs. We discussed the FDA’s pre-IND guidance for Corplex Donepezil in our May conference call and I'll review again here, because its importance can’t be emphasize enough. Our submission to the FDA included the results of our initial pharmacokinetic study that was completed earlier this year. And we made the case that we should able to pursue a clinical development path based on bioequivalence to oral Aricept without the need for further efficacy testing.

As background, pharmacokinetics studies, which we also refer to as PK studies are designed to measure the time course of drug concentration in blood plasma, and are used to determine bioequivalence. Bioequivalence or biological equivalence is also referred to as BE.

We’re very pleased that the FDA provided us with a clear written response that the bioequivalence path is appropriate and available for Corplex Donepezil. This regulatory path is available to us due to the long elimination half-life of Donepezil in the body. As a result of the outstanding work of our R&D team, we have created a once weekly patch formulation that delivers Donepezil on sustained and controlled basis comparable to oral dosage form, which supports our bioequivalence approach. The BE path for drug development is much further [ph] and far less expensive than the standard NDA development path for a new transdermal product.

This approach involves comparing blood concentrations of the transdermal and oral forms of Donepezil at steady state and in healthy volunteers. For these studies, we will avoid difficult and lengthy recruitment of Alzheimer's patients, as well as the measurement of standard cognitive endpoints, because the efficacy of the drug is well established at the blood concentrations that we’re targeting. This means substantially less risk and with successfully BE results would get us to an NDA filing about two years from now.

This is a transformational opportunity for Corium. It’s important to know that Corium already has a proven track record in conducting successful bioequivalence studies. Because we’ve built a company on a foundation of partner programs including ANDA products that all require bioequivalence testing, it’s been one of our core competencies.

We’ve successfully demonstrated bioequivalence in studies with different types of drugs in five different therapeutic areas. We know how to manage and reduce risk in these studies.

We’re well underway in preparing for the next steps of Corplex Donepezil program. These include preparations for the U.S. IND filing, which we plan to submit in September, while our earlier studies were successfully completed in Australia, our BE clinical studies will be conducted in the U.S. under the IND.

We’re also engaged in the next level of scaling up production for these studies in our manufacturing facility in Grand Rapids, Michigan. And we’re planning to initiate our BE - our pilot BE study later this calendar year with results expected in the first half of 2017.

This pilot study will be a smaller version of the pivotal BE study, and will enable us to fine tune key parameters to minimize any remaining risk around our ability to achieve the bio-cohort's endpoints in the pivotal study. In our past experience each time we’ve done a pilot study we’ve been able to achieve the BE endpoints successfully. Following the pilot study we will know the optimal patch size, the right schedule for blood sampling and other key parameters to meet the standards for bioequivalence including the number of subjects required.

As a reminder the standards require new dosage form to be within 80% to a 125% of the reference product on certain key parameters mainly area under the curve or AUC and maximum concentration for CMS. Based on the work we’ve already done we believe our formulation will meet the bioequivalence requirement but we need to do the clinical work to demonstrate that [indiscernible].

So with our pilot data coming in the first half of 2017 we believe that we’ll have great visibility and confidence in the pivotal study which we expect to start in the second half of 2017. From a commercial perspective the Corplex Donepezil program looks more promising than ever. Our market and reimbursement research continues to reinforce our view that a once weekly transdermal donepezil product represents an important new opportunity in the treatment of Alzheimer’s patients. Given that donepezil has 44% of the unit volume in the U.S. or about 5% the volume share of Exelon, we believe that our once weekly Corplex Donepezil could surpass the once daily Exelon patch which achieved peak level sales of over $1.1 billion.

We’ve been in contact with companies who are interested in working with us on Corplex Donepezil and accessing the marketing rights outside the U.S. We believe there is a significant potential for entering in to a new partnership that provides maximum value to Corium’s stockholders. Such a partnership will not only help fund further development of our candidates but also broaden the commercial reach of the product. As a reminder Corium will expect to be the exclusive manufacturer of our products in any partnerships.

Our second program in the Alzheimer’s disease base is Corplex Memantine which we're also developing as a once weekly patch. Memantine has over 40% of the unit volume of Alzheimer’s treatments in the U.S. and there is a great deal of clinical and commercial synergy between Memantine and donepezil. Donepezil is typically the first line treatment to slow the progression of symptoms of Alzheimer’s and for longer time before patient's progress and need more assistance in care settings.

It’s used to halt [ph] the progression of the disease from early through severe stages. Memantine has typically added as patients advance to the moderate stage of Alzheimer’s. It has different and complementary mechanism of action compared to donepezil and the two drugs are often prescribed by the same physicians and used to treat the same patients.

In our Corplex Memantine program we recently completed a 7 day clinical wear study in which we confirm that without the adhesive overlay that was used in our initial Phase I PK study there were significantly less skin irritation and a good skin tolerability profile. We’ve also developed an optimized formulation of the Memantine candidate likely just for donepezil and based on the results of a Peak [ph] study we believe we have a formulation that will provide consistent delivery over seven days while maintaining an acceptable skin tolerability.

As we did with our Corplex Donepezil candidate we’ve submitted a pre-IND package to the FDA requesting feedback on our proposed BE development patch for the Memantine program and the FDA has indicated they plan to provide us feedback very shortly likely in August. The same rationale for our bio-equivalence of [indiscernible] to donepezil should also apply to Memantine. Since both products have a similar long elimination half way and a very stable PK profile at steady state. We believe that the data will support this approach and we look forward to the industry’s feedback.

Turning to our partner base development and manufacturing business we had significant revenue growth in the third quarter with $10.6 million of revenues compared to $7 million last quarter. Bubba will provide more specifics in a moment but this gain resulted in part from an increase in orders in production of the [indiscernible] patch that we’ve been making for Teva and from growth in revenues from Procter & Gamble.

As we’ve discussed in previous calls there’s been uncertainty around the future of the Clonidine product during the last year and during the first two quarters of fiscal year we reported their revenues from that product had declined from prior years. Teva has been working towards completion of their acquisition of the Allergan's generic business over the past year. And the parties announced over this week that the acquisition has now been completed.

In conjunction with the closing of the deal, Teva has divested the marketing rights to their Clonidine transdermal product to Mayne Pharma. And we’ll be manufacturing the product for Mayne Pharma going forward. As background, Mayne is a pharmaceutical company, headquartered in Australia with a fast growing presence in the U.S. With this transaction, Mayne has acquired the largest number of products being divested by Teva.

Corium has been actively working with Teva and Mayne to effect a smooth transition for this product. And as part of the transition, we’ve been coordinating with Mayne to secure new forecasts, purchase orders and production planning, while continuing to supply quantities required by Teva to ensure no interruption supply to the market.

We expect revenues for the second half of our fiscal year to be significantly higher than in the first half. As we have now return to active planning and production management with our new partner. We believe that Mayne is highly committed to the success of the Clonidine product as a core component of their growth in the United States, and we look forward to working with them.

Our revenues from Procter & Gamble have also increased. In particular, we earned a milestone payment from P&G in connection with the U.S. launch of a new version of Crest Whitestrips, that was previously available only outside the U.S. We are excited about the continued success of our Corplex based relationship with Procter & Gamble.

We’ve also taken steps to improve our operating efficiency and to align our resources around key programs, that it will have greatest impact. We disclosed in June a reduction in force, and this was a result of focusing on our two Alzheimer's product candidates.

Due largely to the increase in revenues this past quarter combined with the completion of our Phase 1 clinical trials for Corplex Donepezil, our cash burn in the third quarter was significantly lower than in the last several quarters. We are actively managing our resources, especially our cash utilization as we plan for increased clinical activity in our Alzheimer's pipeline programs in fiscal 2017.

We also continued to work closely with our partners to advance our development program with them. Among our partner programs, the most significant near-term growth driver is the Agile Therapeutics program for Twirla, the once weekly contraceptive pack. We are encouraged by the progress being made in that program with our support, and Agile has indicated that they expect to have the results from their confirmatory Phase 3 study in the fourth calendar quarter, and to submit this data to the FDA as part of their existing NDA filing in the first half of 2017.

You may have seen that Agile recently announced that they have initiated work with our support on a line extension that would expand the potential use of the Twirla product with a novel contraceptive regimen.

Before Bubba reviews the financial results, I’d like to summarize our progress this quarter. First, we continue to make great advances in both of our Alzheimer's programs, and are preparing to move our Corplex Donepezil into bioequivalence studies later this year. We anticipate feedback from the FDA on the pathway for the Corplex Memantine program this month.

Each of these Alzheimer's candidates represents a market opportunity that could be among the largest ever transdermal products, with substantially less risk, less time and less cost than typical NDA programs. In our partner business, Agile has indicated that they are on track for pivotal data for Twirla in the fourth quarter. And finally, we experienced a significant increase in our partner revenues and are carefully managing our cash usage.

I’ll now turn the call over to Bubba Breuil, who will review our financial results. Bubba?

Robert Breuil

Thank you, Peter. Good afternoon again, ladies and gentlemen. As a reminder, today we will be discussing results for the third quarter and first nine months of the fiscal year. Our current fiscal year ends on September 30, 2016, and the third fiscal quarter ended on June 30, 2016.

Moving forward, I will simply use the word year to refer to our fiscal year, 2015 and 2016 to refer to our most recent fiscal years, the quarter to refer to our third quarter of fiscal 2016 and the first nine months to refer to the first nine months of fiscal 2015 and 2016.

I'd like to begin with the results from the quarter. Today we reported total revenues of $10.6 million for the quarter compared with $10.6 million for the same period in 2015. Product revenues for the quarter were $7.3 million compared with $6.3 million for the same period in 2015. The increase in product revenues was primarily due to Clonidine revenues returning to higher levels following the resolution of uncertainty related to the divestiture of the product from Teva.

We also saw an increase in our product sales to Proctor & Gamble as the Whitestrip product family continued to grow. These increases were partially offset by the continued decline in our Fentanyl revenues as competition among generic Fentanyl product is continuing to put pressure on both price and volume over the last two years. While we have seen these declines taper in recent quarters the transition of order forecasting from Par Pharmaceutical to Endo Pharmaceuticals is not yet complete. So we currently do not have good visibility into the coming year. Similarly the divestiture of Clonidine to Mayne Pharma is in the early stages of transition. So our guidance is limited to this fiscal year.

Turning briefly to our other revenues; as Peter mentioned we earned a $1.1 million milestone payment from Procter & Gamble due to the approval of the U.S. commercial launch of our Whitestrip product that had previously launched outside the U.S. in late 2015. This milestone was fully recognized during the quarter. Contract research and development revenues were $2 million for the quarter compared with $3.5 million for the same period in 2015. The decrease was primarily a result of a decrease in revenues related to the suspension of development activities for a new product with an existing partner and a decrease in revenues from our co-development programs related to the timing of milestone payments for one of those programs. We have continued to experience a slowdown of contract R&D activities with Teva, as the merger created uncertainty as to which of Teva's R&D programs will continue.

I should point out that our product revenues for the quarter exceeded the partner provided forecast and the orders that we had in hand at the time of our last earnings call. Based on our current information we expect fourth quarter revenues to be similar to what we achieved in the third quarter.

Turning now to R&D expense, I'd like to discuss our results in terms of total R&D expense, which is the sum of the R&D expenses for our proprietary program and the cost of contract R&D revenues for our partnered program. As investment in our own pipeline continues to accelerate, and as we have also begun to invest in co-funding opportunities with certain development program, we think it is most relevant to look at our total R&D investment.

Total research and development expenses for the quarter were $8.3 million, up from $7.6 million in the same period of 2015. Although this increase was modest, it was the net result of a $2 million increase in investment in our proprietary program which included the completion of a Phase 1b trial of an optimized formulation for our Corplex Donepezil program and a $1.3 million decrease in cost related to our partnered and co-development programs for the reasons outlined earlier in the discussion of contract R&D Revenue.

As we advance our Alzheimer’s programs into bioequivalence studies starting with the pilot PE study for Corplex Donepezil that we expect to initiate in the fourth calendar quarter of this year, we expect our R&D expenses to continue to increase.

General and administrative expenses for the quarter were $3.1 million compared with $2.8 million for the same period in 2015. The increase is due in part to increases in legal and consulting expenses well as in stock compensation expense. As we have begun the phase in for SOX and other compliance requirements, and as we continue to expand our partnering efforts in parallel with the advancement of our product pipeline we expect G&A expenses will continue to increase.

Net loss for the quarter was $7.5 million or $0.34 per share based on 22.3 million weighted average common shares outstanding during the quarter. This compares to a net loss of $5.9 million or $0.33 per share based on 18.1 million weighted average common shares outstanding during the same period in 2015. The significant difference in the weighted average number of shares between the quarters primarily arises from our follow-on offering in August 2015 which involved the issuance of 4 million new shares. As a result, direct comparisons of net losses per share in 2015 versus 2016 may not be useful to investors. As of June 30, 2016 we have 22.4 million shares outstanding.

We ended the quarter with cash and cash equivalents of $47.4 million, compared to $54.4 million at March 31, 2016. Our current cash resources are sufficient to take us beyond the data read out of all clinical trials currently under way or that are planned to commend during calendar 2016. This includes the pilot BE study that we anticipate initiating during the fourth calendar quarter of 2016, as well as the pivotal Phase III trial of the contraceptive patch being conducted by Agile Therapeutics.

Now I'd like to discuss our results for the first nine months of this fiscal year. For the first nine months of 2016 we reported total revenues of $25.1 million compared with $31.7 million in the same period in 2015. Product revenues for the first nine months of 2016 were $18.9 million compared with $20.5 million in the same period in 2015. This decrease in product revenue was primarily due to the decline in revenues from Fentanyl sales, which were lower in the first nine months of 2016 compared to the same period in 2015, as a result of changes in our agreement with Par Pharmaceutical in which we agree to revise transfer pricing and the elimination of royalties on the sales of this product by Par, which has since been acquired by Endo Pharmaceutical. This decrease was partially offset by increases in our revenues from both our Clonidine and Whitestrip products.

Contract, research and development revenues for the first nine months of 2016 were $4.2 million compared with $9.8 million in the same period in 2015. As I mentioned earlier our R&D revenues were significantly low in 2016 due to the discontinuation of two development programs in 2015.

Turning to R&D expense I would again like to discuss our results in terms of total R&D expense. Total research and development expense for the first nine months of 2016 was $24.2 million up slightly from $24 million for the same period in 2015. Like the results for the quarter this net increase was driven by offsetting trends in the investments in our proprietary program versus the cost of providing contract R&D.

Investment in proprietary programs was up $3.9 million primarily driven by clinical trial expenses for our two Alzheimer's program and contract R&D expense was down by $3.7 million primarily as a result of the reduction of contract R&D revenues for the reasons I outlined earlier.

General and administrative expense for the first nine months of 2016 was $9.1 million compared with $8.2 million in the same period in 2015. This increase was driven primarily by an increase in stock-based compensation expense as well as an increase in salaries and benefits primarily related to new employee cost.

Net loss for the first nine months of 2016 was $27.4 million or $1.23 per share based on 22.3 million weighted-average common shares outstanding during the nine months period. This compares to a net loss of $19.8 million or a $1.10 per share which was based on 18.1 million weighted-average common shares outstanding in the same period in 2015. Again the difference in the shares outstanding between the two periods is almost entirely the result of the completion of our follow-on offering of 4 million shares in August 2015. So direct comparisons of per share amount between these periods may not be useful to investors.

Now I'll turn the call back over to Peter.

Peter Staple

Thank you, Bubba. We are pleased to say that we made a number of significant advances in driving our proprietary pipeline towards important inflection points during the quarter. At the same time we focused our resources on several high value product opportunities.

Moving forward we anticipate the following near term milestones. FDA feedback on our Corplex Memantine development plan this month; confirmatory Phase 3 data or Agile's Twirla product in the fourth calendar quarter; initiating our piolt BE study for Corplex Donepezil also in the fourth quarter and completion of that study in the first half of 2017.

With these near term developments on the horizon we look forward to reporting on our continued progress in the clinic and in our overall business. Operator, we can now open the call for questions.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] Our first question comes from the line of Jason Gerberry with Leerink Partners. Your line is open.

Unidentified Analyst

Hi, this is Edser [ph] filling in for Jason. Just a couple of quick questions. Is it fair to say that the risk of a three day patch for Memantine is pretty much eliminated with the recent Memantine results and will Memantine basically follow the same development path that you are following with Corplex Donepezil?

And one other question if you don’t mind. So with the divestiture of the TDS patch from Teva to Mayne, but does that also include the TDS programs currently in development as well? Thanks.

Peter Staple

Thanks, Edser. So on the first question, on the Memantine patch, based on the work we’ve done, we believe we have a seven day patch and that’s the program that we intend to pursue. With the optimized formulation and the work we did with the wear study, we’re comfortable with the seven day format. So we don’t believe we need to pursue a three day bridge on that patch.

In terms of the development path, that’s part of the clarity that we’re anticipating getting this month, in feedback from the FDA. We proposed a bioequivalence approach that's very similar to the approach with Donepezil. And we anticipate getting feedback from the FDA very shortly on that. We believe that the rationale is similar for both drugs, but we’ll await their feedback.

On the question about the divestiture, the product that was divested to Mayne was the Clonidine product, and that was the only product that we’re involved with, that was divested.

Unidentified Analyst

Thank you.

Operator

Thank you. Our next question comes from the line of Serge Belanger with Needham. Your line is open.

Serge Belanger

Hi, good afternoon. I also have a question on the Corplex Memantine patch. You mentioned, there is an upcoming PK study for the optimized formulation. I think that’s a seven day, the once weekly patch. How is this not required for the - to get pre-IND guidance from the FDA on the BE pathway?

Peter Staple

We made a submission based on the Phase 1 study that we had previously done. So that provided us, sufficient basis for going forward. Remember we looked at the both the three-day and the seven-day in that. And we provided enough information for that submission.

Serge Belanger

Okay. So the guidance, the guidance you expect in by the end of this quarter will be on both three-day and seven-day patch formulations?

Peter Staple

We'll get guidance on both but we believe that the seven-day will be the one to pursue. And just as a reminder, when we did the Donepezil program, we filed our submission based on the initial Phase 1, and we did an optimized study following that submission.

Serge Belanger

Okay. Thanks for the clarification. And I guess to - again, another question on the BE pathway. Can you just, I guess, ballpark the cost figures for a pilot BE study and a pivotal BE study, at least based on what the guidance has been for the Donepezil patch?

Peter Staple

Yes. So the pilot study is roughly $5 million. And the pivotal in part depends on the number of subjects that would be involved in the pivotal and that’s something we’re in the process of determining. But we expect it would be on the order of $15 million, somewhere in that magnitude. So $20 million you could think of $20 million for the clinical cost for both of them combined.

Serge Belanger

All in. Okay. And I guess you expect similar cost for the Memantine patch?

Peter Staple

That’s right, Serge.

Serge Belanger

Okay. And then in partnering discussions on these Corplex transdermal patches. Are you focused more on the ex-U.S. rights or you also evaluating potential licensing of the U.S. rights of the patches?

Peter Staple

We are focused on ex-U.S. rights. We don’t expect interest to be eliminated to ex-U.S. rights. We’re not going to close our minds, but we’re very much focused on ex-U.S. rights.

Serge Belanger

Okay. All right. Thank you.

Peter Staple

Thank you, Serge.

Operator

Thank you. [Operator Instructions] Our next question comes from the line of Ed White with FBR & Company. Your line is open.

Edward White

Hi, guys thanks for taking my question. So I was just wondering if you can give us an update on the MicroCor technology for both the PTH products and the Zolmi [ph] product if there is any update to give?

Peter Staple

Sure. So Ed, in general in MicroCor we are focused primarily right now in terms of Korean funded programs, we are focused on things are being sponsored by our partners. So we are doing a number of feasibility studies with partners on their molecule. We mentioned in the last call, I believe that because of the emphasis on the two Alzheimer's programs that we were not prioritizing taking Zolmi forward this year. So that's in our pipeline, but it's not something we are going to be prioritizing for this year as part of our efforts to manage our cash position and focus our use of cash. And on PTH that's going to be - that's focused on partnering and we are in discussion with partners about that program. So that the investment in that is going to be contingent on partner.

Edward White

Okay. Thanks, Peter. And then just another question regarding the headcount reduction. How many employees did you have at the end of this quarter versus last quarter?

Peter Staple

We have roughly 230 employees currently. The reduction included both employees and contractors, at both our sites, both Menlo Park and Grand Rapids and it was roughly 17% of the total headcount including contractors. I don't recall the exact numbers of employees that went there. But the reduction included both people we had on staff as contractors as well as employees.

Edward White

Okay. So the reduction is complete now?

Peter Staple

There are a few people who are continuing for interim period, so it's not absolutely complete. But the vast majority of it is complete.

Edward White

Okay. Thanks, Peter, that's all that I have.

Peter Staple

Thank you, Ed.

Operator

Thank you and I'm showing no further questions at this time. I'd like to turn the call back to Mr. Staple for closing remark.

Peter Staple

Thanks, Kelly, and thank you everyone for joining us this afternoon for this call. I'd like to thank our stockholders for their support and our employees for their hard work and innovation. We look forward to speaking with you again soon.

Operator, could you please conclude the conference call.

Operator

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

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