Retrophin's (RTRX) CEO Steve Aselage on Q2 2016 Results - Earnings Call Transcript

| About: Retrophin, Inc. (RTRX)

Retrophin, Inc. (NASDAQ:RTRX)

Q2 2016 Results Earnings Conference Call

August 04, 2016, 04:30 PM ET

Executives

Chris Cline - IR

Steve Aselage - CEO

Alvin Shih - EVP and Global Head of R&D

Laura Clague - CFO

Analysts

Brett Larson - Leerink Partners

Do Kim - BMO Capital Markets

Liisa Bayko - JMP Securities

Operator

Good day, ladies and gentlemen, and welcome to the Retrophin Incorporated Second Quarter 2016 Financial Results and Corporate Update 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 follow at that time. [Operator Instructions] As a reminder, this conference call may be recorded.

I would now like to turn the conference over to your host, Mr. Chris Cline. Sir, you may begin.

Chris Cline

Thank you, Gregory [ph]. Good afternoon everyone, and thank you for joining Retrophin's second quarter 2016 financial results and corporate update call. With me today are Steve Aselage, Chief Executive Officer; Laura Clague, Chief Financial Officer; and Dr. Alvin Shih, Executive Vice President and Global Head of R&D.

Before we begin, I have to caution that comments made during this conference call by management will contain forward-looking statements that involve risks and uncertainties regarding the operations and future results of Retrophin. I encourage you to review the company's filings with the Securities and Exchange Commission, which identify specific risk factors that may cause actual results or events to materially differ from those described in the forward-looking statements.

The content of this conference call contains time sensitive information that is accurate only as of today's date, August 4, 2016, and the Company undertakes no obligation to revise or update any statements to reflect events or circumstances after the date of this call.

With that, I'll now turn the call over to Steve. Steve?

Steve Aselage

Thanks, Chris. Good afternoon everyone and thank you for joining us to talk about our second quarter results and the outlook for the rest of the year. Our focus has been on execution and we’ve made progress on a number of critical fronts. I’m particularly pleased with the progress and preparation for our key clinical milestones coming up in the second half of the year.

Importantly, we remain on track to a top line data from the DUET trial of sparsentan available in the near term. We are eagerly awaiting that data and remain optimistic for a successful outcome. If the DUET data are robust we will be in a position to make a strong case with the FDA for accelerated approval.

Further on the pipeline, we had positive developments for RE-024 in the second quarter with the successful showing at the MDS meeting in Berlin at the end of June. New data presented there covered 47 weeks of physician initiated treatment with RE-024 in two adult patients with PKAN. Most notably from the data both patients showed sustained clinical benefit including the regained ability to walk with no treatment related to adverse events.

Today, clinically meaningful responses have been seen in all three patients who have had their data published from their physician initiated treatment with RE-024. The positive feedback we received from investigators and physicians attending the meeting was very encouraging, and we look forward to initiating our efficacy trial of RE-024 in PKAN patients before the end of this year.

From an operational perspective, we had a strong quarter with revenues reaching $33.3 million; a 38% year-over-year increase keeps us on track to meet our guidance of $130 million to $140 million in revenues for 2016.

Thiola, Cholbam, and Chenodal all showed growth in the number of active patients on therapy in the second quarter. We are encouraged that this is the second straight quarter in which we have showed meaningful patient growth with all three products. This reflects the value of our ongoing commercial and medical education efforts. As expected, we also saw an easing of the gross to net headwinds that affected us in the first quarter. I’ll touch briefly on each of the products.

Demand for Thiola remains strong and new patients continue to initiate treatment during the quarter. The salesforce continues to see a positive impact from the new marketing programs that we initiated in the first quarter and we look forward to further growth through the rest of the year. We are also pleased with compliance with Thiola; it remains high in the range of 85% as a result of our total care [ph] providing comprehensive and personalized support to patients.

Turning to Cholbam, we saw an increase in the number of active patients on therapy during the second quarter and we are encouraged by growth in the number of patients being tested with the Neonatal and Adult Cholestasis Sequencing Panel Responser. This free genetic screening panel has shown early benefit and should help further patient identification.

Finally moving onto Chenodal where physicians continue to become more aware, better educated regarding CTX we saw new patients initiate their PKAN this quarter, and were hopeful that the impact of a prevalence study and the efforts of our MSLs [ph] will contribute through more diagnoses earlier in the progression of this under diagnosed disease.

On the business development front, as you know we acquired the rights to a liquid formulation of ursodeoxycholic acid in June, this was an opportunistic addition to strengthen our bile acid therapy portfolio and will further diversify revenues in the near future.

With this product we’ll be looking to address the unmet need for a subset of PBC patients who have difficulties following the solid forms of ursodeoxycholic acid that are currently available.

The plans are to file an NDA for liquid urso in 2017 and make it available through a current commercial infrastructure on approval. We estimate that this product could represent a $20 million to $30 million peak opportunity.

We remain focussed on executing our business development strategy of diversifying the commercial portfolio and adding to our late stage pipeline with additional rare disease assets. In this regard we are engaged on multiple fronts. We are optimistic we will be able to make progress in the second half of this year.

Lastly, before turning it over to Alvin for the R&D update, I am very pleased that we’ve recently been able to strengthen Retrophin's leadership with the addition of Dr. Roy Baynes to our Board of Directors with his deep clinical experience Roy will provide a valuable guidance to Alvin and his team as we move our pipeline forward.

With that, I’ll now turn it over to Alvin to update you on our R&D efforts. Alvin?

Alvin Shih

Thank you, Steve. The Retrophin R&D team made some significant achievements in the second quarter that have kept us on track to meet our key clinical milestone in the second half of the year.

Let’s start with our most advanced program, which is sparsentan for the treatment of focal segmental glomerulosclerosis or FSGS. We remain on track for a top line read out of the data from the Phase 2 DUET trial in the third quarter.

Given the large number of sites across multiple geographies we are in the process of working with our CRO partner to ensure the highest quality data readout. We’ve been making good progress and anticipate early as we will be in position to unblind the data would be early September.

We remain optimistic that sparsentan will represent a significant advancement in care for FSGS patients. And if the data from DUET are robust, we will be in a position to make the strongest possible case for accelerated approval of sparsentan.

In addition the data from the randomized eight week period, we’ll also be able to include data from the open label extension, where we’ll have longitudinal data with more than two years of treatment for some patients.

So it’s a vast majority of patients have continued into the open label extension. We expect that a fair amount of data to support sparsentan. During the second quarter, we also furthered our efforts with academic collaborators and patient efficacy to bolster the case for proteinuria as a surrogate endpoint in FSGS.

We look forward to presenting the output of our joint efforts to the regulatory agencies and also at scientific conferences in the near future.

Shifting gears now, we also made further progress during the second quarter with our other clinical stage candidate which if RE-024 for PKAN. As Steve mentioned, that the MDS Conference in June our collaborators present a new data from two adults with PKAN receiving RE-024 we have positioned an initiated treatment.

The data showed a benign safety profile with no treatment related adverse events during the observation period and the treatment with RE-024 was associated with clinically meaningful improvements followed by stabilization of disease symptoms over 47 weeks of treatment.

These treatment effects were captured using the Movement Disorder Society, unified Parkinson's disease rating scale, or MDS UPDRS. Meaningful improvements on part two and three of the scale at 47 weeks were 41% and 27% respectively.

The treating physician noted that both patients observed multi-faceted improvements and symptoms including the regained ability to walk unassisted for short distances.

Our collaborators have now presented data from three patients receiving RE-024. And with the important caveat that these findings are not in the context of its controlled clinical trial, we remain encouraged by the consistent and sustained responses seen to date.

All told, four ex-U.S. PKAN patients receiving physician initiated treatment remained on RE-024 and have now been receiving RE-024 for up to 26 months. We continue to be optimistic about the potential for RE-024 to be the first disease modifying therapy approved PKAN.

Preparations to initiate our efficacy trial of RE-024 are ongoing and we remain on track to initiate this trial in the second half of this year. Constructive interactions with the FDA and EMA are ongoing as we worked towards alignment of our protocol design to enable a global trial that could support registration in multiple geographies.

The newest addition to the pipeline liquid ursodeoxycholic acid represents a meaningful improvement on our existing therapy that could make a meaningful difference to PBC patients who have difficulty swallowing.

Our team is integrating the program into our pipeline and preparing for 505(b)(2) NDA filling in 2017. We'll provide periodic update liquid or so as we get closer to important milestones.

With regards to RE-034 which is our synthetic formulation of the first 24 amino acid of ACTH. Our internal efforts have produced the molecule that we think has the potential to move forward.

Given the competitive landscape we decide to pursue strategic alternatives for RE-034 including partnerships that may allow it to enter development for Orphan or non-orphan indications.

Now shifting gears to our work on marketed portfolio of products. We continue to work on fulfilling our post marketing commitments as well as improving the overall patient's experience.

Cholbam continues to be the focus of significant efforts by the R&D team. The development of a quantitative urinary bile acid assay is continuing on schedule and when done we'll provide an additional data point for clinicians to see their diagnosed patients or monitor treatment effects.

We're also making significant progress on finalizing regulatory approval on the structure of a patient registry that's going to systematically capture data on all Cholbam patients worldwide in one unified database. Finally, we're support several investigators sponsored initiatives which may add to the existing literature on Cholbam use.

Regarding Chenodal our efforts are focused on two fronts. The first is the enrolment of our CTX prevalence study. As you may recall, this prevalence study is a long term effort to enrol subjects with bilateral juvenile cataracts, which are usual idiopathic in origin.

Identify patients who have a high index of suspicion for CTX are then invited in for genetic testing. Our hope is to establish a better sense of the true prevalence of CTX and this in rich population. And also to identify patients who may benefit from Chenodal treatment.

More than 25 sites have been activated and are current recruiting subjects for the study. The second part of our effort are on Chenodal, is the effort to get CTX added to the Chenodal label.

Our last interaction with the agency back in April left us with the sense that there's viable path forward which include a clinical study in the CTX population. We're working with the key opinion leaders in CTX and with patients efficacy group to shape the study protocol that can effectively address the agencies request while remaining sensitive to the needs and desires of the patient population. We'll provide further updates as we make progress toward this goal.

For Thiola, our work with Mission Pharmacal and improve more patient friendly formulation is on going. We anticipate that this effort will take well in the 2017 before regulatory submission would be forthcoming.

Overall, I am happy with the progress our team has made so far this year and we remain very excited about the upcoming milestones for the pipeline coming up in the second half of this year.

I'll now turn it over to Laura, to walk through the financials for the quarter. Laura?

Laura Clague

Thank you, Alvin. Net product sales from our commercial portfolio were $33.3 million in the second quarter of 2016, a 38% increase over the same period last year. This increase was driven by growth in the number of new patients initiating treatment with all three products.

We reported GAAP net loss of $13.4 million for the second quarter 2016, compared to net loss of $25.5 million for the same period in 2015. Adjusting for non-cash expense resulted in a net income of $2.5 million for the quarter.

Significant non-cash adjustments for the quarter included $14.2 million of non-GAAP op loss adjustments and $9.1 million related to the company's derivative liability due to share price fluctuations offsetting part by an income tax benefit at $7.4 million as a result of orphan drug and R&D tax credits.

R&D expenses on a GAAP basis were $17.7 million for the second quarter of 2016, compared to $10.6 million for the same period in 2015. The increase over the same period last year is due to higher clinical trial expense related to sparsentan and RE-024.

On an adjusted basis, R&D expense for the second quarter of 2016 was $15 million. Relevant non-cash expenses for the second quarter included $2.7 million of stock-based compensation and amortization.

Selling, general and administrative expenses were $23.2 million on a GAAP basis in the second quarter of 2016, compared to $19.7 million in the same period last year. The increase over 2015 is largely attributable to higher headcount as well as further investment in sales and marketing programs to support our commercial product.

On an adjusted basis, SG&A expense for the second quarter was $14.5 million. Significant non-cash adjustments consisted of $8.7 million related to stock-based compensation, and depreciation and amortization.

As of June 30, 2016 we had approximately $315.2 million in cash and cash equivalents, marketable securities, and notes receivables from the sale of our PRB. This value includes the present value of the two $47.5 million payments due from Sanofi. We received payment in full for the 2016 payment last month and we expect to receive the final payment in July of 2017.

Looking ahead, as we stated last quarter, we expect operating expenses will likely increase slightly through the second half of the year as we continue to progress towards our clinical milestones and support our commercial efforts.

I'll now turn the call back over to Steve for his closing remarks. Steve?

Steve Aselage

Thank you, Laura. In the second quarter we made important progress in support of our lead pipeline programs. We had a development candidate with potential to fill an unmet need for PBC patients and to deliver near term revenue diversification.

In parallel, we grew our top line revenues and maintain strong physical control. We are trying to keep our positive momentum going into the second half of the year with key clinical milestones on the horizon that will help shape Retrophin's future.

We are optimistic that topline data from the DUET trial will provide hope for patient suffering from FSGS and support our goal to deliver the first approved pharmacologic treatment to this community.

And we are also looking forward to the first PKAN patients enrolling in the RE-024 efficacy trial before the end of the year. We aim to deliver the first approved treatment for this progressively debilitating disorder.

Let me now turn it back over to Chris and open up the lines for questions.

Chris Cline

Thanks, Steve. Gregory, can you open up the lines for questions please?

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] Our first question comes from Joseph Schwartz of Leerink Partners. Your line is open.

Brett Larson

Thank you. Good afternoon everyone. This is Brett Larson dialling in for Joe. Appreciate the update across your program. First, the question on when your commercial programs build, so we've been hearing for quite some time that the Chenodal label expansion is inching closer and closer to resolution.

Wonder if you can speak a little bit more about the activities that are been going on since your last meeting in April and whether we -- and there's any time line that we can look towards for final resolution of this discussion?

Alvin Shih

Hi, Brett. Alvin here and I can take that question. As you know we're continuing in dialogue with the agency and it's required multiple rounds of negotiation. Our last interaction back in April was we viewed that's been highly constructive and we're taking the agencies feedback to heart.

We're working with clinicians and patient group to make sure that the trial protocol that we come up with this feasible. Our plan is to go back to the agency once that protocol is finalized. We're targeting to have that discussion happen in the second half of this year.

Brett Larson

Will we get an update, there is positive feedback on the path forward and serve resolution with the FDA or should we act like for that towards maybe in the next quarterly update?

Alvin Shih

Yes. I think once we get agreement on it, we'll begin initiation of that trial and that something that we would be able to update you on.

Brett Larson

Okay, great. And related to sparsentan as we approach the data readout there, can you speak again to what may injure [ph] response rates. Do you prepared or expecting to see within control arm ultimately, I know you speak at certain before at certain point estimate there, but what is for the outer, lower and upper balance, but what would be your expectations for that response so we can think towards what are relative [Indiscernible]?

Alvin Shih

Sure. I think the right way to think of that is our expectations for the irbesartan are driven by the literature and chronic kidney disease, so we don't have specific data points in FSGS, but we can infer from the literature that the response rate on proteinuria or irbesartan will be in the 20% range. That's our expectation. We need to see an effect of sparsentan over and above that 20%. We feel that what would have both clinical and statistical significance would be a relative 50% greater improvement on proteinuria. So irbesartan gives you 20% we would like to see a 30% reduction in sparsentan. And again we think that will be both clinically and statistically meaningful.

Brett Larson

Okay, great. And last question related to RE-024, should we expect any data from the fourth patient that has been receiving RE-024 outside the U.S. compassionate programs, use programs anytime in the near future, as well as our all four of these patients that has were initiated previously on compassionate use of RE-024 still receiving therapy? And lastly, you have any additional patients have been initiated on RE-024 through similar programs?

Alvin Shih

So, all four patients who were initiate on RE-024 continue to be on 024 treatment; and again the length of treatment for those patients is upwards of two years now in the longest case. There have not been initiations of other patients on physician's protocols. And in terms of if and when the last patient would get published, that's really at the discretion of the individual investigators.

We have worked very closely with our collaborator to push publication and dissemination of results, but ultimately since these are physician initiated treatments it's not within the company's control. And so I can't promise that publication will be forthcoming. We certain would encourage it but it's not something that I can promise.

Brett Larson

Of course, understand. Thank you very much for taking my questions and looking forward to the upcoming spark in India [ph].

Operator

Thank you. Our next question comes from Do Kim of BMO Capital Markets. Your line is open.

Do Kim

Thank you for taking my questions. My first question is on the DUET study, I was hoping you could expand more on the data gathering process for having the clinical site compile that data to you, having the completed data analysis on hand, and potentially pointing to which are the rate limiting steps and who will be doing the analysis of the unwinded data. Are you doing it internally or will the CRO will do it?

Steve Aselage

Hey, Do, thanks for your question. Let me just provide little bit of contact as well. As we mentioned this is really the largest ever industry's sponsored trial ever conducted in FSGS and we enrolled patients across more than 40 sites in multiple continents. And as you may guess the overall complexity of the data readout really goes up significantly with the number of sites not to mention the geographies involved.

So our priority is to ensure high quality readout and so our data management team has been working over time with our CRO partner to ensure that the data are reliable and that we can ensure integrity of that data. For those of you who closed out the trial before you know this often takes a large number of data queries which take some time to resolve. So that really is the rate limiting step at this point. We're working as quickly as possible to get a good data readout. And again we're anticipating that early September would be the soonest time we'd able to see the unwinded results.

Do Kim

And then you'll do the analysis internally?

Steve Aselage

The analysis has been done by the CRO.

Do Kim

Okay. And I also have a question on your decision to use proteinuria as the primary endpoint. We've been hearing that regulators have been considering GFR decline as a surrogate endpoint for kidney disease. And just we know there's a pretty close relationship between GFR and proteinuria, was there any advantage for choosing proteinuria over GFR decline?

Steve Aselage

We believe there is in the sense proteinuria have seem to be a leading indictors that you might expect to see dip even before you would expect to see a decline in GFR. Decline in GFR whether you call it a 40% or 50% decline in GFR can still take quite a long time to achieve as an endpoint. And so the goal at pushing proteinuria is to find something that can translate and actually give you an earlier read on disease, even earlier than GFR decline.

Do Kim

Okay. That makes total sense. Thanks for taking my question.

Steve Aselage

Thanks, Do.

Operator

Thank you. Our next question comes from Liisa Bayko of JMP Securities. Your line is open.

Liisa Bayko

Hi, there. Thanks for taking my question. Can you give us a little color on the design you're thinking about for the RE-024 study?

Steve Aselage

Yes. That's something that's still up in the air. It's in discussion with the agency both the FDA and the EMA. What I can tell you is that we expect that it will be a placebo control study to ARMs, randomize and we'll be looking at a functional outcome they were measuring should support registration. And we'll have a good read out on how PKAN patients feel function and survive which is what the agency wants to see. So once we nail down those details we'll be able to tell you more about the sizing and the duration of the trial, but that's where we're at right now.

Liisa Bayko

Okay. And I just want to ask a little bit more about your primary and plus endpoint for the DUET study. Can you talk about how you will be expressing that reduction in proteinuria as reduction comes to responder index, are you trying to see what percentage of patients get to a particular level, specifically how will you -- how should we expect to, the data read out to be?

Steve Aselage

Sure. So, the answer is that we'll be looking at both, the primary endpoint is a straight comparison of the percent reduction on sparsentan versus the percent reduction on irbesartan. And so it will be standardized and global measurements there.

As part of the -- our secondary outcomes we will be looking at responder analysis, so that's looking at how many need to pre-specified criteria with sparsentan versus how many needed with irbesartan. So we will be looking at data both ways.

Liisa Bayko

Okay. Thank you.

Operator

Thank you. I'm showing no further questions in the queue at this time. I'd like to turn the conference back over to Mr. Cline for any closing remarks.

Chris Cline

Great. Thanks [Indiscernible]. This concludes our call for the quarter. And we thank you for listening. And we look forward to updating on our progress next quarter.

Operator

Thank you. Ladies and gentlemen, this does conclude today's conference. Thank you for your participation and have a wonderful day. You may all disconnect.

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