Chiasma, Inc. (NASDAQ:CHMA)
Q2 2016 Results Earnings Conference Call
August 10, 2016 05:00 PM ET
Jason Fredette - Senior Director, IR
Mark Leuchtenberger - President and CEO
Mark Fitzpatrick - CFO
Douglas Tsao - Barclays
Tim Lugo - William Blair
Good afternoon and welcome to the Chiasma’s Second Quarter 2016 Earnings Conference Call. All participants will be in a 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 Jason Fredette, Senior Director of Investor Relations. Please go ahead, sir.
Thank you, Laura and welcome to the call everyone. With me here this afternoon are Chiasma’s President and CEO, Mark Leuchtenberger; and our Chief Financial Officer, Mark Fitzpatrick. Before we begin, please note that certain statements made on today’s call maybe deemed forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other securities laws. These forward-looking statements are based on Chiasma’s beliefs and expectations as of today and they are subject to a number of risks and uncertainties that could cause actual results to differ materially and adversely from those set forth in or implied by such forward-looking statements. For a discussion of the risks, uncertainties and other important factors that could cause our actual results to differ from those contained in the forward-looking statements, please refer to today’s press release and the risk factors section in our SEC filings, including our most recent annual report on Form 10-K and our most recent quarterly report on Form 10-Q as well as our subsequent filings with the SEC. These filings can be accessed from our website, chiasmapharma.com or the SEC’s website.
And now, let me turn the call over to CEO, Mark Leuchtenberger. Mark?
Thank you, Jason and good afternoon everyone. The second quarter was a kind of reassessment for Chiasma triggered by our receipt of a complete response letter or CRL from the FDA on April 15th, regarding our new drug applications for octreotide capsules or Mycapssa. Mycapssa is a novel oral somatostatin analog that we developed as a potential replacement for monthly somatostatin analog injections, for adult patients with chronic acromegaly which is a rare and debilitating disease.
In its CRL, the FDA advised that Mycapssa did not warrant approval for two reasons. The first was related to certain deficiencies the agency had noted during an inspection at one of our supplier site that we believe we could have overcome given the redundancies we had established in our supply chain. The second reason was that the according to the FDA the data in our application had not provided substantial evidence of Mycapssa’s efficacy to warrant approval. It was this finding and the FDA’s strong recommendation that we conduct a new randomized double-blind and controlled trial that prompted us to seek an end of review meeting with the agency.
In June, we participated in an end of review meeting at the FDA’s offices to discuss the CRL and potential regulatory path forward for Mycapssa. At this meeting and in the meeting minutes we subsequently received, the agency reiterated its view that our NDA lacked substantial evidence of efficacy. The FDA also reiterated its strong recommendation for a randomized double-blind and controlled trial that includes patients from the United States and that is of sufficiently long duration to ensure the control of disease activity is stable at the time point selected for the primary efficacy assessment. Additionally, in the end of review meeting minutes, the FDA introduced the concept that some of its concerns could potentially be addressed through a placebo controlled design. We acknowledge the agency’s feedback and are continuing to evaluate various potential paths, including whether we can address the FDA’s concerns through submission of additional analyses or data or other means.
While the FDA has indicated that it would be open to considering alternative plans to address its concerns, it also says that it would consider any alternative to the trial recommended in the CRL and at the end of review meeting to be less ideal and ultimately more risky. Additionally, if we choose to pursue an alternative path, the FDA recommended that we work with the Division of Metabolism and Endocrinology to reach a common understanding of expectations prior to initiating any work.
So, our dialogue with the FDA is ongoing as are our deliberations with Chiasma’s Board of Directors regarding our business strategy and priorities. At present, our main priority remains clear and unchanged. Chiasma is a Company that’s long been focused on bringing a new treatment option to patients with acromegaly and we continue to believe in the potential of Mycapssa to help many of these patients as is evidenced by our ongoing MPOWERED Phase 3 trial. We are currently recruiting U.S. and EU patients in this open label randomized active controlled trial that was agreed to by the European Medicines Agency to demonstrate the non-inferiority of Mycapssa to monthly injectable somatostatin analog.
Following a six-month running phase during which all patients will receive 40 milligrams to 80 milligrams of Mycapssa daily, subjects will be randomized with 60% remaining on Mycapssa and 40% reverting back to injection for a nine-month controlled phase. We initiated the trial in March prior to our PDUFA date and enrollment is now underway. Ultimately, we expect to enroll approximately 150 patients in the United States, Europe and other countries as we seek to file a marketing authorization application with the EMA in 2019.
Cost containment is also a clear priority for our executive team and Board. In June, we implemented a restructuring plan that included a reduction of approximately one-third of our workforce including essentially all of our commercial personnel. This was a difficult yet necessary decision, one that enabled us to reduce our payroll and related costs by nearly $4.5 million annually and focus our resources on Mycapssa’s continued development. As we continue to work diligently to establish our U.S. regulatory course and revised business priorities, we also will continue to consider further cost reductions in an effort to allow us to meet key milestones with or existing cash. We look forward to sharing plans with you in due course regarding our cash management, our business strategy and of course Mycapssa’s development.
And now, our CFO, Mark Fitzpatrick will provide some additional color about our restructuring and go through our Q2 financials. Fitz?
Thank you, Mark. Let’s focus first on our income statement for the second quarter of 2016. Marketing, general and administrative expenses were $5.4 million, which compares to $3.4 million for the quarter-ended June 30, 2015. The increase was largely due to greater compensation-related expenses associated with our expanded U.S. office as well as increased professional and consulting fees associated with being a public Company.
Research and development expenses were unusually high for the quarter at $14.8 million, which compares with $4.2 million for the second quarter of 2015. Approximately $7.4 million or half of our R&D spend in Q2 was attributable to the receipt of two contractually obligated shipments of active pharmaceutical ingredient or API that we had ordered in an anticipation of Mycapssa’s approval. The remainder of the year-over-year increase in R&D expenses was primarily due to our ongoing MPOWERED trial, activities associated with manufacturing process validation and greater salaries and related expenses due to the hiring of research and development employees.
We incurred a restructuring charge of approximately $6.5 million for the quarter ended June 30, 2016. Approximately $1.8 million of this total was attributable to the restructuring plan that we announced in June following the end of review meeting with FDA. The remaining $4.7 million in charges were related to cash penalty expenses that were incurred to indefinitely suspend our commercial API production commitments and certain manufacturing services. I would like to note that these penalty payments and the API purchases I mentioned a minute ago fulfill our contractual commercial supply chain obligations that were entered into prior to our PDUFA date.
For the second quarter, including the previously described charges for API and restructuring that amounted to nearly $14 million we recorded a net loss attributable to common stockholders of $26.7 million or $1.10 per basic share. This compares to a net loss attributable to common stockholders of $8 million or $50.36 per basic share for the same period of 2015. These per share figures are based upon approximately 24.3 million weighted average common shares outstanding for the quarter ended June 30, 2016 versus approximately 158,000 weighted average common shares outstanding for the second quarter of 2015. Please note that in connection with our IPO, all of Chiasma’s redeemable preferred stock was converted into common stock. Prior to our IPO, redeemable preferred stock was excluded from this calculation.
Chiasma’s cash, cash equivalents and marketable securities as of June 30, 2016 were $115.6 million, which compares with $134.3 million as of March 31, 2016 and $148.8 million as of year-end 2015. Please note that we expect our Q3 2016 cash used in operations to include approximately $8 million to $9 million related to our Q2 API purchases, manufacturing penalties and other restructuring costs.
Once we have finalized our discussions with the FDA and our Board of Directors regarding our future plans, we will be able to provide further clarity on our anticipated operating expenditures and cash forecasts. However, based on our current analysis and staffing level, we believe that our existing balance of cash, cash equivalents and marketable securities is sufficient to fund our operations at least through the end of 2017.
And now, operator, we are ready to take questions. Thank you.
Thank you. [Operator Instructions] And showing no questions at this time, I would like to turn the conference back over to Mark Leuchtenberger for any closing remarks. I apologize. We do have a question from Douglas Tsao of Barclays.
Thanks for taking the questions. I guess obviously, what are the decision points that you’re going through in terms of assessing the different paths? I know in the press release, you highlighted being able to address some of the agency’s concerns through reanalysis of the existing data. But obviously they have expressed pretty clearly their own preference. So, I am just trying to understand how you are going to think through some of the different options that are at play or that you discussed in the press release. Thank you.
Hey Doug, it’s Mark. So, I think as you heard, at the end of review meeting, they reiterated the recommendation they made in their complete response. And obviously we have to acknowledge this feedback. We are taking a look at that. We’re looking at a variety of different paths forward. We have to keep in mind that while they’ve indicated they are open to considering other plans, they have also stated at the same time, they consider any pathways alternative to their own recommendation to be les ideal, ultimately more risky through an NDA [ph] process. And they have also added that they want us to work with the Division of Metabolism and Endocrinology. So, regarding those pathways specifically, we really just can’t speculate right now. We are really working hard to look at all those and to try and handicap on how we might satisfy the FDA. And then, we definitely plan to have further dialogue with them once we get those further discussions under our belt and then we’ll also work with the board, we will be able to provide you guys with a better update.
And our next question will come from Tim Lugo of William Blair.
Thanks for taking my question. And I apologize if you went over this in your prepared comments. I dialed into the call a little late; I am juggling between a couple of companies. But for MPOWERED, how far along are you with the European enrollment, and what’s kind of the latest update for that study?
Sure. Hi, Tim, it’s Mark. So, we just recently initiated the trial. And at this point we’re not providing any granular details on sites or enrollment. But, as I said, we have initiated it in March; we’ve opened multiple sites; we’ve enrolled multiple patients, we can say that. And assuming it goes as plan, we expect this is going to enable us to make the MAA submission to EMA in 2019.
And obviously, you’ve discussed this trial with the FDA and they still prefer something a little more rigorous with a compared arm or placebo control?
No, I think I always said with respect to the agency feedback is that they have asked for the trial, they’ve described and we described to you guys, and that we are evaluating a variety of pathways. And with respect to any potential link between MPOWERED and our FDA strategy, we really just can’t speculate. We’re looking at all potential possible pathways forward, and that’s where we’re right now.
Okay, I understood. And hopefully, should we get an update on the Q3 call or do you expect maybe the Q4 before we get some clarity?
Yes, I think the timing is going to be the timing. I wish I could give you a sharper detail but we’re going to work towards the right answer and the right path forward, and we’re going to take the time that we need. So, we’re obviously all very hopeful that we can resolve this as soon as possible. And as soon as we get the feedback that we are speaking and chart the course and then confirm that with our Board, then we will be back with investors and give you guys the update that we hope to be able to give you, obviously as soon as possible.
[Operator Instructions] And showing no further questions, I will once again turn it back to Mark Leuchtenberger for closing remarks.
Sure. Well, thank you very much, Laura. Thank you all on the call for joining us once again today. This concludes our call.
The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.
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