Foamix Pharmaceuticals Ltd. (NASDAQ:FOMX)
Q3 2016 Results Earnings Conference Call
November 16, 2016 8:30 a.m. ET
Michael Wood - IR, LifeSci Advisors
Dov Tamarkin - Chief Executive Officer
David Domzalski - President, US Subsidiary
Ilan Hadar - Chief Financial Officer
Louise Chen - Guggenheim
Morgan Williams - Barclays Capital
Ken Cacciatore - Cowen and Company
Good day and welcome to the Foamix Pharmaceuticals Third Quarter 2016 Earnings Call. Today’s conference is being recorded. And at this time, I would like to turn it over to Mr. Michael Wood of LifeSci Advisors. Please go ahead.
Thank you, operator, and thank you all for participating in today’s conference call. Last night, Foamix released financial results and provided a business update for the third quarter ended September 30, 2016. If you did not yet receive the press release, it’s available on the Investor Relations page of the Foamix Web site at foamixpharma.com. This call is being recorded and webcast and a replay will be available on the company’s Web site for the next two weeks.
Before we begin, the company would like to remind you that some of the information contained in the news release and on the conference call contain forward-looking statements that involve risks, uncertainties and assumptions that are difficult to predict. Words that express and reflect optimism, satisfaction with current progress, prospects or projections, as well as words such as believe, intend, expect, plan, anticipate and similar variations identify forward-looking statements but their absence does not mean that the statement is not forward-looking.
Such forward-looking statements are not a guarantee of performance and the company’s actual results could differ materially from those contained in such statements. Several factors that could cause or contribute to such differences are described in detail in the Foamix’s filings with the SEC. These forward-looking statements speak only as of the date of today’s press release and the conference call, and the company undertakes no obligation to publicly update any forward-looking statements or supply new information regarding the circumstances after the date of the release and conference call.
Participating in today’s call are Dr. Dov Tamarkin, Chief Executive Officer of Foamix, Dave Domzalski, President of Foamix’s U.S. Subsidiary, and Ilan Hadar, Chief Financial Officer of the company.
With that, I would like to turn the call over to Dr. Tamarkin. Dov, please go ahead.
Thank you, Michael, and good morning to everyone joining our call today. We appreciate the opportunity to review our third quarter financials and provide you with a corporate update.
So far, 2016 has been a very successful year for Foamix and we continue to make progress quarter by quarter and in the recent weeks on clinical, operational and financial fronts. Foamix has a pipeline of proprietary, innovative and differentiated foam-based topical drugs for dermatological conditions that are in various stages of clinical development. There are two recent and most important developments that I would like to highlight.
First, I am very pleased to announce today that we have reached target enrollment in the Phase III program for our minocycline foam 4%, FMX101, which is in the clinic for moderate to severe acne. We are very pleased by how this trial has been progressing and our goal remains to have top end results in the third quarter -- sorry, in the first half of 2017. Second, in September, we announced positive Phase II clinical data on FMX103, a minocycline foam with different concentrations of the active agent in patients with moderate to severe rosacea.
FMX103 demonstrated clinically meaningful and statistically significant efficacy in treating moderate to severe rosacea and it appeared to be safe and well-tolerated. This data are important not just for this program, but they also provide further validation of our foam-based technology platform. Of note, the mainstay therapy for both moderate to severe acne and moderate to severe rosacea is the [oral] [ph] antibiotics, minocycline and doxycycline. If approved, FMX101 and FMX103 are likely to be the first topical forms of minocycline to be used for this indication.
And of course, drug development is a capital intensive undertaking. In September, we were able to strengthen our balance sheet by raising an additional $54 million in net proceeds in a successful follow-on offering. We are very grateful for the support of our investors and now we have the financial ability to fund our clinical programs into 2019. I will now turn the call over to Dave Domzalski, for more details on our business and pipeline progress. Dave?
Thanks, Dov, and good morning to everyone. Let me begin with an update on our most advanced product candidates, FMX101, which is in a Phase III program for moderate to severe acne. FMX101 is a 4% foam concentration of the antibiotic, minocycline and we are running two concurrent multicenter Phase III trials in patients with moderate to severe acne.
To recap on the Phase III trial design. Patients in each trial are being randomized initially into a 12-week double-blind, vehicle controlled phase during which they are treated once daily with either FMX101 or vehicle. Now this double blind portion of each study is followed by nine months of open label treatment with the active drug to evaluate the safety of intermittent use of FMX101.
Today, as Dov mentioned earlier, we are announcing that we have reached our target enrollment of 900 patients for the two trials. We have made a decision to allow those additional patients who are currently in the screening process to complete that process and also be enrolled. We expect to complete final patient enrollment by the end of this month and we maintain our expectation to report top line results from the blinded portion of these trials in the first half of 2017.
We are very pleased to have reached our enrollment target ahead of schedule. Recall that these trials just got underway in May this year and the pace of the enrollments, I believe, speaks to the interest we are seeing in FMX101 from both patients and medical community. The highlights of the third quarter was our announcement on September 12 of positive top line results from the Phase II clinical trial of FMX103, which we are developing for the treatment of papulopustular rosacea. We went through the details of these results on the call we hosted back in September. Let me briefly review some of the highlights.
This was a randomized, multi-center, double-blind, vehicle controlled study to evaluate the safety and efficacy of two different doses of FMX103, which again is our topical minocycline foam comparative vehicle and 233 patients were enrolled. The trial successfully met its primary endpoint which was the reduction in inflammatory lesions. Our secondary efficacy endpoints were also met, including change in the Investigator Global Assessment or IGA score. The results, both for the primary and secondary endpoints were highly statistically significant. The therapeutic benefits were observed with both doses, 1.5% and 3% of FMX103. There were very few adverse events, no drug related or systemic adverse events were reported and only 4 patients discontinued the study due to an adverse event out of the 233 in total.
As we have stated previously, we plan to hold an end of Phase II meeting with the FDA as soon as practical to discuss the results of this study and the next steps for FMX103. We plan to keep you informed as we make further progress and our goal is to hopefully initiate a Phase III program sometime next year. Given the nature of rosacea and the lack of safe medications available, especially for moderate to severe disease, finding an effective topical treatment with minimal side effects would have meaningful near and long-term benefits for patients.
The market opportunity for rosacea is also very attractive. It's an undifferentiated market with few options and competitors to address significant unmet needs. Current data suggests the market today is worth more than $1 billion in the United States and we think this is a market we couldn’t ultimately serve with our own sales force. Development activities continue for both FMX102, minocycline foam for the treatment of impetigo, and FDX104, our doxycycline foam for the management of acne-like rash associated with EGFRI use in cancer patients. We will provide updates on these programs as we move forward.
Beyond developing innovative products in-house, as you know, we have several collaborations ongoing with major drug manufacturers throughout the world. Our most advanced partnership is with Bayer. In September of last year, Bayer Healthcare began selling Finacea Foam in the United States. To remind you, this is a prescription foam product developed using our proprietary foam technology platform and we sought the FDA approval last year as an important validation of our technology. Based on third quarter 2016 sales reported by Bayer, we are entitled to $794,000 in royalties for the quarter and this is a 6% increase sequentially from the second quarter this year.
In addition to the royalty payment, we are entitled to a further milestone payment of $1.75 million due to Bayer's achievement of net sales in excess of the target set for Finacea Foam. Finally, our intellectual property portfolio also continues to expand. We currently have 145 patents issued worldwide of which 49 patents are issued in the United States. Before I turn the call over to Ilan, I also want to let each of you on this call know that we will be hosting a key opinion leader luncheon meeting in New York at 12 noon on December 2 with two prominent clinical investigators, Dr. Linda Stein-Gold and Dr. Guy Webster, who will discuss the clinical landscape and opportunities in rosacea and acne respectively. We look forward to seeing some of you there in person, and for those of you that can't be there in person, this event will also be webcast live.
Now I would like to turn the call over to Ilan who will provide you with financial updates. Ilan?
Thank you, Dave. Good morning, everyone. I will provide an overview of Foamix financial results for the third quarter ended September 30, 2016.
Total revenues for the quarter were $2.5 million compared with $22,000 for the third quarter in 2015. The increase was due to royalty payments from Bayer HealthCare AG for the sales of Finacea Foam of $794,000 and additional contingent payments totaling $1.75 million, due to Bayer's achievement of net sales in excess of the target set for this product.
R&D expenses in the third quarter were $5.9 million, compared with $2 million in the same period of 2015. The increase resulted primarily from an increase in cost relating to the FMX101 and FMX103 clinical trials as well as an increase in payroll and related expenses due to an increase in the number of R&D employees.
SG&A expenses in the third quarter were $2.6 million, compared with $1.6 million in the same period last year. The increase resulted primarily from increases in payroll and other payroll-related expenses, market research costs, expense related to the company's board of directors including stock-based compensation, and patent and trademark expenses. For the three months ended September 30, 2016, we recorded a loss of $5.8 million or $0.19 per share, basic and diluted, compared with a loss of $3.4 million or $0.11 per share basic and diluted of the three months ended September 30, 2015.
As of September 30, we had cash, cash equivalents, short and long-term investments of $140.1 million, compared with $103.8 million as of December 30, 2015. The higher cash level was mostly a result of the successful follow on equity offering we completed in September in which we sold approximately 6.1 million shares including the underwriters' overallotment, net proceeds from the offering after expenses and underwriter fees were $54.1 million. We estimate that our existing cash and investments provide sufficient financial flexibility to finance our clinical and business operations into 2019. For further details on our financials, including the results for the nine months and three months period ended September 30, 2016, please refer to our Form 6-K filed with the SEC.
That concludes my review of the company's financial results. We would now like to open the call for questions. Operator?
[Operator Instructions] We will go first to Louise Chen with Guggenheim.
I had a few here. So one question I have for you is, what do you think about acquiring a commercial platform to help launch FMX101 and maybe a rosacea product as well. And then secondly, one of the things that we have received a lot of questions on given the drug environment, the pricing, is is pricing for dermatology drugs has changed and how you think about that for your products. And then last thing, it's just a question on manufacturing scale up for FMX101. Just curious what's already been completed and what you have to do to get this ready for commercial launch. Thank you.
Sure. Thanks, Louise. I will address the questions that you posed. I will start with your last one and work back regarding our scale up activities. As we have communicated consistently over the last several quarters, we are quite pleased with how things continued to progress with scale up activities. We have communicated that we intend to finalize our registration batch, scale level after the turn of the year. Those plans are in place and those manufacturing slots are in place. Once that’s concluded, we will obviously communicate that mostly likely on our next earnings call or shortly thereafter. But we are quite pleased with the progress we have made. Our partner ASM has done a fantastic job between our contract manufacturing, our internal team both the United States and Israel; we feel very good about how things have progressed and we continue to be on target as we have communicated in the past. So feel good there. Things are progressing nicely.
Regarding pricing, I think the entire pharmaceutical environment has to be sensitive and aware of what's happened over the course of the last several quarters with other players in this space. But as we have said all along, we believe that our product has a significant value proposition for patients as well as prescribers and payers. And the market research that we have done with payers reinforces that. We have communicated all along that we believe that our product will fit in well to treat patients that have moderate to severe acne. We have communicated all along that our goal is to partner with payers as needed and ensure patients get access to our product and we stand behind that.
So nothing has really changed over the course of the last several quarters. Our research continues to reinforce that. I think we have a good plan going forward. But obviously, we will continue to monitor this over the next several quarters. And lastly regarding your question on acquiring other platforms prior to launch. We have talked about this, I think again it's a bit premature. Our focus is squarely on completing the clinical program for FMX101 and post the exciting news that we had earlier in the third quarter for FMX103, we are eager to meet with the FDA and hopefully get into a Phase III program as soon as possible, hopefully again sometime next year.
I think when it gets through some of these key milestones, obviously a big one coming up will be the topline data review of our blinded, the blinded portion of the Phase III trials in acne and I think post that, we will consider lots of options. So perhaps more for us to talk more about down the line but in the meantime we are going to stay squarely focused on executing our clinical development plans.
We will take our next question from Douglas Tsao with Barclays.
Hi, this is Morgan Williams on for Doug. I just had a quick question on the expansion in your IP portfolio. It looks like you had 138 patents outstanding as of January 2016 and that have now grown to 145. I am just wondering what the incremental patents offer you in terms of protection and kind of the run rate from there and kind of how you view the IP portfolio going forward.
Dov, why don’t you take that one?
With pleasure, and thank you for this question. It is our philosophy and routine to file patent and prosecute patents in order to cover our lead products 101 and 103, minocycline foams as well as other products that are in our pipeline. And as you can see the result, we are getting patents on both fronts. Some of the patents we received in the last few months are related to FMX101 and cover it from more and more directions. So we now have much more than one patent covering FMX101, FMX103 in other forms of minocycline and doxycycline. Other patents that we have received cover drugs that are under development in different types of forms such as the emollient foam or others, and those serve both of our own products other than minocycline and doxycycline which are in earlier stage of development, and also they serve and protect products that are being developed and have been developed for our partners such as Finacea Foam. So Finacea Foam is now covered by a number of patents in the United States and also patents throughout Europe.
[Operator Instructions] We will take our next from Ken Cacciatore with Cowen and Company.
Congrats on all the progress. Just following up on that point and then maybe talking a little bit more about the pipeline. Will you guys be disclosing soon any new proprietary formulations and then corollary to that, give us an update on 104 and impetigo, just wanted to understand what we are thinking as you are starting to move programs forward. Thank you.
Yes, Ken, I will address the first one on the pipeline and turn it back to Dov to offer any additional thoughts on the IP front. As I think everybody on the call can appreciate, now that we have got the top line data from our Phase II study in rosacea, we were thrilled, quite pleased in the results and as such, that has become a major priority for us is to advance that particular program and try to get into Phase III as quickly as possible. Significant reason for the follow on capital raise to help expedite that. So looking at our priorities and how we are deploying our resources, it's FMX101 and FMX103, are our biggest priorities.
As we shared before, regarding 102 and 104, as I mentioned earlier in the call we are continuing to progress those programs in 102 as we shared previously that the most imminent step was to conduct a photo safety study and that should be completed before the end of this year. And when that’s done, we intend to get back in front of the FDA at some point in time, likely next year, to see what would be the pathway to potentially progress that forward. And as far as 104 is concerned, as we have mentioned, this is a program that there is a lot for us yet to do everything from validating efficacy endpoints and looking to optimizing formulations. These programs are much earlier in development so we will continue to progress these but in terms of the prioritization of our efforts, especially now that we have got very positive Phase II data in rosacea, we are going to keep our focus, the major part of our focus and energy behind 101 and 103. And I think from there I will turn it back to Dov for any further comments on the IP.
Yes, Ken, good morning. As you know, we are very active in creating new technologies and filing patents for them and we intend to continue to do so. And that relates again to new forms of our minocycline and doxycycline because we have to progress and make new things, as well as other molecules that we are considering for development for value of dermatological conditions. As long as we don’t have to announce anything, we prefer to keep our early stage programs under the radar and if you don’t mind, we will continue to do so because we serve not only the financial community but also our commercial objective and we need to make sure that we protect our friends from competition.
That’s fine. Without disclosing, are there other studies going on in international markets that at some point maybe would be surprised to see small scale Phase I? It's okay, if you don’t disclose -- if you don’t want to disclose, just wondering?
We are actively working on that, Ken.
At this time I would like to turn it back to management for closing remarks.
Okay. Thanks, operator. And I want to once again thank everybody that participated on this call. This was another strong quarter for us. We are thrilled with the efforts that we have made to advance our major clinical development programs and we look forward to providing further updates on our next quarterly earnings call. And again just one final reminder, we do have the key opinion leader luncheon meeting scheduled for December 2 around 12 noon. Our investor relations firm, LifeSci Advisors, will be posting the details for that and hopefully we will get a chance to see or speak to many of you there. So thanks again. Enjoy the rest of your week.
That completes today's conference. We thank you for your participation. You may now disconnect.
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